A lot of prospective buyers aren’t feeling like now is a great time to buy real estate and are either hoping for a major crash, or a huge price correction.
Only time will tell if either of those will happen to the extent some buyers are hoping for, but while they’re waiting it out, it might be the perfect time for real estate investors to get themselves a deal on a rental property.
It’s never a good time to buy real estate for everybody, and over the past few years it wasn’t ideal for investors. A seasoned real estate investor can typically find a deal, regardless of the current real estate market, but the extremely low mortgage rates caused a lot of buyer competition for the limited number of houses for sale, which made it virtually impossible for investors to buy a property at a profitable price. With rates rising and the market slowly shifting, investors will start to see more opportunities.
Here are a few reasons why it may shape up to be a great time to buy a rental property, beyond having less competition:
- Many of the people who are afraid to buy (or simply can’t buy) due to higher rates and prices, are renters who need a place to live.
- Rents have been on the rise recently, due in large part to the high demand for rentals and lack of places for rent.
- In their plan to “reset” the real estate market, The Federal Reserve has been actively trying to increase the amount of houses for sale by raising interest rates, which should give you more options to choose from.
- While many homeowners are in good financial shape, have a lot of equity in their home, and will simply stay put rather than sell in the shifting market, some homeowners will absolutely need to sell. Those who are negatively impacted by the economy—like losing a job and having a tough time making ends meet due to inflation—might have to sell their property quickly. (You might even start seeing short sales or foreclosures again.)
While there will likely be more opportunities to buy a rental property, they probably won’t be a no-brainer that just falls in your lap. Here are a few things to do and keep in mind if you want to capitalize on the shifting market:
- Have your finances lined up. Set a budget for how much you’re willing to spend on a property. If you need a loan, get pre-approved for a mortgage by a lender so you know how much you have to work with. If you’re paying cash, set a limit on how much you’re willing to part with on your first property.
- Establish what type of property you’re looking for. Investment properties come in all shapes and sizes; figure out what appeals most to you. For example, do you want a multi-family with several rental units, or would you rather have a single-family rental?
- Figure out where you want to search. Where is your ideal location? Do you want a property in your town, or one in another area altogether?
- Be patient, but ready to pounce. Just because a property had a price reduction, that doesn’t mean it’s below market value and a good deal. Finding properties that will produce good cash flow and return on your investment may take a little while to find, so be patient. But when you do see one that’s clearly below market value (or you can negotiate down to that point), don’t hesitate; get it before someone else scoops up the opportunity.
It hasn’t been easy for real estate investors to find a decent deal over the past few years, let alone be able to buy a property at a profitable price due to competition from other buyers. But with many buyers sidelined because of the rising mortgage rates, and some property owners negatively impacted by the economy, 2023 looks like a promising year for investors to find a rental property where the numbers make sense.