Since the financial crisis of 2008, real estate investing has faced some uncertainties. Nevertheless, the industry performed generally well in 2018. Majority of real estate investors were able to sell their properties. There have been some unfounded fears that the real estate market might crash soon due to economic uncertainty, among other factors. However, emerging trends could drive the industry forward, ensuring that real estate investors get handsome returns on their investments. Here are some trends in real estate investing to look out for:
6 Trends in Real Estate Investing You Should Know
1. Generational Shift
In previous years, baby boomers and Generation X controlled the real estate market. However, this is quickly changing with the entrance of millennials in the market. There are around 74 million millennials, many of whom have reached the home-buying age. Due to an increase in household income among millennials, many are able and willing to buy their first home. If you will succeed in real estate investing, this is a trend you can’t ignore. There are two ways to go about it.
First and most reasonable is to come up with real estate options that target millennials directly. They will be the major consumers in the next 10 years. There are several ways to make your real estate property attractive among millennials:
Have an Online Presence
Most millennials turn to the internet when shopping for most things, including homes. Take quality photos of the home you are selling. You can also go an extra mile and hire a drone photographer to take aerial videos of the home. Upload these online, and you will see the number of inquiries increase.
Focus on Quality Instead of Size
Millennials have smaller families compared to previous generations. They have also learned to utilize smaller spaces better than previous generations. While size still matters, focus more on providing quality and modern housing.
Buying homes in big cities has become almost impossible for the majority of millennials. They are opting to buy homes in places like Texas, Tennessee, or Nashville that offer the big city lifestyle at a lower cost of living. Put up single family homes with easy access to a public transport system and other social amenities, and you have yourself a new client base.
The second way to go about it is to target the aging baby boomers. While millennials are the newest buyers in the market, the older generation is giving up their big homes for smaller and more affordable ones. Some are moving to senior living facilities. Therefore, there is money to be made in entry-level homes and also in living facilities that take care of the elderly.
2. Interest Rates
Interest rates have a huge impact on real estate investing. In December 2018, most investors and economic experts were not sure whether the Federal Reserve would increase interest rates or not. Fortunately for both real estate buyers and investors, the Fed opted not to increase the interest rates. This means that potential home buyers can now get a mortgage at lower interest rates compared to 2018 or at least at the same rates. It does not affect negatively the borrowing ability of either party, and this is good for the industry.
3. Home Prices
Between 2017 and 2018, home prices increased by 10%. This trend is expected to continue but at a lower rate. Many buyers want to buy new homes. However, constructions companies are finding it difficult to meet this demand because of several reasons. One of the reasons supply is not meeting demand is the increased cost of construction. Construction materials are becoming more expensive every day. Additionally, immigration policies have affected the labor force with investors being forced to dig deeper into their pockets to afford the available manpower.
All these additional costs are eventually pushed to the buyer. The inability of construction companies to build more houses means buyers that want new homes have limited options, and this drives up the prices of new homes.
4. Affordable Housing
The increase in home prices does not match the wages of potential buyers in over three-quarters of housing markets. Therefore, the majority of people are opting to rent a house rather than buying one. It has become increasingly difficult to buy a home in, New York City, Las Vegas, Miami, San Jose, Seattle, San Francisco. While this is bad business for single-family homes investors, it is a ray of sunshine for multifamily home investors. This emerging trend in real estate investing indicates the future is in build-to-rent instead of build-to-sell.
5. Opportunity Zone
Another trend to look out for in real estate investing is the opportunity zones created by the Tax Cuts and Jobs Act of 2017. The Tax Cuts and Jobs Act offers exciting and attractive tax incentives to certain real estate investments. Depending on the investment, capital gain taxes can be deferred, reduced, or eliminated completely. Locations classified as opportunity zones will attract real estate investors, and you should not be left behind. However, it advisable that you partner with a local investor from the opportunity zone you intend to invest in; especially if you are not from around there.
Online shopping has had some negative effects on the real estate industry. Many people are shopping online, which allows many businesses to operate remotely. The need for a physical shop is reducing. Additionally, the high rent is forcing businesses out of brick-and-mortar stores. Therefore, real estate investors should aim to attract businesses that offer services that require their customers to visit them physically. Such businesses include:
- Yoga studios
- Hair and nail salons
Real estate investing still remains a lucrative business venture. Several factors will continue to drive home prices and rents upwards. The increased purchasing power among millennials, capital gain tax incentives, and the development of secondary markets will all boost the real estate market. If you carry out due diligence and exercise patience, you will continue to enjoy handsome rewards from investing in real estate.