Investing can be a tricky business, especially when a lot of money is involved. Buy low and sell high is always the best advice to go by, but knowing which market is going to boom next is the difficult part. Real estate, for example, really likes to fluctuate and sometimes dips horribly. When you invest, you want to ensure you’re getting something that’s going to pay off big down the road.
Thankfully, you aren’t going in blind. There are some key indicators to pay attention to when investing in the real estate market. They can give you an idea of which way the market will swing in the coming years, but they can’t accurately predict the future. Everything’s based on good assumptions and past experiences, leaving you with a few trends that can point you in the right direction.
1. Interest Rates
For property investors, interest rates can start to play a huge role in the decision to purchase real estate. Predicting the change in interest rates is next to impossible, but you can make safe investment decisions by always keeping the worst outcomes in mind.
Economic recovery and growth means the Federal Reserve is comfortable raising its benchmark rate. In 2019, the average industry mortgage rate rose closer to 5% and is predicted to be staying there for a little while. Why does this matter for investors? While these aren’t significant hikes, they may invite more caution when selecting properties. Plus, interest rate increases may cause renters to delay home purchases.
Of course, tax considerations and local market trends have just as big an impact on an investor’s decision to purchase and finance properties. Interest rates aren’t perfect predictors, but a general understanding of their expected trends allows you room to make the best decision for your investing needs.
You’ve likely heard of blockchain and know it’s being implemented in all sorts of markets. Many people assume it’s another word for cryptocurrency, but this isn’t the case. Blockchain is a form of record-keeping that keeps track of nearly anything in an efficient manner. Most people confuse it with cryptocurrency because it was made for it as a secure receipt system.
This efficient and secure record-keeping is an interesting alternative for real estate investors. Mortgages are expensive, especially with all the avenues one has to go through. By using blockchain, investors can pay less, have more secure documentation and easily verify titles. While blockchain isn’t being used everywhere for real estate yet, this technology is starting to get a hold on the market.
3. Smart Home Technology
Smart technology has become a popular addition for homeowners, but it has its place in certain rental markets, too. It’s been bringing a lot of potential to real estate, from smart thermostats to safer fire suppression systems. Landlords willing to make these investments can make energy usage and security a smoother process for everyone.
New, tech-oriented apartment buildings are more likely to be wired with home automation systems. This shift is likely to snap up the attention of an increasingly tech-reliant and remote workforce, but as time passes, even more renters may be likely to pay attention to smart home technology in their apartment searches.
4. Millennial Renting Preferences
Every generation brings new trends to the real estate market. The millennial generation is now between the ages of 23 and 38 and is starting to look into buying their own homes. However, the way they’re approaching the market is different from recent generations.
Millennials are generally looking for rentals that are close to their jobs, so urban areas and city centers, as well as suburbs, are seeing a spike in investment. There’s also been a demand for close-knit neighborhoods where everything from shopping centers to entertainment is within walking distance. While this doesn’t apply to all in the generation, of course, it’s common enough to predict swings in the market. Landlords can use this information to evaluate local neighborhoods for their long-term growth potential.
Renting is cheaper than buying in 59 percent of American housing markets. Home prices are also outpacing wages in 80 percent of American markets. Many people simply can’t afford a new home right now, or are planning on delaying the purchase until they can save more funds.
The current state of the economy is a huge driving factor in predicting the real estate market for investors. With homeownership out of reach, it’s more likely that young tenants are planning to keep renting for years. Landlords can consider responding to this delay by focusing on family-friendly neighborhood features that speak to young families that aren’t ready to make the leap.
Real Estate Trends for Landlords to Watch
A few of these trends aren’t news. Interest rates, housing affordability, and generational preferences will always have an impact on real estate investments. However, being aware of their importance and building these trends into your investment strategy can help you mitigate risk and stay ahead of the curve.
In the next few years, keep an eye on technology and workforce trends. A market-savvy landlord will be able to invest in amenities and markets that speak to tenants’ changing needs.