2024 seems like it will break out of some of the downward real estate trends we’ve seen due to rising interest rates and inflation. While it’s unlikely we’ll see a break-out year for real estate, signs indicate that conditions will warm up to buyers over the next few years.
Obviously, the market is still tight. Profit margins are narrower, and investors must be particularly vigilant about their financial decisions. Even as some pain points are alleviated in the coming year, investors must carefully manage their risk exposure!
Here are your risk management guidelines for the new year.
6 Simple Rules for Managing Risk Exposure in 2024
#1 – Invest in the right markets.
In the wake of the pandemic, we often reported the wisdom in focusing on Sunbelt markets. This stretch of states across the South from coast to coast provided more real estate bang for your buck. Pandemic-era migration funneled towards these markets, where land, space, and square footage were more abundant. As with any real estate investment, though, location can be tricky.
According to GlobeSt, the seven metro areas where investor purchases declined fastest were all in the Sunbelt: Atlanta (49.7% drop), Charlotte (-49.6%), Jacksonville (-48.2%), Phoenix (-47.4%), Las Vegas (-43.3%), Orlando (-42.6%) and Tampa (-41.3%).
Does this mean investors should pull out of the Sunbelt? No! You’ll notice that these markets are larger and historically pricier than the rest of the region. Many are in Florida, where home insurance challenges no doubt discouraged investors from taking the risk.
The key isn’t to avoid the Sunbelt – it’s to target the markets that suit your needs, effectively diversify your portfolio, and provide reliable, steady returns. You’re not looking for the hottest investment spot. You’re looking for reliability.
#2 – Pace and plan portfolio growth.
While portfolio diversification is essential, investors better mitigate risk when they pace themselves. The last thing you want to do is grow too quickly, resulting in overleveraging and underfunding. Scale as it makes sense for you – not just because it’s something you’re supposed to do. Don’t try to keep pace with other investors. Instead, talk to your portfolio advisor – the professional who knows you, your goals, your finances, and your fears – to determine when and where to scale effectively.
#3 – Keep a handle on your debts.
Speaking of overleveraging…debt can be an investment killer. High-interest debts can drain your spending power and hurt your creditworthiness. When interest rates are high, we must take extra precautions to protect our credit scores and reputation with lenders. Avoid falling back on credit cards and make wise use of leverage.
#4 – Stick to time-tested strategies.
Sometimes, we need to go back to the basics. Many investors get spooked when the market gets tough. We’ve seen fair-weather investors before. They’re the type that jumped in when the Great Recession made investing in real estate a no-brainer and jumped out when there weren’t as many easy deals on the market. The same can be said for the pandemic when interest rates hit rock bottom and when they climbed back up.
You won’t build lasting wealth this way. There are many ways to invest in real estate, but we know through experience – over twenty years of it – that a long-term, buy-and-hold approach is what it really takes. Refresh the fundamentals, and don’t panic.
#5 – Focus on reliability, not hype.
Some investors are desperate for the next big thing. In many ways, we need to accept the new state of the real estate market. We’ll have to pivot our strategies and adjust some standards. But ultimately, the key to managing risk well is to ignore the hype. When you hear about it, we guarantee it will be too late. The people who benefit from market hype are the ones who invested in it a long time ago.
Don’t get wrapped up in emotions and excitement. Pick the boring investments. Choose markets that don’t move much but move in the right direction. Less market volatility means less risk, period.
#6 – Keep your eye on the prize.
Finally, we encourage investors to stay focused. It’s so easy to lose sight of your goals. We get distracted by fears and anxieties, possibilities and pipe dreams. Keep your eye on the prize. Don’t worry about what other investors are doing. Think about your goals. Pick investments that serve those goals. Trust the professionals.
It’s so much harder to go wrong when you keep your goals at the front of your mind.
Questions? We'll help you, like we've helped investors build their real estate portfolio for over twenty years.