In case you weren’t paying attention, 2018 was an exciting year in real estate—full of twists and turns. Obviously, I don’t have a crystal ball—but after spending decades as a successful real estate investor, I am pretty well versed in reading the tea leaves. So, what does 2019 have in store for real estate investors?
According to Zillow, “rising mortgage rates will set the scene for the housing market in 2019. They will affect everyone, driving up costs for home buyers and creating more demand for rentals. Even current homeowners could start to feel locked into their mortgage rates.”
Here are some interesting trends that will affect the real estate market in 2019:
1. Technology Advancements
Technology in the real estate industry has been changing rapidly. Companies like Redfin, Zillow, Trulia and Homesnap have been changing the way sellers and buyers perceive the market and it is crucial for investors looking to buy properties to understand the difference between price and value.
2. New Buying Patterns
The baby boomers who once purchased all the traditional two-story homes are now ready to downsize. But they don’t just want less space, they are also looking for ranch-style homes, so they don’t have to navigate stairs as they age. What does that mean? Single-story homes will increase in value as demand rises.
Millennials are finally ready to purchase their first homes despite headlines saying they “can’t afford them.” But because they are largely seeking affordability and quality of life, they are having to trade in the urban life they crave and head out to the suburbs. In 2017, the undeniable shortage of affordable entry-level properties created a real barrier for this group, the nation’s largest buyer segment.
During the Great Recession, more than 10 million Americans were forced into foreclosure—and their ten years of waiting to purchase another property (due to foreclosure law) is over. According to the National Center for Policy Analysis, approximately 1.5 million Americans will become eligible to re-enter the housing market this year. While some might still be licking their wounds, many are sick of renting and itching to own again.
3. Continued Dive in Retail Assets
We all know online sales are killing some malls, but we’ve seen few attempts at repurposing these empty properties. Many of these struggling retail locations have excellent economics for multifamily redevelopment. I’m shocked we haven’t seen more mall-to-multifamily conversions.
4. Steady Stream of New Construction
The top trend I’ve seen so far has been a steady stream of new construction, which is kept rent prices mostly in check for 2018. Where I live in Arizona, you can’t drive down any street without seeing some sort of new construction happening. A stable pipeline of new buildings means we’ll see the impact of lower rent growth but still above long-term averages when it comes to rent across the U.S.
5. Low Available Inventory
After the real estate bubble burst in 2008, and foreclosure properties were abundant, inventory wasn’t a concern. Fast forward 10 years, and the economy back to a comfortable level, inventory levels are back to pre-2008 numbers.
6. Rise of The Single-Family Rental Asset Class
A total of 3.6 million single-family rental homes (SFR) have been added from 2006-2016. The SFR industry has risen to the challenge to escape a “mom-and-pop” dominated market. As the demand from more sophisticated renters who choose not to rent increases, so does the demand from the sophisticated investor requiring a higher level of service.
Investing Is A Lifestyle
Many people want to be successful real estate investors. The problem is that the average person starts at the last step of the investment cycle rather than at the beginning. Because of this, they often fail.
What is the last step? The property.
It seems counterintuitive, but the property is actually the least important part of becoming a successful real estate investor. In fact, you could have one of the best properties in the world, but if you don’t complete three crucial steps prior to buying that property, chances are that, for you, the property will be a huge disappointment.
Many people think they need to invest in their own backyards. While that may be a good idea, it’s not a necessary one. Rather, you should find a market that meets the needs of your personal investment philosophy.
For instance, if your personal investment philosophy were to invest for monthly cash flow, it would make no sense invest in a number of properties with an aggressive, highly leveraged debt ratio that allowed for no cash flow. Nor would it make sense to invest in a high appreciation market where prices didn’t pencil out for positive cash flow.
Rather, you would need to find the right market that provided affordability and cash flow, even if it didn’t appreciate much. For cash flow investors, that’s a great market. For flippers or appreciation investors, it’s a nightmare market. But you only know that if you understand what kind of investor you want to be.
As rich dad said, “Business and investing are team sports.” In order to be successful in any market, especially ones that you don’t live in, you need to have the right team.
This team should include an attorney, a CPA, a bookkeeper, and a real estate agent and/or broker, and you should rely on them heavily to give you expert advice about your market and the properties you’ll be looking at.
Without a team in place to give you expert advice, the chances of you making a huge mistake are high.
So, if you’re looking into becoming a real estate investor, 2019 could be a great time to do so. Investing in single-family rental properties may deliver strong returns. How do you begin? Do your research and read everything you can—this will automatically increase your financial literacy. Learn how to invest using other people’s money in order to minimize your risk. Then, take action, so that you can lead the rich life you absolutely deserve.
Editor, Rich Dad Poor Dad Daily