Why Now is the best time to invest in REAL ESTATE
SUPPLY AND DEMAND!
The supply of single-family homes is down, yet competition among buyers is driving sales up and prices keep rising — at times dramatically, including by 16 percent in Oakland during the first half of the year, according to a new report.
“Nearly every home that hits the market sells, and it sells quickly,” said David Stark, a spokesman for the Bay East Association of Realtors. (read more here….)
If you have been on the fence about getting into real estate investing, now may be the best time to take that first dive into this business. Real estate has seen its highs and lows over the past decade.
Due to the subprime mortgage housing crisis, many investors jumped ship when it came to this business, and ever since then, there still seems to be whispers of hesitation to enter back into this market.
However, in recent years, there appears to be an upswing in the real estate market, prompting experienced investors to return and even inspiring confidence in newbie investors to try their hand at investing.
Investors are Dropping Hedge Funds For Real Estate
Because of geopolitical risk and high fees, investors are telling hedge funds thanks but no thanks. Instead, they’re putting their money into real estate.
At the end of the second quarter, wealthy investors had 33 percent of their portfolios in real estate, according to a survey by Tiger 21. Bloomberg reported that the average allocation in hedge funds by those who took the survey fell to a record low of 4 percent. The survey included Tiger 21 members whose assets range from $10 million to $1 billion.
“Our members are most comfortable with assets they can have direct ownership of. They can own a building or a part of a small company,” said Michael Sonnenfeldt, founder of Tiger 21. “When you have such a low ability to produce returns you go to income-producing assets.” (source)
Here are the top reasons why now may be the best time to invest in real estate.
Home prices are rising
One of the first signs that the real estate market is seeing improvement is that the prices of homes are steadily rising. According to a study conducted by CoreLogic, “national home prices were 5.7% higher in June compared to a year ago.” Some areas are seeing astonishing levels of growth, specifically Washington, Oregon and Colorado, which have experienced a yearly price gain over 9%, the three highest in the country according to CoreLogic’s data.
Yahoo Finance reported that “June is the 52nd consecutive month where U.S. median home prices increased on a year-over-year basis.” This rise in prices could be due to the lack of inventory in the market, which is driving prices up and giving investors the opportunity to capitalize on these investments.
The rental market is growing
The rental market for real estate investing also appears to be seeing a change for the better due to this lower inventory of distressed properties which is raising the prices of rentals, giving buy and hold investors important insight into where to invest based on the current market trends.
In a recent webinar hosted by Dennis Cisterna, chief revenue officer for Investability, he discussed how the current single family rental market is experiencing a growth spurt. He attributes this to the stabilizing economy increasing demand for rentals, the lower inventory leading to rising prices, and the difficulty people are experiencing obtaining mortgages as reasons why they are moving more towards renting.
He further explains how investors are branching out to markets outside their local areas: “In 2016, people want to invest in markets outside their own neighborhood because if you want to buy a rental property and live in Southern California right now you’re going to spend over $400,000 and possibly not even have any positive cash flow in year one.”
Foreclosure levels at the lowest since 2000
Another important sign that the tides are turning in a positive direction is the fact that foreclosures are on the decline. MarketWatch cites data compiled by Black Knight Financial Services that show in the year 2000, the number of foreclosures was 114,310 and now in 2016, that number has dropped to a staggering 77,657 compared to its peak between 2008 and 2010 of about 650,000 foreclosures reported.
These numbers should further prove how the economy is seeing a change for the better, another indicator for investors to try and get into the business while the market still is primed for it. Less foreclosures mean homeowners have the money to pay their mortgages so banks aren’t coming in and taking away their investments.
The future for investors
If you are new to investing or were involved in the business before and took a break due to the uncertainty of the market, now may be the best time to get back in and start building those investments for the future. Take the rising home prices, the growing rental market, and the low levels of foreclosures as signs of a better real estate market ahead for all investors
You work hard for your money, but does your money work hard for you? When you store your cash under your mattress (or in a bank if you aren’t a weirdo), it will produce next to nothing. However, when you put money into an investment, your dollars go to work for you.
Plain and simple: Investing is how you become wealthy.
But what is the best “job” for your dollars? How can your money earn the most and offer the least risk? In my opinion, one investment stands head and shoulders above the rest: real estate.
Yes, real estate is subject to timing; and there are times when real estate is not the wisest investment. However, I believe that right now might be the greatest time to buy real estate that we’ll see for another decade or longer. Here are seven reasons why.
Interest rates are incredibly low.
Although the “Brexit” scandle that just rocked the world and caused financial markets to tumble, there is one segment of investors who will benefit from the news: those with money tied up in real estate. Why? Two words: Interest rates. Low interest rates lead to low monthly payments, which is great for real estate investors looking to maximize their profits.
Interest rates, which have been at historically low levels for the past decade, have been slowly climbing over the past year, and until recently, most analysts believed that a series of rate hikes from the U.S. Federal Reserve was coming soon. But, with the shaky markets, the opposite has happened: Interest rates have dropped. According to a recent article, “The probability of a federal funds rate hike at the Fed’s next three monthly meetings has collapsed to 0 percent, and traders are assigning a less than 8 percent chance of a rate increase at all this year.”
Several years from now, we’ll look back and say, “Remember back in 2016 when you could get a mortgage under 4 percent? Those were the days!”
Banks are lending once again.
In the collapse of the real estate market in 2007 and 2008, many banks tightened their lending standards to such a degree that obtaining a mortgage became next to impossible for many Americans. However, gradually over the past several years, banks have once again begun opening their vaults and relaxing their standards.
No, this doesn’t mean you’ll be able to obtain a 125 percent loan-to-value mortgage with no money down based only on “your signature,” as you may have done during the mid-2000s, but if you have a job and decent credit, obtaining a fixed-rate loan shouldn’t be impossible.
Prices are reasonable.
Yes, real estate prices have climbed significanlty from their 2011 and 2012 lows. However, for those willing to hustle to find great deals, great deals can be found. This is especially true for investors who buy bank foreclosures. According to RealtyTrac, there were over 100,000 foreclosure filings in May of 2016, showing only a mild decrease over the past year.
Technology has made investing significantly easier.
In the “olden days,” investing in real estate took a significant amount of driving around, talking to people, waiting, looking at hundreds of pages of documents and other difficult, time-consuming tasks. Today, technology has made investing in real estate significantly easier. For example:
- Advertising units is as simple as posting to Craigslist.
- Screening tenants can be done online through a number of screening services.
- Handyman and cleaning services can be ordered online.
- Tenants can pay rent online rather than in person.
- Your agent can set you up with automated email alerts for new listings.
- You can take virtual tours of neighborhoods using Google Street View
- You can invest in real estate passively through crowdfunding websites.
And so much more. Today, a real estate investor barely needs to leave the comfort of home to manage a portfolio of rental properties, thanks to technology.
Your job is unstable.
While you might think you have a stable job, job security is not what it once was. Employers are all too happy to let go of hundreds or thousands of employees just so the price-per-share might increase a few percentage points. Efficiency is the name of the game, and your job might be on the chopping block.
Today, the best job security is enjoyed by those who take an active interest in gaining skills and knowledge that can be used elsewhere. Real estate investing is one of the greatest ways to gain financial independence so your job can become optional rather than required.
Ten years from now you’ll wish you had started today
Finally, let’s talk about the big one: Investing takes time. I’m not promising you that tomorrow you’ll be rich if you start investing in real estate today. But I am telling you that in ten years you will likely look back at 2016 and say, “Why didn’t I start back then?”
As previously noted, we are now at a unique point in history where real estate investing just makes sense. Wait too long and you’ll miss out.
Of course, I’m not telling you that any piece of real estate is going to make sense. You still need to understand what you are doing. You still need to do the math correctly. You still need to hustle to find the 1-in-100 deals that actually makes sense.
But for those willing to do the work? The timing couldn’t be better.
WAIT! Are you already a member of the Investor Newsletter? Be sure to check your email and spam for the welcome email and whitelist so you never miss an issue.
NOT A MEMBER? Would you like to get all future and back issues of the newsletter? Then Click Subscribe Below to see all the details and get on the list