According to Warren Buffet, "be greedy when others are fearful." And there's plenty of fear in the real estate world. There's still ongoing debate about whether we're going to see a correction or a crash, how rising interest rates (yes, they're expected to get higher) will impact buyers, and if real estate is worth it anymore.
We'll say this upfront right now: it's worth it.
The environment in which we invest is constantly changing. We were never going to be in ideal conditions for investing, let alone forever. The real estate cycle changes, and investors must adapt to those changes, good and bad.
Opportunities to invest in real estate are still out there and worth pursuing, even when things are a bit more challenging. The difference between investors who succeed through times like these and those that don't come down to one thing: due diligence. Risk management will make all the difference in the world – and that starts with knowing your market and strategizing accordingly.
2 Things We Know to Be True About the Industry Today
Housing markets are not uniform
Even during the Great Recession, which impacted virtually every real estate market similarly, the impact was not uniform. Some markets were hit harder than others, while more temperate markets were dealt a softer blow. Now is no different, and we're not even close to dealing with a real estate crisis of that scale.
Higher interest rates cause prices to drop in some areas, while they're stubborn to change in others. As such, specific markets are going to be more investor-friendly than others. Your job is determining which suit your strategy, risk tolerance, and investment goals.
Inventory is up
In January 2022, there was only 1.6 months' supply of inventory on the market, according to the National Association of Realtors. Right now, we're seeing 2.9 months' worth of supply. Though that's still far from the "healthy" benchmark of 6 months of supply, it's an improvement. As we know, tight inventory has been one of the reasons property prices are so stubborn to budge.
Increasing inventory due to increased construction efforts and lower demand gives investors more room to search out suitable properties. More options are never a bad thing. We've also seen median home price growth slow to 1.3% YoY. Upon closer inspection, we're seeing a decrease in the value of high-end properties and an increase in value on the lower end.
For investors, it continues to squeeze profit margins and makes due diligence all the more valuable.
Your Real Estate Market Will Determine Your 2023 Investment Success
Because market conditions aren't as warm and friendly right now, choosing the right market makes all the difference in the world. If you're considering investing in real estate or expanding your portfolio, here are some things you must do:
1. Know your market like the back of your hand
When investing outside your local market, it may be challenging to feel as though you know the area you're investing in. This is necessary work, though, especially if you aren't partnered with providers with insider knowledge and experience.
Get well-acquainted with the neighborhoods, development plans, amenities, economic landscape, relevant law, and trends in your markets. Pay close attention to real estate performance and statistics. It will help you know if you're making a stable choice.
2. Make the most of your finances
You can secure a significant advantage if you choose your markets relative to your own. Investors who target more affordable markets will find that their dollar goes further and scaling is easier. Compare the cost of living between where you live and where you want to invest. It will give you a better idea of what you can afford and if it will be a wise investment.
3. Leverage your partnerships
Anyone who invested beyond their local market knows the importance of having the right partners and vendors by their side. Leverage these partnerships. A turnkey provider, for example, will have already done the hard work of acquiring ideal investment properties. They'll also be well-versed in the markets they invest in.
Part of successfully investing out-of-area – and making the most of an advantageous market – is building the right network of supportive partners.
We built our team to have your back.
Benefit from our personalized service and hand-selected markets!
