For people considering investing in real estate, the recent market that saw double-digit appreciation and returns on investment is a recent memory. In its place is a decelerating housing market.
Decelerating is when home prices still appreciate year-over-year but not at the same rate of appreciation as before.
There can be a lot of reasons that a real estate market goes into deceleration, such as a large inventory of homes available in a geographic area. But in this case, it’s directly related to fears of recession, continuing inflation, and rising interest rates.
Fears aside, real estate investing still provides plenty of upside for individual investors, but timing is everything.
For example, if you’re trying to sell a property, right now may not be the best time to get the highest yield, and the intelligent strategy would be to wait until interest rates come back down, if at all possible, for you to sit and wait.
That said, investing in real estate can be a great way to make money and improve your returns on investment options.
There are multiple benefits to investing in real estate that outweigh the current market. Investors have some significant tax deductions and sources of income with a long-term residual opportunity. Since homes appreciate over time, they’ve proven to be an excellent hedge against inflation.
Ways Real Estate Hedges Against Inflation
Increased value of real estate: Real estate increases in value over time while the debts needed to purchase real estate are paid down.
By leveraging your debt of the mortgage and paying it down over time, as the home appreciates, you gain double the value of your investment.
Your debt decreases and your equity increases giving you multiple options to increase your returns. The top mortgage companies will educate you and provide you with a list of financial options and products to maximize your return on home ownership, whether a refinance, reverse mortgage, or more.
Continually increasing profit rates on rentals: Rental prices will continue to rise, making real estate rental properties a great investment option.
For the renter, it’s an excellent strategy to get away from ever-increasing housing costs and instead make your housing costs create a return on your dollar through home ownership.
The idea is that rents will continue to rise while ownership has a fixed cost associated with it, making homeownership an excellent strategy for your family budget.
For investors, rentals provide an opportunity to make a residual income with a low maintenance level, increasing value over the rental.
The beauty of owning real estate for renting is that someone else pays down your mortgage debts while your holdings appreciate making you an excellent return on your investment.
Real Estate Investment Options
Investing in real estate provides various options to get a great return on your investment. For example, you can choose between buying and holding the property to sell after it appreciates, buying to rent, flipping homes, REITs, and wholesaling real estate.
Investors can enter into real estate either through
- Buy and hold
- Buy and rent
- Fix and flip
Buy And Hold: Buying and holding is the typical way most individuals enter real estate as investors. These are the single-family homes that people live in for the duration of home ownership and sell at a point either when the mortgage is paid or paid down significantly.
Buy And Rent: Buying a property with the intent to rent is a way that some enter into real estate as an investment opportunity. Renting provides significant long-term income options but not without some risk.
Rental prices will continue to rise, and rental properties will continue to be in demand. Still, there will be times when maintenance and upkeep may cut into your budget, as well as longer than anticipated vacancies.
Wholesaling: Wholesaling real estate is a process where the investor enters into a purchase agreement with a seller and intends to immediately sell the property to a secondary buyer for more than they paid.
Finding and securing a transaction in wholesaling, you’d want to include a real estate wholesale contract that details to the seller your intent to sell the rights to another buyer for a markup and obligates the new buyer to agree to perform on your terms.
With wholesaling, finding a seller willing to sell with the understanding that you will be transferring the contract to a secondary buyer is one-half of being successful. The other key ingredient includes securing wholesale buyers that are able and willing to perform the terms of your agreement in the wholesaling process.
The benefit of wholesaling is that if you can secure sellers and wholesale buyers, you can make a decent profit without ever having the risk of assuming the terms of the contract. However, it could cost you if you don’t have a buyer secured ahead of time.
Fix and Flip: You’ve probably seen or heard about shows on Netflix and cable networks about people that buy a property, fix it up, and then sell it for a significant profit.
That is the concept behind a fix and flip. However, flipping homes requires a deeper understanding of the local real estate market and design and construction knowledge to pull off successfully.
REITs: Another way a person can enter into investing in real estate is through REITs, which are short for Real Estate Investment Trusts.
These investment opportunities work much like a mutual fund where several investors pool their money and collectively can purchase a property or properties that otherwise would be out of reach individually.
In real estate, finding a deal that is at or below market value is the best way to make a decent return on your investment over the length of ownership.