Everything changes, and what once seemed certain can change quickly. The real estate market, particularly for investors, is as vulnerable to shifts as every other investment vehicle. Knowing how to read the market will help you decide whether it’s a good time to jump in on investing trends or wait things out.
Each of these trends signals a time to back off and wait it out:
It’s a human nature to find strength in numbers, especially in real estate investing, where the stakes are high. Few other purchases have as high a financial barrier to entry as real estate, and people find validation when they follow market trends. However, using market performance from the near past can be misleading. In the mid 2000s, part of the downfall of the housing market occurred because real estate speculation was rampant. The statistics were on the investor’s side: Home values were escalating and time on market was short.
Unfortunately, reading the market using just those indicators to predict future market performance is a lot like driving a car down the road by navigating from the rear view mirror. Had the speculators looked deeper, they would have discovered that jobs and incomes weren’t increasing. Home prices were skyrocketing, and those who bought late were paying top-dollar for a shrinking buyer or renter pool. Tools to help you identify when it’s a good time to invest and when to pull back include industry authorities like:
These organizations have robust research reports that will give you information about the health of the economy and its relationship to the real estate market. The National Association of Realtors and Marcus & Millichap give you access to real estate indicators at local levels.
Although they don’t change quite as fast as women’s fashion, trends in home features change over time, especially in upscale housing. However, before upgrading to the new, trendy must-haves, assess the niche for your rental property and choose to make improvements carefully. You may not be able to recover your investment in either higher rent or added value when you do sell. The reverse may be true as well. When you have a property located in an area that’s undergoing a renaissance, not making improvements could limit its income potential for you.
There’s no question that being a real estate investor requires time, and if you’re tied up in career or family matters, it may not be a priority for you. If you’re torn when a solid deal comes your way and time is your limiting factor, consider using a property management company who will assume the majority of the work for you.
Competing against new home subdivisions and apartment projects may be challenging for small investors. Home builders and apartment developers have deep pockets and will use financial incentives to sell or rent their units. Even if you have no trouble keeping the rental occupied, property values rise more slowly in areas of new building because the new supply coming online tends to slow appreciation. Staying on top of the indicators that drive housing demand, whether it’s for-sale or rental, is key to knowing when it’s a good time to invest, stay put, or sell. Devoting some time to reading the market pays off in your ability to make educated decisions about timing, which in the investment world, is everything.
Talk to one of our investment specialists to learn how JWB can help you earn passive income through long term real estate investing.