Today’s real estate investors are inundated with negative messaging: housing prices are too high, mortgage rates are rising, and institutional investors are getting all the good deals. We’re clearly in a seller’s market rather than a buyer’s market, so you might be wondering, is real estate a good investment right now?
The short answer is: yes!
Despite the high prices, rising interest rates, and competition from institutional investors (and, in some cases, becauseof these factors), now is a great time to invest in real estate.
Of course, you probably want a little more information before you rush out to buy a property. So let’s take a closer look at today’s housing market. We’ll show you:
- Exactly why real estate is a good investment right now,
- A few arguments for why real estate is not a good investment right now,
- And the facts about why it’s always a good time to invest in real estate.
Why Real Estate Is a Good Investment Right Now
First, let’s look at the top five reasons why real estate experts agree that real estate is a good investment right now.
1. Today’s High Prices are Economically Justified
People are quick to throw around the term “housing bubble,” but that’s actually not what we’re seeing right now.
In 2007, we were in a housing bubble. Home values were artificially inflated due to irresponsible lending practices and low home equity.
Today’s home value increases, on the other hand, have been driven by legitimate supply and demand.
We’ve seen exceptionally low supply due to:
- Lack of construction since the Great Recession,
- Limited building space in metro areas (due to geographical and zoning constraints), and
- Retirees opting to age in place rather than downsizing to condos or community living facilities as previous generations did.
And we’ve seen high demand due to:
- Historically low interest rates,
- The work-from-home revolution, which has made more affordable markets accessible to workers, and
- A reasonable fear from Millennials that this may be the last time they can afford to buy a home if home values continue to outpace wage growth.
So if you’re waiting for “the bubble to burst” and home prices to fall as they did in 2008, you’re going to miss out on today’s opportunities. It’s entirely possible that we’ll see a temporary dip as the market corrects from the exceptionally high rate of growth, but experts agree that there is no indication of a market collapse on the horizon.
2. Rents are Going Up
Hot investment markets like Houston, Los Angeles, and Austin saw year-over-year rent price increases of around 20% from 2021 to 2022. While this level of growth is not sustainable, it’s an important indicator of high renter demand. And even if the rate of growth slows in the rental market, it is expected to continue its upward trend. This means it’s a great time for investing in rental property.
3. Interest Rates Will Continue to Increase
To combat inflation, the Federal Reserve has been forced to raise interest rates. And rates will continue to increase for the foreseeable future. So if you plan to invest in real estate, now is the time to do it while interest rates are still comparatively low.
4. Real Estate Serves as a Hedge Against Inflation
As inflation rises, it devalues cash. Your money is worth about 8% less today than it was a year ago. If you have cash on hand, it’s literally losing value every day as inflation rises. Even investments in traditional securities like CDs and bonds are returning rates far below the current rate of inflation, effectively causing you to lose money on your investments.
But real estate values and rents both rise with inflation, allowing you to retain and grow your net worth during periods of inflation.
5. Competition from Institutional Investors Will Likely Increase
Institutional investors accounted for around 13% of all home purchases in 2021. This was up 5% compared to 2020, and there’s no sign of institutional investors backing off. Having institutional investors, with their data, expertise, and experience, flocking to real estate is a sign that real estate is an excellent investment today.
And if you’re worried about competing with these investors, remember, they are likely going to be more active in the coming years. So investing in real estate today may be easier than competing with even more institutional investors next year.
Why Real Estate Is Not a Good Investment Right Now
Now, let’s make the case against investing in today’s real estate market. Here are three reasons why investors might choose not to invest in real estate today.
1. High Buyer Competition
We’ve been seeing high buyer demand for years now. And it’s not just private homebuyers; as we’ve mentioned, institutional investors are heavy players in today’s housing market. And because they have the resources to make all-cash offers over the asking price, it’s hard to get your offer accepted when competing directly with them. Some individual investors are simply tired of losing deals to these investment groups.
One way around this is to pool your investment capital with funds from other investors. Real estate syndication is an excellent option for competing with institutional investors. What is real estate syndication? Real estate syndication is a special type of crowdfunding in which all investors join together as members of an LLC to share ownership of a property. Each real estate project is professionally managed by a syndicate sponsor who takes care of every detail of the project from scouting deals to overseeing the renovations, and then reselling or leasing up the project.
Real estate syndication companies have the experience, knowledge, skill, and resources to compete with large investment groups.
2. “High” Interest Rates
Yes, interest rates are higher this year than they were last year.
But rates are almost certainly less than they will be next year. And if interest rates end up dropping in the future, you can always refinance to take advantage of those lower rates.
3. Fear of Recession
We’ve seen how today’s high prices are economically justified. But some investors are still concerned about the possibility of a recession. They are afraid that home values will dip after they complete their purchase. And that is a possibility. After all, markets are typically cyclical, and we’ve experienced exceptional growth for years.
But, as we’ve seen, conditions today are nothing like they were in 2007 before the Great Recession. Even if home values dip temporarily, they will bounce back.
If you’re concerned about a recession impacting the profitability of your real estate investment, consider diversifying your portfolio. We’ve already seen how real estate syndication can help you compete with institutional investors. Syndication also offers diversification opportunities to mitigate your risks. With low investment minimums, you can spread your investment capital across multiple projects, even choosing different property types, like single-family flipsand multi-family rentals.
Why It’s Always a Good Time to Invest in Real Estate
When someone asks, should I invest in real estate now?, the answer is, it’s always a good time to invest in real estate!
Consider the worst possible time to invest in real estate during our lifetimes: the first quarter of 2007. At that point, the average American home sales price was sitting at an all-time high of $322,100, just before the housing market collapsed. If you bought at that time, you watched your property value immediately plummet until the average price hit $257,000 in the first quarter of 2009.
It wasn’t until 2013 that the average sales price came back to 2007 levels. But it did come back. If you held onto that property through the recession and subsequent recovery, it could be worth the average sales price of $507,800 today.
And that’s only the appreciation consideration. Through all those years, the property provided tax breaks and increasing cash flows. Then, the rising inflation devalued your original debt, making the property even more valuable to you.
Some years may be better than others for investing in real estate. But there’s never a bad time to invest in real estate.
Invest in Real Estate Today with Gatsby Investment
We’ve clearly demonstrated that today is a good time to invest in real estate. And that there really isn’t a bad time to invest in real estate. But if you want to maximize your returns, your real estate investing strategy should be flexible enough to take advantage of evolving market conditions. And this is yet another reason to consider investing with an experienced real estate syndication firm like Gatsby Investment.
At Gatsby Investment, we have an expert team of real estate analysts who are continually evaluating market conditions and scouting locations for investment properties based on hard data. We comb through hundreds of properties to find the one with the greatest return potential under the current market conditions. Once our analysts identify a strong investment property, our team of professionals takes care of every detail of the project, including acquisition, renovation, and disposition (in the case of flips) or ongoing property management (in the case of long-term rentals).
Our investment opportunities include both short-term and long-term options, to serve a wide range of real estate investors.
Gatsby Investment makes it easy to build a real estate portfolio. Simply sign up for a free online account, confirm your status as an accredited investor, and choose your investment project(s).
You don’t have to time the real estate market perfectly to build wealth in real estate. You just need to get in the game!