Real estate investment is a very attractive business venture for entrepreneurs around the country.
Although the potential for success is incredibly high, there is also considerable risk involved. This is due, in part, to the volatility of the housing market. Before deciding whether to take the plunge and invest in real estate as a business venture, you should ask yourself: Is now the right time?
Real estate markets are constantly fluctuating. Therefore, one of the most important parts of entering the industry is timing. Jumping in at the wrong time could set you up for failure. On the other hand, deciding to invest at the right time could potentially provide great returns.
Let's take a look at whether now is an ideal time to start investing in real estate.
Trends to Consider
In addition to real estate being about fluctuations, they are also about trends. In regards to this year and years to come, there are several factors worth considering before deciding whether this is the right time for you.
Millennials Aren’t Buying Homes
You might have already read about this trend, but, if not, you should be aware that millennials aren’t buying homes at the rate that previous generations have.
In fact, the Urban Institute found that only 37% of millennials owned homes in 2018. This is 8% lower than the number of baby boomers and Generation Xers that owned homes at the same age.
This is due to a number of factors, including:
An affordability gap
The rate of marriage
Debts (student loan debt, in particular)
Although the reasons may differ per person, the fact is that millennials aren’t purchasing homes at an exceptionally high rate.
However, this doesn’t necessarily mean that it’s not a good time to invest in real estate properties. This news may just call for a different approach. If millennials — one of the core demographics when it comes to potential buyers — are not buying homes at high rates, that may imply renting out your property could be an even better idea.
Gen Z is Growing Up
The oldest age group included in Generation Z was born between 1995 and 2001.
To place that into context, a significant portion of Gen Z is starting to graduate from college, building up their credit score, and entering the housing market. As is the case with millennials, it’s very likely that we’ll see this new generation continue to gravitate toward city living over purchasing homes in the suburbs.
A study in the Journal of Regional Studies found that people between 23 and 28 years old prefer living in cities. In real estate, it's essential to capitalize on demand. If new groups of potential homebuyers are choosing rental properties in the city in favor of homeownership, then you may want to cater your investments in that direction.
Rising Home Prices
According to the National Association of Realtors, consumers should expect home prices to continue to rise while sales continue to flatten, but what does this mean for real estate investors?
Although this trend doesn’t necessarily mean investing in real estate is a bad idea, it's likely that many buyers are going to be priced out of the market. The impact of these rising home prices and flat sales may be that there will be fewer potential buyers for high-value properties.
Keep in mind, though, the number of homes sold is still expected to grow in the coming years—just at a slow rate. Therefore, your investments now could possibly be worth considerably more later.
Should You Invest Now?
With these factors in mind, should you consider investing in real estate this year?
As home prices are expected to continue to rise, there is definitely potential to buy properties for lower prices now and sell them at a premium in the coming years. “Buy low, sell high” is perhaps the most basic rule in investing, and now might be a good time to do just that.
As previously stated, millennials and Gen Zers seem to gravitate toward renting over owning, so again, it might be wise to invest in rentals rather than trying your hand at flipping properties.
Furthermore, while renting is on the rise, mortgage interest rates are falling. As of May 23, 30-year fixed-mortgage interest rates are as low as 4.06%. This could make homeownership much more feasible for the growing generations.
Together, these factors seem to indicate that the real estate market in the United States is likely to be fairly predictable in the coming years. If these trends continue to hold true, the next few years should be good for real estate investors.
Timing is key for real estate investors. Jumping in when mortgage rates are high and home prices are falling can severely damage your investment portfolio.
The bottom line is that jumping into the world of real estate investment can be an intimidating venture. However, as home prices continue to increase, now might be as good a time as any to begin investing in real estate.