Real estate is considered the best and most effective way to create passive income and generational wealth. No other investing model has been more responsible for creating millionaires and allowing people from different walks of life to experience freedom.
The real estate investing world is subject to many different forces and factors in the market, and before you get into real estate, there are things we need to be aware of so we can position ourselves for long-term success. We’re coming out of the pandemic, a very unique circumstance that has affected our economy significantly, and for investors, this worked for or against them, and that comes down to strategy.
As a real estate investor, you need to be aware of what’s happening so that you can tailor the strategy you’re using to build wealth for the times you’re navigating. Here are 3 issues we need to be thinking about as we invest, and potential ways to mitigate them.
Rising Interest Rates
For over a year, interest rates have been historically low and this has also impacted the market in very unique ways. As an investor, this is the perfect time to take advantage of interest rates to find opportunities that can allow you to grow your portfolio because this phase won’t last forever.
For example, you can take advantage of low-interest rates by using home equity and getting a reverse mortgage to give you some capital for another investment. According to All Reverse Mortgage, “interest rates are a primary factor in determining how much money you can receive. Borrowers with the lowest rates will typically receive more proceeds and overall benefits of their reverse mortgage. In addition, lower rates mean better performance of equity retention over the life of the loan.”
Many real estate investors use a method known as BRRR – meaning buys, renovate, rent, and refinance. They borrow the equity from one property, to put it into the next property and continue doing that to build up a large investing portfolio. You can take advantage of low-interest rates to do this in a more profitable way. Interest rates will rise and the opportunity will change, so taking advantage of it right now is wise.
A very fascinating trend has emerged out of the post-pandemic investing world and financial landscape, and that’s Wall Street big investors, hedge and pension funds buying residential real estate. This isn’t just them investing in a few homes here and there, investing firms are buying up entire neighborhoods and locales. If you turn on the news, you’ll see many reports about this new phenomenon, and what’s driving it, but the question is what does this mean for your investment portfolio?
Well for starters, this is going to put more pressure on an already scarce real estate market. States across the country are experiencing historically low levels of inventory, and that means whatever is on the market is selling for a lot more. These markers are very tricky for investors.
This means you need to approach investing in property very carefully. In real estate investing, you make money when you buy – you need to have a good deal right from the beginning. Many people make the investing mistake of rushing into a market that appears “hot” but this can actually lead to massive losses down the line.
One of the effects of a low inventory market is how it has shifted the behavior of homeowners who want to sell their homes. Most sellers are very reluctant to put their homes on the market right now, because they fear that they won’t be able to find a new home in a highly competitive market.
If you’re an investor who is seeking homes to buy and wholesale or buy and flip, you have to be aware of the fact that the process might take a lot longer to get someone out of a house.
You might have to accommodate them through additional terms to the sale so that they aren’t too worried about where they are going to go. Because it’s a seller’s market, the good news is that the homeowners will make a lot more money right now, which can allow them to do a short-term rental while they look for something permanent. The smartest real estate experts pay attention to what’s happening in the greater economy because it informs how they buy or sell properties. Real estate is considered a lagging asset class, meaning that the economy doesn’t affect it instantly, but takes a few months for the impact to be seen and felt. Keeping your ears open, studying other markets, and having flexible strategies is what will give you staying power and long-term wealth.