There may be no time like the present to take action.
As a real estate investor, you’re probably wondering what the single-family rental landscape will look like for the rest of 2023. The short answer is that buy-and-hold real estate investors should, after years of extreme volatility, have a relatively stable landscape to navigate for the rest of 2023.
Although the past year has definitely left its mark on long-term residential rental financing options, investors who wait too long for perfect conditions may miss out on some good opportunities. In other words, to avoid missing a potentially profitable deal, sometimes it’s better to jump in when things look pretty good instead of waiting. Inflation should start to moderate, interest rate hikes will likely slow down, and home prices are expected to stabilize. The combination of these factors should create a good environment for rental properties.
If you’re a buy-and-hold investor considering investing in rental properties, you should know a few things about financing. When it comes to financing rental properties, you’ve got two main options: traditional bank loans or creative financing. Which one you choose depends on what you’re trying to achieve.
The main difference between a conforming mortgage for your primary residence and securing a rental investment loan is that lenders see the latter as riskier. That’s why investment property loans carry higher interest rates and fees, higher down payments, and sometimes stricter qualifying requirements than traditional mortgages.
If you’re investing in an area where things are moving slowly and you’re not in a rush to build up a portfolio of properties, a traditional loan from a bank might work for you. But if you’re trying to grow your business quickly, or time is of the essence, you might need one of the more flexible and fast solutions other financing options offer (e.g., a DSCR rental loan from a private money lender).
As a buy-and-hold investor, you should consider a few things in 2023. First, although loan rates are higher than they were a year ago, that doesn’t necessarily mean it’s a bad time to buy. In fact, lower rates in early 2022 drove up competition for available properties, driving sky-high valuations. However, although property values have fallen, the downturn is expected to be short-lived and modest: less than 10%. Investors should not be expecting a Great Recession-style collapse.
So, if you’re interested in building a long-term residential rental portfolio, there’s no time like the present to take action. Yes, competition is low right now, but that won’t last forever. As soon as people get wind of lower interest rates on the horizon, the market will heat up again. Especially in strong rental markets, waiting too long could mean missing a great investment opportunity. So, get your financing in order and start your search today!