Why Savvy Investors and Entrepreneurs Are Stepping into Property
For several years, the real estate market has been smooth sailing for investors and homebuyers. As the pandemic struck in 2020, historically low-interest rates combined with low inventory as would-be sellers put off their sales to push selling prices higher. According to the U.S. Census Bureau and U.S. Department of Housing and Urban Development, the median sale price of houses sold between Q4 2019 and Q2 2022 rose from $327,100 to $440,300 – a colossal rise of more than 34%.
The history of real estate teaches us two things:
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As a long-term investment, real estate tends to do very well as an investment asset
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Big price spikes are often followed by price reversals
What you want to know is this: is it a good time to invest in real estate or real estate franchises?
The myth of the impending burst of the housing bubble
Will the price bubble that has been inflated through the pandemic burst with a bang? Inflation is high. Interest rates are rising. It’s tempting to think back to 2007/8 and be nervous about home prices following the same pattern. But this would be considering only half the story.
Today, there are still plenty of jobs available and payrolls are rising faster than expected. In the big scheme of things, mortgage rates are still low.
Perhaps most crucially, today is very different from the financial crash of 2007/8. We don’t suffer from loose lending practices. Lending is now highly regulated. Buyers travel through a thorough underwriting process before being accepted for a mortgage. Subprime mortgages are a thing of the past, and we are unlikely to see the level of foreclosures that we have seen previously.
House price increases may have been accelerated by a lack of supply, but they are founded on real and affordable demand.
Monthly rents are increasing fast
Real estate investors have rarely seen a rental property market as hot as it is today. Rent prices are rocketing – up as much as 30% in a year in some locations. For investors who are seeking to buy and hold residential investment properties, the outlook is still good – market prices never move in a straight line, and the dip could be far less pronounced than some may believe – there is still high and growing demand for homes: and cash flow improves when rents are rising.
Supply and demand are more balanced today
Real estate prices may be cooling, but a big freeze doesn’t appear to be on the cards. Indeed, if it weren’t for the recent rises in interest rates, would we be talking about a price shock?
Perhaps the Fed has it right, tempering price rises to help the economy adjust more smoothly and dampen inflation. As affordability reduces, potential buyers drop out of the market. For the first time in a long time, we have started to see ‘price reduced’ banners on listings – and that means there are bargains to be struck.
Interest rates are still low
Sure, interest rates are rising, but they are still low when we look at historic rates. And that’s good news for buyers who get in now and fix their mortgage rate. Have we been through the cycle of low-interest rates? Are we coming out on the other side? Whatever the answer, mortgage interest rates are still affordable. Wages are rising. There is strong demand for housing. Rents are rising.
So, is now a good time to buy real estate?
There are many strategies for investing in real estate. However, speculation should never be one of them. What do I mean?
Real estate speculators buy houses in the hope that they will be able to sell them quickly and bag a big profit. When real estate properties are rising fast, like in the last 12 to 24 months, this strategy can work well. But in normal markets, it can often be a bust strategy – and the longer it takes to sell, the more the mortgage payment will bite into potential profits. Prices never rise in a straight line. They fluctuate over time, with up and down periods. Therefore, a long-term strategy works best.
If you have the right investing strategy – whether that’s refurbing, holding, renting, etc. – now could be a fantastic time to start investing in real estate. For all the reasons we’ve highlighted above. And it could be the perfect time to step into ownership of a real estate franchise.
In our next few articles, we will explore real estate franchising in greater detail, starting with our article ‘Is it a good time to buy a real estate franchise?’ in which we discuss wholesaling of real estate properties and introduce you to a fantastic franchise opportunity in this space.
Could a real estate franchise be a good business for you to start?
Take our franchise aptitude test today. It’s the first step to success as a franchisee.