Although uncertainty remains in the real estate market and broader economy for years ahead, there are opportunities for real estate investors to stay active in the market while investing wisely. As the market continues to correct from the highs of a seller’s market in prior years, raised rates and falling affordability are likely to continue to soften demand for housing, bringing prices down. No one has a crystal ball for what is to come, but investors want to know how to protect their businesses during uncertain times. What strategies can you utilize to remain active and profitable as the market softens?
1. Buy Deep
For most investors buying deep has always been an important strategy. However, the seller’s market of the past few years made buying discounted properties rare in some markets, leading investors to pay higher prices — banking on above-asking offers and bidding wars to turn a profit. But as fewer buyers enter the market and sellers lose power over their pricing, investors are better positioned to negotiate deeper discounts. Regionally, many factors will drive how that local market responds, so investors should study the market they are investing in. What changes in pricing are you seeing? Is there more opportunity to leverage with sellers and pay less for an investment property? Paying too much for investment may lead to loss as regions shift away from a seller’s market. If you buy deep, even if the market declines, you could have purchased at a price that allows you to turn a profit.
2. Flip with Caution
Flipping is a risky proposition, even more so during times of uncertainty. While there may be large profits in rehabbing properties, there’s also a chance that you could lose big, especially during market shifts. Experienced rehabbers know that completing a project on time and on budget is essential, no matter what the market, as unforeseen repairs and additional holding costs will burn away profits. This is especially true during market changes, as the rapid appreciation of prior years is less likely to be seen. While there is always opportunity in rehabbing, extra caution and conservative underwriting are prudent when markets shift.
3. Invest in Less Volatile Markets
While some heated markets like Austin or Phoenix saw high post-pandemic appreciation, these may also be areas where prices fall off faster as the market shifts. Avoiding overheated markets may help protect investors. Where, then, should investors look? Many factors drive a real estate market, including population growth, wage growth, economic diversity, and average income. Rather than following the excitement of the hottest markets, consider investing in smaller, less well-known cities with a predictable history of growth factors.
Investor Loan Source, a private money lending company, provides high-quality investment property loans to private real estate investors at the lowest costs possible. Our process for providing real estate investors with private lending is unique. We place emphasis on the hard asset and value of the collateral (property) and less on the borrower. Our asset-based real estate investment loan model means we can provide more money lending to more investors than is available from standard bank loan models. At Investor Loan Source, providing real estate investors hard money loans is our business; it’s all we do. We offer several business real estate loan products designed to serve a variety of investors and property profiles, including private money lending for properties to sell on owner finance.
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