If anyone has any doubts about the profitability of real estate, a look at recent appreciation data should put the debate to rest. According to the agency’s report S&P CoreLogic Case-Shiller U.S. National Home Price IndexSince 2020, U.S. home prices have soared 47% nationwide.
However, just as home prices can soar, they can also stagnate. The rollercoaster of interest rates we are experiencing right now and the potential for vacancies and repairs make real estate too stressful for many looking for a stress-free investment.
For those willing to stay calm and play the long game, real estate can be a great vehicle for passive income, retirement, and generational wealth—as long as you minimize your Take risks by avoiding common mistakes.
Why real estate is a good long-term investment
Before we delve into the dos and don’ts of investing, here are some facts about the current market that have recently highlighted some of the benefits of buy-and-hold investing.
20% growth in 12 months after COVID-19 outbreak
Low inventory causes home prices to rise at unprecedented rate 20% within 12 months Implemented nationwide immediately after the outbreak in 2022,Add to Individual home values and investment portfolios worth hundreds of thousands or even millions of dollars.
Since 1960, house prices have risen at more than twice the rate of inflation
“If home prices were simply keeping pace with inflation, the median home price today would be just $177,500, compared with $431,000 then. actually cost,” said Matt Brannon, who wrote a study for Science smart real estate.
Buyers need to make more money than before to buy property Home
A Zillo Survey finds homeowners need to earn 80% more than before to afford a home comfortably only four years ago. this This means that the rental pool for landlords will continue to increase.
Purchased with high interest Interest rate is better than waiting for interest rate fall
Buying a house in recent years has been like jumping on a runaway train and then hanging on for dear life. Although the growth rate has finally slowed down down, getting involved before interest rates fall and prices rise is a prudent move—as long as you can afford it. Yes, it may be cheaper to rent short-term, but you’ll be better off financially if you buy long-term.
“Capable buyers possible You’ll want to seriously consider looking for a home now, since housing costs aren’t likely to drop anytime soon. The increase in listings should be another motivator for buyers, Redfin head of economic research Li Chen said in a recent report. Report.
How to fight a protracted war
Today’s buyers need to keep a long-term strategy in mind when investing. Looking forward to finding one turnkey project The one who goes home cash flow From day one, this isn’t feasible unless you take on a mortgage or find a desperate seller and a great deal. Here are some safety tips for investing in real estate in today’s volatile market.
Buy investment property first
Homeownership is the American dream, but there are multiple advantages to owning an investment property before owning a primary residence, namely taxes (depreciation) and (when interest rates eventually come down) cash flow, not to mention appreciation (which all real estate enjoys) , mortgage repayments (provided by your tenants) and opportunities to trade on the home Chapter 1031 Exchange and defer capital gains tax payments.
because it is Renting a house is now cheaper than paying a personal mortgage In the short term, there is no financial advantage to putting money into a personal residence. Also, it’s worth it if you keep your debt-to-income ratio low plan Continue to invest and finance your trade.
Don’t accumulate more property than you can afford if things go bad bad
One of the golden rules of real estate investing is “expect things to happen” Incorrect, Because they usually do. Help is often needed when an investor owns multiple vacancies or repairs at the same time. That’s why maximizing your income through working full-time or liquidating assets will help you plan ahead when uncertainty arises (and it always does).
House flipping can be a huge help
Finding below-market deals in the current low-inventory market is difficult, but they still exist. With prices rising rapidly, well-renovated homes in the right neighborhoods will sell quickly. Increase your income through some flip Will allow you to build your rental portfolio.
according to wall street journalAuction.com, an online marketplace for distressed properties, estimates that between 2021 and 2023, approximately 654,000 U.S. homeowners far behind A mortgage when it is sold, usually to an investor. High interest rates are likely to push that number higher this year, creating opportunities for property speculators.
Sacrifice “paper” cash flow to invest in strong communities
this yes Mistakes Many New Investors Make: They calculate cash flow based on the cost of the property, its expenses, and the rent it generates. In theory, the homes with the most cash flow will always be in lower-end neighborhoods because they have the lowest costs. However, these investments will always create your biggest headaches, such as rent arrears, repairs, and tenant turnover. They will also always appreciate the least.
if Do you want to be in the real estate industry for a long time?Invest in B-grade or above communities. What are you No Be aware of cash flow early in life and you will make up for it with appreciation.
Think big
The residential market may be low on inventory, but the commercial market is to have A auction.
Want to buy commercial real estate Being in trouble doesn’t necessarily mean buying a skyscraper in a big city. Many small office spaces are also in trouble. Check out commercial real estate listing sites like LoopNet and CoStar to help identify deals within your price range. Forming a federation can help you pool your resources. Purchasing and repurposing buildings into residential uses or alternative demand businesses such as data centres, vertical farming, hospitality and leisure will help you secure lender funding to achieve cash flow Adaptive Reuse Project.
final thoughts
The current real estate market is about survival now and prosperity in the future. For the average investor without a lot of cash, this means living on the ground floor and keeping discretionary spending to a minimum to continue buying investments, calculate down payment and repairs.
Due to high prices and high interest rates, Cash flow will inevitably take a back seat. It’s important to calculate a metric that works for you so that you’re not over-leveraged and you’re not unduly stressed if your apartment sits empty for a month or two. this bigger The greater the difference between your living expenses and your income, the more money you can put into real estate.
The important thing is, if you can afford it, get in the game now and don’t wait for interest rates to drop. When they do, you can always refinance.
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Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.
