High Interest Rates And Market Volatility Offer Challenges And Unique Opportunities.
Investing in real estate in today’s volatile market can be challenging. Add in high interest rates, and the challenge only increases.
Still, prime investment opportunities exist even in this uncertain market.
Let’s look at how you can find them amid all the noise.
Evaluate The Market
With real estate investments, it’s not just what you buy outs also when you buy. For example, if you bought into some top short-term rental markets a decade ago when Airbnb was just taking off, you would have gotten great mortgage rates and bought into what are now considered prime locations. Making that same investment today may still be profitable, but high interest rates and high competition will likely squeeze your profit margins.
So, if you buy when market conditions are favorable to you, your investment could quickly become profitable. On the other hand, buying that same investment in more of a sellerís market could mean that you have to wait several more years before you start realizing profits. Of course, in a volatile market, it may not be easy to tell when the tide has turned into a clear buyer’s market.
In general, investors need to make a judgment call and try to buy when supply exceeds demand and when they can secure favorable terms.
More adventurous investors can also use real estate investing apps that offer cutting-edge analysis alongside easy access to markets.
Don’t Be Timid
In a high interest-rate environment, many buyers will be pushed onto the sidelines. That means there will be less competition for prime investment opportunities. So, if you have enough capital to buy during these periods, you should but only if you do your due diligence and are certain it is a high-quality investment.
Of course, your financial approach will need to be different from when you purchase in a low-interest≠rate environment. Instead of using investment loans to buy a property, investors can consider buying in cash for added safety.
Do Your Due Diligence
If you’re investing in a volatile market, it’s imperative that you thoroughly examine the property and its financials before you buy. Investigate the neighborhood by visiting at different times of the day and on different days of the week. Research the address to see if there have been any incidents there in the past. Review the local crime rate, the disclosures, proximity to amenitiesóany information you can get.
Don’t just look at the past and the present try to anticipate where the market is going. Looking at stats like the latest moving trends in the U.S. can help you see where the market may be headed and get ahead of the curve. Any slight edge you can get by doing intensive research will help you find better deals and avoid bad ones in a challenging market.
Illiquidity Can Be Good
One of the reasons real estate is such a great investment in a volatile market is that it’s not as liquid as other places where you can put your money (e.g., stocks or mutual funds). When the stock market is volatile, traders often sell after a small downturn to avoid taking bigger losses (and often miss out on far bigger gains when the market recovers).
Real estate can’t be sold at the drop of a hat, forcing investors to think on a longer-term basis. Most real estate investors buy property with a plan to hold it for at least two years to a decade. Remember, just because a market is volatile doesn’t mean it’s not still heading upward overall.
Zoom In
Real estate is highly local. Although the overall market may be trending sharply up or sharply down, the factors that drive real estate can change from metro area to metro area. Don’t make the mistake of trying to evaluate the property down the street through the lens of big-picture trends. It doesn’t matter if commercial properties are down overall in the
U.S. if the office building in your suburb is in massive demand.
Seek Professional Advice
Even experienced investors sometimes need someone else’s informed opinion when it comes to uncertain deals in a volatile market. In many cases, insights can come from a trusted real estate agent, who can truly earn their commission with sage advice. Financial advisors and other investment consultants can also provide a more detailed financial perspective on a given deal and the current interest rate situation.
Stick To The Plan
A volatile market means there will be a lot of ups and downs. If you get caught up in the daily or weekly picture, you’ll cause yourself unnecessary stress. When you burn out, you’ll probably cash out your investments far too soon.
If you plan to invest in a volatile market, you must come up with a long-term investment strategy and stick to it. When the market drops and it will, repeatedly you have to keep your mind on your future goals instead of reacting to every little fluctuation. Following a big-picture plan will help you stay above the short-term turbulence and white noise.
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