There are many criteria to weigh when making an investment. You must determine how much risk you are willing to take, what your goals are and how to diversify your portfolio, among many other considerations. If diversifying means that you would like to bring real estate investments into the fold, there are a whole host of additional issues you must take into account. Of course, you must do all the basic due diligence like inspecting the property and considering your return on investment, but what about the bigger picture?
There have been rumblings for the past few months about a possible coming recession, though some experts say it is unlikely at this point. In my experience, any time an election year is on the horizon, a general nervousness and uncertainty about the future causes slowdowns on the economic front. It’s reasonable to assume that any marketplace instability will affect the real estate industry. However, this doesn’t mean that you shouldn’t consider investing. Data indicates that even in the face of a true recession, people believe real estate is one of the safest investments you can make, according to a poll by YouGov.
There are steps you can take ahead of time to educate yourself and help ensure the security of your real estate investment. Here, I’m going to step back and take a bigger picture view of planning out your real estate investment, rather than going into the details of choosing a particular property. You should always consider things like value, property condition, area rental prices, location and more when buying a property to rent out. But there’s no replacement for having your finger on the pulse of the industry as a whole.
Invest in strong markets.
As a landlord, it might make you nervous to own a property in a different location from your place of residence. It can be hard to manage any issues that come up if you aren’t there. However, there might be some credence in looking to more robust markets if your local area isn’t showing signs of strength.
So what do these strong markets we speak of all have in common? Generally speaking, the population is growing, and so are jobs. Ideally, the area will also have some level of affordability. These factors can lead to good investment opportunities.
What lessons do these markets have to teach us? In good markets, home sales and home prices tend to go hand in hand. If there are more sales, then prices will also rise. In bad markets, houses might sit for a long time without selling, and price cuts are common. Ask yourself what kind of market you are facing in your purchase area of choice. Can you wait until there is some more stability and sales and prices even out? If not, is there an alternative location — maybe a close-by suburb or town — that you can explore?
Consider the type of investment.
You have many choices when it comes to selecting an investment property, including single-family homes, multifamily properties, commercial properties, student housing and more. The property you choose will depend greatly on your finances, lifestyle and other factors, but you need to consider all the angles before you pull the trigger.
There are pros and cons to each type of property. For example, single-family homes allow room for expansion, while condo units equal a set footprint; multifamily properties require much more property management effort than a single-family home with one tenant. Depending on your investment goals, you might choose a multifamily property to maximize your rental income potential. If you plan to sell in the future, you might choose a single-family home in a stable or improving market. Maybe you’re interested in a property in a popular vacation destination and are considering a short-term rental property. The possibilities are almost endless.
Whatever you choose, the best type of investment property will depend on your individual circumstances, investment goals and strategy, and the general real estate market. Determining the right type of property for you is a subjective process that entails assessing your preferred level of involvement and risk tolerance. Many investors find success investing in a variety of property types.
Use your real estate agent.
If you have ever bought or sold property or even browsed on Zillow, you are probably signed up for some kind of regular communications from an agent. I know I get multiple e-newsletters per week from agents either letting me know about available properties or educating me about trends in the real estate space. This is how they make their living. In order to be successful, real estate agents must be knowledgeable about their market and what’s going on at a regional and national level.
I encourage you to tap into this wealth of information. Do your research, and find an agent who has a robust blog that talks about more than a local events calendar or homes for sale. You want to find a partner who is really diving into statistics, trends and activities that are affecting the marketplace at a broad — and local — level. Just by perusing their blog and social media, signing up for their newsletter and asking around, you can probably uncover whether they will be a valuable resource for you in your investment journey. Already working with someone and can’t switch? Ask them to do this research for you; it’s part of their job and will only help them along their own career path.
These are just a few of the ways you can start to educate yourself about what truly makes a stable real estate investment. Taking a step back, examining the big picture and taking advantage of the information that is out there can help you to better navigate the investing market.