Studies show that almost 30% of Americans favor real estate investment over other options when investing funds that are not needed for over 10 years. Buying real estate can be lucrative, but there are always obstacles to overcome. In this article, we’ll highlight the most significant challenges for real estate investors and share advice to maximize the chances of making money from bricks-and-mortar.
Challenges facing real estate investors
A 2021 survey of real estate investors flagged two key issues: the availability of inventory and price rises. The demand for housing has increased in the US since 2020 and this has pushed prices up. As demand rises, competition among buyers and investors becomes increasingly fierce. Houses sell faster when the demand is high and buyers may find themselves in a bidding war. A hot market can contribute to inflated prices, which pose risks for investors and buyers who want to make a profit on their assets. Statistics suggest that house prices skyrocketed in 2020/2021. The Shiller US National Home Price index rose by over 18%.
Rising demand for properties is problematic for investors because it makes it harder to make profits on an investment. The competition is more intense, and prices rise, meaning smaller margins. If you buy at a time when the market is moving very quickly and prices are peaking, there are also limited opportunities to sell at a profit, especially if you have a short-term investment in mind. A shortage of suitable properties restricts access to the real estate market for new investors and it can also prevent experienced investors from adding to their portfolios.
Price rises are a cause for concern for investors and buyers looking for a new home. If prices surge, the window of opportunity to make money shrinks and there is a bigger risk of losing money, especially if the market is unpredictable, or you favor short-term investments over long-term options. For investors who tend to make money by flipping properties, for example, high prices can make it extremely difficult to turn a profit. There is a risk of spending money, which cannot be recouped if the demand starts to fall and prices decrease.
Additional challenges facing real estate investors today include the rising cost of materials and labor and high interest rates. High prices for materials and labor push up the cost of renovating and fixing up properties, which squeezes margins. High interest rates also mean that it’s more expensive to borrow money and take out a mortgage.
Economic instability is an ongoing issue for investors across the world. In the aftermath of the pandemic, global economies have suffered. Even though restrictions have been lifted, life hasn’t got much easier for investors, with factors such as the conflict in Ukraine continuing to impact the economy. Instability is particularly concerning for real estate investors because it impacts mortgage offers and borrowing terms as well as affecting house prices.
What can real estate investors do to overcome challenges?
Real estate investment is often viewed as a relatively safe bet for investors in comparison with other options, such as stocks and shares and cryptocurrencies, but there are always risks. The best way to overcome challenges is to try to identify hazards and minimize risks.
One way to reduce risks for beginners is to seek advice from experts and people who have experience in real estate investment like Jon Paul Cirelli. Buying and selling properties may seem relatively simple, but it’s a complex art to master. There are multiple factors to consider when investing in a house or an apartment rather than buying a home. The primary aim is to make as much money as possible and this is not always straightforward. Speaking to experts and getting advice can help you to determine effective strategies, decide what kind of property investment to make and get your timing right.
Timing is crucial in real estate investment. In the current climate where demand and prices are high, there are additional risks. If you buy as prices are peaking, the profit margin is likely to be lower. This is particularly relevant to buying and selling quickly and fixing properties up. The cost of the purchase is higher, but materials and labor fees have also risen. If you add the cost of renovation work to the purchase price, it’s more difficult to make money if you plan to sell and prices start to fall.
If you buy when the market is hot or volatile, it may make financial sense to look for long-term opportunities. One option to explore is a buy-to-let. Rental prices have soared. According to a recent study, rental prices increased in 46 out of 48 states (information was not available for Vermont and West Virginia) between October 2021 and October 2022. If you buy a house and rent it out at a time when rental yields are increasing, you’ll earn a steady income until you choose to sell. If you sell at the right time, you could also make a generous profit on the property.
Trends and consumer behaviors have a significant impact on the popularity of properties and how quickly they sell. As an investor, it’s wise to monitor behaviors and try to tap into emerging trends. Once you have an ideal buyer in mind, learn about them and make sure you understand what motivates them to buy and how to reach them. Young people, for example, are more likely to search for properties online and take advantage of virtual tours and online bidding. There has also been a shift towards suburban and rural living, with more people working from home and buyers expressing an interest in gardens, open spaces and easy access to parks.
Real estate investing is fraught with hazards, especially at the moment. Current challenges include the availability of inventory and high prices. To succeed in the property game, investors have to be aware of potential pitfalls and obstacles and take steps to reduce risks and maximize opportunities. Seek professional advice, monitor the market, tap into new trends and explore different types of investments within the real estate sector.