A decade of underbuilding led to a housing shortfall of 3.8 million units in 2019 – before the pandemic further exacerbated the issue with labor and supply chain problems. In other words, we’ve been building up to this housing supply crisis for a long time. It didn’t come out of nowhere.
Affordable housing has been hit particularly hard as builders target higher price points to offset rising construction costs. Housing is tough to navigate, especially if you want a deal.
Investors and homebuyers alike are facing a hostile housing market. But that doesn’t mean all hope is lost! Every stage of the market cycle provides opportunities for real estate investors that are willing to put in the work and adapt.
As with any business venture, we must be able to feel the pulse of the market…and pivot accordingly!
5 Strategies for Adapting to Short Supply
1. Bank on BTRs
The build-to-rent (BTR) sector is only growing. In 2021, the stock of new BTR units increased by 47%. BTRs accounted for 6.9% of all new single-family construction. To put that in perspective, between 1975 and 2007, BTRs made an average of 2% of all new single-family builds.
They also boast occupancy rates of 97%.
BTRs alleviate the strain of short inventory. Rather than converting existing single-family homes into single-family rentals and further shrinking the traditional housing supply, new inventory is created. Investors reap the benefits of properties specifically designed with rental needs and maintenance in mind. They’re properties people want to rent. Maintenance demands are less expensive, too, for two reasons: the properties are new, and the properties are designed for durability from the ground up!
2. Cut out the competition
Real estate investors, unfortunately, aren’t just in competition with one another. If you’re hunting for properties alone, you’re likely competing with average homebuyers, too. The MLS can get crowded quickly! Multiple offers are still common, and newly listed properties can be snapped up in a single weekend. This fierce competition can push investors to compromise their standards or utilize less leverage in favor of all-cash offers.
Investors need to cut down on the competition where they can. This means looking at BTRs and utilizing turnkey companies that sell exclusively to real estate investors!
3. Re-evaluate investment markets
No two investment markets are the same. Short supply means our options are limited, but there’s more breathing room in some markets than others! Part of investing in real estate is determining where you need to be – finding that balance of affordability and robust demand. Look where you are. Should you continue buying in this market? How are your current properties performing?
Are there more opportunities somewhere else? Even if you stay exactly where you are, investigate your options.
4. Maximize existing equity
If investors pause portfolio growth, they should focus on what they have. Your existing properties can always be improved upon. What do your expenses look like? Is there room to strike a deal or reduce costs? What renovations or additions will add value to your property in terms of forced appreciation and rental rates?
Work to maximize your existing equity. It will put you in an advantageous position when it’s time to start buying properties again.
5. Slow down acquisitions
While some companies will try to make the sale regardless of the customer, we know better. Your individual needs, goals, and access to resources will determine which investment strategies are right for you…and which aren’t. We will tell a would-be investor if we don’t sound like a good fit for what they want.
In the same way, existing investors shouldn’t acquire investment properties just for the sake of growth. Portfolio growth must be intentional and strategic – with each property playing a specific and defined role.
The state of the housing market might demand that property acquisitions take a back seat. Don’t get us wrong – portfolio expansion and diversification are vital to building wealth through real estate investing. At the same time, waiting for the right opportunities is better than compromising your standards or overextending your resources.
Ultimately, different stages of the market cycle demand different things from investors. They each come with their own opportunities and risks. What matters is that investors are prepared to adapt and pivot their strategies to make the most of this season…even when inventory is lacking!
Ask us why SFRs—including recently renovated and build-to-rent properties—are what we've specialized in for 20 years.
