Should You Invest In Real Estate Right Now?

First published July 2021

If you can find a deal that makes sense today, in which you can hit the financial targets that you set, that gives you the cash flow and the return on investment that you’re looking for, then there’s no reason why today wouldn’t be a good time to invest in real estate. This is especially true if you’re able to locate a property in an area with good economic growth and new companies and jobs in the area.

This, though, is not an easy thing to find in today’s market, especially if you’re looking to purchase below market value to increase your loan to value ratio, cash flow, and potential appreciation value.

The issue with buying real estate today and the reason we asked the question, should you be looking to buy property now? Or should you be waiting? is because house prices have fluctuated dramatically over the last year hitting record highs despite the fact that the country was driven into a recession in 2020. Rent growth was flat in 2019, was then stunted in 2020 because of that pandemic, areas such as New York and San Francisco with traditionally high rent amounts saw their rents drop for the first time since the 2008 housing crash. And yet, up-and-coming areas such as Boise saw massive year-on-year growth towards the end of 2020 and into the first quarter of 2021.

As such, identifying a property that is a good investment today, and a good investment in the future is not only hard but buying now could mean missing out on better deals in the future. In this article, we’re going to take a look at some of the central market trends that we’ve seen over the past year. And identify whether right now is the right time to be expanding your portfolio.

What do we mean by the right time to invest in property?

There are a number of factors you should consider when looking at and analyzing potential investments. The first is the location, is it in a place with good economic growth and investment and jobs? The second is the style of investments. Are you looking to flip houses? Are you looking to buy, short-term vacation rentals? Or are you looking for a long-term investment with stable tenants? And thirdly, can you purchase the property for below market value? A property where all the numbers add up.

We’ve already mentioned that upcoming cities like Boise could make good investments due to the record growth that they’ve been seeing. However, the trend of 18% year-on-year growth they saw in quarter one of 2021 has reversed, and they actually saw a decline first in the second quarter of 2021. Higher priced city center locations in areas like San Francisco, on the other hand, saw large jumps in rent growth and property value, a correction, perhaps from the negative trends of at the end of 2020 early into 2021,

Identifying that best location requires in-depth research and understanding of a location and its economic future. You will also want to analyze current rent amounts, house price predictions, and investments being made in the area.

When considering what style of investment is right, you need to consider that with house prices at all-time highs any investment style that requires you to sell within the next year or two, for example, a fix and flip could lead to short-term capital losses. Additionally, with the pandemic still affecting much of American life, vacation rentals could be deemed a risky investment at this time with many people still uncomfortable with the idea of traveling.

That being said, if you are looking for long-term gains with a property that you’re going to hold on to for 20 – 25 years. Now could be a good time as you can lock in a low mortgage rate which will lower your overall costs in the long run.

The final point was whether or not you will be able to buy that property for below market value. Right now, the reason property prices are so high, is that there are not enough properties on the market, and there are a lot of people looking to buy. Finding an undervalued property right now is unlikely. In June 2021 properties spent on average less than one week on the market. This is not to say you should stop looking, but you have to have realistic expectations.

Key market trends

An undersupplied market has led to record appreciation of houses and record rent growth. Median house prices across the US reached $350,300 in May 2021, up 26 23.6% year on year. We are likely to see a correction of these high prices, which suggests that buying now could lead to short-term capital losses. If you’re aiming to hold the property for a long time this shouldn’t be too much of a concern, but if you don’t have the finances available and rents fall through because your tenants are unable to pay and you’re forced to sell, you could face a substantial loss.

Additionally, according to Zumper’s national rent report, June 2021 saw a 4.9% increase in rent growth year on year for one-bedroom apartments and a 6.5% increase in rent across the US for two-bedroom apartments. This jump in rent growth is in part because rent growth was in 2020 was stunted by the COVID 19 pandemic. However, once again, the market trends have been unpredictable over the last year and a half and this rent growth could be temporary.

Additional trends that are worth having at the forefront of your mind is an increase in vacancies, which we can see in the data from Landlords Studios Rental Index. There was a 1% drop in occupancy rates between December 2020 and January 2021 which has not recovered. This suggests that landlords are not rushing to fill vacancies and are in fact being far more selective, potentially because of the eviction moratorium that is in place through July 2021.

Additionally, Landlord Studio’s data also highlights changes to rent collection trends with rent collected by the due date down 4% year on year in April 2021. This suggests that tenants, despite the substantial rent relief programs and federal stimulus packages, are still having financial troubles and many are delaying their rent payments. On the plus side, Landlord Studio did not see an increase in unpaid rent after 28 days.

A final consideration to bear in mind when considering whether or not right now is the time to be investing in property is that the federal rent relief programs and stimulus packages have been vitally important to landlords and real estate investors over the last year and a half. They have kept the market relatively stable, which suggests that the unusual fluctuations in the market that we have seen, could be surface-level indicators, signifying greater issues that are yet to come to the foreground.

Final words: Should you invest in property right now.

Whether you invest today or wait, depends on what you want from your investment properties and how much available cash you currently have. The undersupplied market means finding that great deal for below market price is going to be hard. It also means that you could be at risk for short-term capital losses.

On top of this, there’s evidence that rents are taking longer to come in, rent arrears are growing, and occupancy rates are down. This makes it a risky and challenging time for mom and pop landlords and newer investors who may not have the capital to cover months of unpaid rent or a costly eviction.

However, if you plan to hold on to your property for a long time and you do have the finances to ensure that you won’t need to sell anytime soon then the eventual appreciation could still help you see solid gains. And, by investing now, you could lock in a low mortgage rate and start making your money work.

‍