Whether you’re looking to renovate or invest in a rental property in 2023, it’s important to understand how the market will affect your ROI.
A slowdown in the housing market will reduce demand for housing. A slowdown in corrective and reversal real estate investors could mean fewer offers are being listed, or you may not get as much money for your home when you sell your property. There is a possibility
For real estate investors looking to buy property, the slowdown makes the market less competitive and gives investors a unique opportunity to make money by buying rather than selling. You may need less and find more homes.
Whether you’re investing in a rental property in 2023 or considering repairs, it’s important to understand how the market will affect your return on investment. Let’s take a closer look at the slowdown in the housing market and how REIs can expand in the macro environment.
Signs to Watch for in a Slowdown in the Housing Market
Several housing market indicators point to a slowdown in the housing market. Let’s look at some.
Housing inventory is starting to rise
Over the past few years, there have been concerns about a decline in housing inventory. Housing shortages are driving home prices higher, with real estate investors and developers trying to offset the deficit by rehabilitating aging homes. Realtor.com reports that in November 2022, domestic inventory of active listings increased by 46.8% from last year. With more housing available, buyers can afford to be more selective about their opportunities.
Decrease in mortgage applications
The Mortgage Bankers Association (MBA) reported that US mortgage applications fell 1.9% in the week ending December 2nd. Fewer mortgage applications means fewer homes for sale.
sellers are lowering prices
Sellers who need to sell their homes are now lowering their prices. A record 22% of homes for sale fell in price in September, according to a Redfin report. Median home sales prices fell 0.5% month-on-month in September, but still rose 8% year-on-year to $403,797.
fewer people buy homes
Mortgage interest rates have risen sharply in recent months. Rising interest rates have made it more difficult to buy a home, increasing the cost of capital for real estate investors looking to purchase their next investment property. Only 16% of consumers said now is a good time to buy a home in October, according to Fannie Mae’s monthly survey.
Of course, this does not mean that no one will buy a house. Many investor home buyers have properties that can be fixed and flipped. However, demand has fallen from its peak, and demand for rental housing is on the rise.
What does this mean for real estate investors?
Whether you’re already a real estate investor or thinking about getting started in real estate investing, you’ve probably been keeping up with the latest news about the country’s economic situation. There’s been a lot of talk about an investment, with many investors pausing their current strategy or re-evaluating how to scale in the current market. Whether we’re in the middle of a recession, heading into a recession, or staying far away from a recession, many agree that it’s still a winding road ahead.
Market volatility does not paint a rosy picture, but investing in real estate can provide some stability when the economy slows. Can be a good buy-in.
- People still need housing. Regardless of the economic situation, people still need a place to live. Demand for rental properties can remain stable or even rise during a recession, and housing shortages limit supply. That’s when property investors can rely on a steady stream of rental income.
- A recession can create bargains. When the recession cools the overheated housing market, it could open up opportunities to buy rental or refurbishment properties at lower prices. This allows investors to make a profit on their purchases and have more flexibility in their exit strategies.
rental real estate investment
Owning a rental property offers many advantages during a slowdown in the housing market. A properly purchased and managed rental will bring a steady monthly income to you or your portfolio. This extra cash is valuable during the downturn when you need it for yourself or want to take advantage of a buying opportunity.
Buying a rental property may be the obvious choice. As long as you can keep the tenants, renting out your property will generate steady income through slowdowns.
There are many different types of rental properties that you can consider. This includes single family rentals, multifamily housing (duplex, triplex, quadplex), apartments and condominiums.
The more units you have to rent, the more passive income you can generate. But remember, more units means more maintenance costs and more responsibilities. You can also use a property manager to oversee your rental, but that can be costly and hurt your bottom line.
Financing rental property
To purchase a rental property, you can consider several financing strategies including traditional mortgages, cash, and personal money. Many investors who need to raise money quickly to purchase a rental property take long-term hard money loans to purchase the rental property.
Choosing the right loan is essential to maximizing your profits and making sure you pay when you can’t get a tenant right away. Hard money rental property loans, also known as DSCR loans, are an excellent option for quick financing due to their fast funding process and relaxed lending standards. Both fix-and-flip and rental properties require very little paperwork, speeding up the process.
Individual investors and companies fund hard money loans. Traditional long-term loans from banks involve a cumbersome process that requires a lot of paperwork, underwriting and background checks. Traditional lenders do this to ensure that the buyer can repay the loan. Depending on the type of loan, this process may take several months.
A hard money loan is the opposite. Hard money rental loans, also known as Debt Service Coverage Ratio (DSCR) loans or non-income mortgages, get approved in hours and require very little paperwork. what does that mean to you?
- No tax or personal income documents required
- Financing is based on rental property cash flow
- Eligibility guidelines are much more flexible
Any real estate investor who doesn’t want to jump through traditional lender hoops for long-term financing can reap the benefits of taking a hard money loan for a rental.
Fixed investment and reversal investment
Fix-and-flip is the strategy of buying property (usually damaged properties) at a discount, refurbishing it, and then selling it at a profit. When the economy looks volatile, fixing up and reselling properties can be a good investment strategy, as the number of ready and willing homebuyers may decline. ,You should be careful. After all, if an investor buys a house, fixes it up, and then can’t sell it, they’ve spent a lot of money and aren’t getting any benefit from their investment.
However, even during market downturns, you may continue to turn your house upside down and make a profit on your investment. If you can find a qualified buyer relatively quickly, flipping your home can make a big profit if you’re buying a home at the lowest price.
However, keep in mind that real estate can require quite a bit of capital, at least to get started. If you don’t have the reserves to cash the project off, you can always fix it and flip, or consider options like a bridge loan with a hard money lender.
These unique loans are often short-term and come with an interest-only option, allowing Flipper to invest for less money, knowing he will be able to pay off the loan when the property is sold. Here are some other benefits an investor can get with a fix and flip (bridge) hard money loan.
- Often completed faster than a traditional mortgage. From application to closing, a hard money fix-and-flip (bridge) loan can take as little as a few days or weeks.
- Their underwriting process is less rigorous than traditional loans. Hard money lenders place more value on the property used as collateral than on the real estate investor’s personal financial situation and work history.
- Hard money lenders pay less attention to a borrower’s credit score and debt-to-income ratio. This is because hard-her money lenders do not have to follow the same regulations as traditional lenders.
A volatile and fragile economy can pose a threat, but it can also present opportunities for both experienced and inexperienced real estate investors. In a slowing market, it is important for the investor to maintain flexible exit options so that each trade can successfully bring him a positive ROI for moving forward.
With capital diluted in today’s market, it is more important than ever to leverage relationships with trusted lending partners to raise the funds needed to strengthen your REI business. Kiavi’s flexible loan program is built to scale through reliable capital, easy online processes, and dedicated support to maximize profits in the current market environment.
Ready to explore financing options for your next investment property? Get started with Kiavi today Get prequalified in less than 10 minutes.
*Kiavi works with this organization to enable real estate investors to access funding quickly, efficiently, and reliably, leveraging a custom online technology platform that uses the latest technology and data science. The above is provided for convenience and informational purposes only. Kiavi does not endorse or endorse the products, services, or opinions of any outside companies, organizations, or individuals mentioned. The information provided does not constitute, nor is it intended to constitute, legal, tax, or investment advice.
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