It's Still a Seller's Market: Should You Invest in Real Estate or Wait?

It's Still a Seller's Market: Should You Invest in Real Estate or Wait?

Housing prices are hitting all-time highs, but that doesn't mean real estate investing is a bad idea. Here's what you need to know.

Sep 14, 2021

It's Still a Seller's Market: Should You Invest in Real Estate or Wait?
Real Estate

Real Estate

Passive Income

Passive Income

Extra Income

Extra Income

Forget Pelotons, Lamborghinis, or designer jewelry. The hottest purchase in 2021 is a house. If the COVID pandemic taught us anything, it’s that our home is an important place. People are searching for more space, somewhere where they can live and work remotely, and where they can be closer to family and friends—and they're paying a premium for it.

Around 36 million people moved during 2020. While you may think that this would open up the property market, financial uncertainty has led to many people staying put, resulting in record lows of housing inventory. 

The current property market is fierce, especially if you're looking to buy. Investing in real estate has long been a popular way of boosting a person’s wealth, whether you’re flipping a house or buying to rent out to tenants and hold long term. But, with the surging demand for houses and rising prices, is real estate investing still a good decision, or is it better to sit on your down payment and hope that the bubble bursts?

Here comes the boom: Is it a good time to invest in real estate?

Putting money into real estate is a long-term investment that has traditionally delivered a good return. Generally, anything between 5% to 10% is considered a good rate of return in the property market. As of April 2021, the year-to-date property price return is 6.9%. 

Despite many experts predicting that the housing market would crash following the COVID pandemic, property prices are booming. The average price for a home in May 2021 was just over $287,000. That’s an increase of 13.2% within one year. 

Why the sudden increase? It comes down to supply and demand. In 2017, there were over 1 million homes on the market within the US. In 2021, there are less than 500,000. While low interest rates and the need for more space have driven homeowners to sell, are there still opportunities for buyers and investors, especially if homes are selling for top dollar?

Pros of real estate investing in 2021

  • Low interest rates mean lower mortgage rates, making real estate investing possible for more Americans. While investors typically pay a higher interest rate than other buyers, rates are still lower than they’ve been in years.
  • Experts expect house prices to rise over 11% by next year, meaning if you invest in property now you could potentially sell for a profit in the short term.
  • The demand for housing has also resulted in rent growth so if you’re planning to invest in a property as a landlord, you might be able to earn enough in rental income to offset the rising cost of real estate. 
  • As an investor you can make tax deductions, such as property tax and insurance, helping you hold onto more of your earnings.
  • Once moratoriums on foreclosures come to an end, there may be an opportunity for investors to purchase properties at a cheaper rate than the market value. 
  • Real estate investing is a long-term strategy so holding over a long period of time is likely to eventually produce returns.

Cons of real estate investing in 2021

  • Housing prices are soaring, which means they could come falling down in the near future. Despite many experts predicting we're not actually approaching another housing bubble, no one has a crystal ball, so investing with the intention to sell within a specific time frame can be risky.
  • The price of materials has risen, so building a property is just as spendy.
  • It can be tempting to overpay, particularly if an attractive property has received several offers. If you’re considering investing, knowing your maximum allowable offer will prevent you from paying more than market value. 
  • The perfect investment property is hard to come by given low supply.

Passive real estate investments: An alternative to buying a home

No one can predict whether or not we're in a housing bubble that's about to burst. You could invest your money now and hope that property values continue to rise, or you could hold off, aim to grow your funds elsewhere, and invest in real estate at a later date. Before you make your move and become tangled in a bidding war, consider some more passive real estate investments that don't require you to purchase property.

REITs

Real estate investment trusts, or REITs, are essentially a way of pooling together funds with other investors to purchase shares in potentially lucrative real estate projects. Unlike having to deal with physical property, REITs enable people to earn money passively through dividends. This means they also provide liquidity, as many REITs allow you to withdraw your cash in the short term. 

REITs work by putting money into a publicly-traded company which then buys real estate, including commercial property. It's somewhat like buying stock in real estate. This property is leased out or flipped for a higher price. The rental or sale value is shared out between investors, with the company taking a cut.

Is it a good idea to invest in REITs right now? REITs have their pros and cons. They can be risky, and there's always the potential of losing your money. Plus, you don't get to own physical property, which might be important to you. 

On the plus side, REITs have outperformed the S&P 500 index over the last 20 years, meaning they can potentially be a good long-term investment. The companies that run REITs have real estate experts who know how to identify a good investment property in all market conditions. Additionally, REITs provide the benefits of both diversification and relative liquidity.

If the current physical property market isn’t for you at this time, REITs can be a good way to gain investment experience, especially as platforms like DiversyFund allow you to start from just $500. Just be sure to weigh up your overall investment goals and REIT platforms before jumping in.

diversyfund

DiversyFund

4.9

Real Estate

Real estate crowdfunding

Real estate crowdfunding platforms like RealCrowd connect investors with developers and other real estate professionals. Funds are then pooled together to raise capital for a property project, with money being made from property value appreciation as well as dividends. Like REITs, though, real estate crowdfunding works best as a long-term passive income strategy. 

So, is crowdfunding a good option in the current property market? An advantage of real estate crowdfunding is that it gives investors access to private property projects that may be otherwise out of sight. You can also start investing with a couple of thousand dollars depending on the platform you use, rather than having to put down $200,000 for a house. 

However, investments are less liquid, so your cash is going to be tied up longer than if it was invested into a REIT. In the current market, crowdfunding investments offer diversification, but you need to be diligent before making the leap. Commercial real estate can be an attractive investment, particularly as they come with higher rents, value, and less competition than residential property. Not all properties are equal, so research the type of real estate you plan to invest in, as well as the crowdfunding platform itself.

realcrowd

RealCrowd

Real Estate

True or False:

Investing in real estate crowdfunding deals that involve one property is riskier than investing in public REITs.

True or False:

Read more

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