Highlights
- U.S. home prices have climbed 47% since 2020.
- The residential market is strained by low inventory and high interest rates.
- Long-term property holding remains a sound investment, but be cautious of potential stagnation and decline.
Here are our thoughts and opinions with some research.
If there were ever any doubts about the profitability of real estate, recent appreciation figures should dispel them. According to the S&P CoreLogic Case-Shiller U.S. National Home Price Index, U.S. home prices have skyrocketed by 47% since 2020.
However, just as home values can rise, they can also plateau. The fluctuating interest rates and the risks of vacancies and repairs have made real estate too volatile for many seeking a hassle-free investment.
For those prepared to endure and invest long-term, real estate can be a fantastic source of passive income, retirement security, and generational wealth—provided you avoid common pitfalls and manage risks effectively.
Why Real Estate Is a Strong Long-Term Investment
Before exploring investment strategies, let’s examine some current market facts that underscore the benefits of long-term property investment.
A 20% Price Increase Post-COVID
Due to low inventory, home prices soared by 20% nationwide in 12 months following the pandemic in 2022, significantly boosting home values and investment portfolios.
Higher Income Requirements for Homebuyers
A Zillow survey revealed that homeowners now need to earn 80% more to afford a home compared to four years ago, increasing the potential rental pool for landlords.
High Interest Rates vs. Waiting for Rates to Drop
Buying a home in recent years has felt like jumping onto a runaway train. Although the growth rate has slowed, entering the market before rates drop further and prices rise again is a wise move if affordable. Renting may be cheaper in the short-term, but long-term buying remains more beneficial.
“Buyers who can afford to may want to get serious about their home search now, as housing costs are unlikely to fall anytime soon. The uptick in listings should be another motivator for buyers,” said Chen Zhao, Redfin economic research lead.
Long-Term Investment Strategies
Today’s buyers need a long-term strategy. Expecting immediate cash flow from a turnkey home is unrealistic without assuming a mortgage or finding a great deal. Here are some reliable tips for navigating the current market. Another strategy can be buying a multi-plex living in one unit and renting out the remaining.
Prioritize Investment Properties
Owning an investment property before a primary residence offers several advantages, including tax benefits (depreciation), future cash flow when interest rates drop, appreciation, mortgage paydown by tenants, and the opportunity for a 1031 exchange to defer capital gains taxes.
Since renting is currently cheaper than paying a personal mortgage, there’s no immediate financial advantage in purchasing a personal residence. Keeping your debt-to-income ratio low is crucial for continued investment and financing opportunities.
Avoid Overextending Your Finances
A key rule in real estate investing is to “expect things to go wrong, because they usually do.” Managing multiple vacancies or repairs can be challenging, so maximizing income through employment or liquidating assets can prepare you for unexpected issues.
Finding Off-Market Deals
Finding below-market deals in the current low-inventory market is tough, but possible. With rising prices, a well-renovated home in a good neighborhood will sell quickly. House flipping can boost your income and help build your rental portfolio.
Auction.com estimated that between 2021 and 2023, around 654,000 U.S. homeowners behind on mortgages sold to investors. High interest rates may increase this number, presenting opportunities for flippers.
Invest in Quality Neighborhoods
New investors often miscalculate cash flow, focusing on lower-end neighborhoods due to their lower costs. However, these areas often bring issues like nonpayment of rent, repairs, and tenant turnover, and appreciate the least.
For long-term real estate success, invest in B- or higher-grade neighborhoods. While early cash flow might be lower, appreciation will compensate over time.
Explore Commercial Real Estate
While the residential market struggles with low inventory, the commercial sector offers opportunities.
Investing in distressed commercial properties doesn’t require buying a skyscraper. Small office spaces in trouble can be found on sites like LoopNet and CoStar. Forming a syndication to pool resources and repurposing buildings for residential use or in-demand businesses can secure lender funding for profitable adaptive reuse projects.
Concluding Thoughts
Surviving now to thrive later is the mantra for today’s real estate market. For the average investor without abundant cash reserves, this means minimizing discretionary spending and focusing on investments, including saving for down payments and repairs.
With high prices and interest rates, cash flow will be limited. It’s vital to find a financial balance that avoids overleveraging and undue stress during vacancies. The more you can save from your living expenses, the more you can invest in real estate.
The key takeaway: if you can afford it, enter the market now and refinance when rates drop.
Maxim Capital Solutions: Your Go-To Partner for Real Estate Financing
At Maxim Capital Solutions, we comprehend the intricacies and challenges of the real estate market. Whether you’re a novice investor or a seasoned developer, we offer customized financial solutions to meet all your real estate needs. Our services include:
- Diverse Financing Options: We provide a variety of loan products tailored to different investment strategies, including fix-and-flip, rental properties, and commercial real estate.
- Competitive Rates: Take advantage of our competitive interest rates and favorable terms designed to maximize your investment returns.
- Professional Guidance: Our experienced team offers personalized advice and support throughout your investment journey, helping you make well-informed decisions.
- Efficient Process: We streamline the financing process for quick approval and funding, enabling you to seize investment opportunities promptly.
Reach out to Maxim Capital Solutions today to learn how we can support your real estate investment objectives. With our comprehensive financial solutions, you can navigate the market confidently and achieve long-term success.
