2 threats and 2 opportunities for real estate investors in today’s market

From high interest rates and inflation to a wildly fluctuating stock market, investors are trying to keep up with a lot of bouncing balls right now. What might have been an incredible investment in the not so distant past might be questionable now, and vice versa.

So if you’ve recently considered investing in real estate or expanding your real estate portfolio, but are now afraid to move, that’s understandable. But don’t let fear keep you from exploring the unique benefits you could enjoy as a real estate investor right now.

In the interest of navigating this strange environment with eyes wide open, let’s take an honest look at some of the threats real estate investors face. Next, we’ll explore some of the exciting opportunities that emerge from all of this that might be worth checking out.

Image source: Getty Images.

Threats

High interest rates and low housing supply

If you’ve recently considered buying a rental property, you’re definitely onto something. Long-term homeowners are unlikely to encounter vacancy problems in today’s high-cost, low-supply housing market. As a result, they can also charge considerably more rent than just a year ago.

Meanwhile, vacation rental owners are also cleaning up. As people are ready to travel again, short-term rental data analyzer AirDNA reported that rental property hosts actually recorded their highest annual income last year, and forecasts for l future are also promising.

But while interest rates have recently come down a bit, averaging 5.10% at the time of this writing, they are still significantly higher than the 2.95% average we saw there. a year ago. It might be worth doing the math if you find the perfect rental property at a great price, but you might find that now is just not the best time to buy a rental property.

Oppressive rental regulations

But what if you already own a rental property? It’s fantastic, isn’t it? We probably will. The exception would be if your property is located in an area with regulations that could make your investment more difficult and/or less profitable than it is worth – or even prohibit you from renting it out at all.

Some cities, including Portland and New York, have rent control systems that could make it difficult, if not impossible, to pass on your rising costs to tenants over time. And a growing number of cities are cracking down on vacation rentals, reducing the number allowed or even eliminating them altogether. If you own a vacation rental, you’ll want to keep an eye out for what’s going on with local legislation that may affect you.

Two people at outdoor mall smiling, carrying bags and looking at shop window.

Image source: Getty Images.

Opportunities

The desire to go out and live your life

The pandemic has kept people locked down for too long, and most are ready to go back. It doesn’t look like that’s going to change anytime soon, and several commercial real estate sectors are poised to benefit. According to a new report from MasterCard SpendingPulse, e-commerce transactions are down nearly 2% from a year ago, while in-store sales are up 10% over the same period.

Specifically, grocery delivery hasn’t hurt grocery-anchored malls a bit. They even maintained a strong performance despite ongoing inflation and supply issues. Meanwhile, outdoor malls are heating up as retail owners take into account shoppers’ preferences for spending time outdoors and build or renovate properties accordingly. All of this could be a great time to consider investing in retail real estate investment trusts (REITs) with many malls anchored in a grocery store and other outdoor malls.

The housing affordability crisis

Affordable housing is a problem that has needed solutions for years. But now the aforementioned housing supply problems and soaring interest rates are making the situation worse as a growing number of potential buyers are priced out. So how can these same issues that we have listed as a threat to investors also represent an opportunity? One possible way to help solve the problem while increasing your bottom line could be to invest in mobile home parks.

Mobile home parks have low overhead compared to many real estate investments because residents usually own and are responsible for maintaining their own mobile homes and pay rent for their lots. The Biden administration is even giving a boost to this avenue of investment by facilitating financing for mobile homes in an effort to help alleviate the affordable housing problem. There may never have been a better time to invest in a mobile home park.

Navigate between threats and opportunities

The current economic climate isn’t all that trivial, and that can make dipping a toe in the waters of real estate investing or even expanding your current portfolio a daunting prospect. But as with most storms in life, there are still rays of sunshine to be found here. By knowing what to avoid and where the potential benefits lie, you can find real estate investment opportunities that could lead to smooth sailing.