Real estate investment can be as tame or exciting as you want. Just vary your strategies and you can be doing exciting fast-profit flips or long term unexciting, but great cash flow, rental investing. Many of us do both and other strategies in between.
Looking back at the markets since the crash that began in late 2006, we've experienced a great market for just about every real estate investment strategy. For a while, foreclosures were being snapped up at fire sale prices, and every strategy profited, from wholesaling to rental investing. Foreclosures have slowed a lot, and it's becoming more of a challenge to put together deals due to higher prices from competition. But, we've had a great year anyway; just sharpening our pencils to put together the best deals.
It's the beginning of a new year, and there will be plenty of predictions out there about where real estate prices are headed. It's a complex subject, so you'll see predictions varying from bubble-crash theories to buyers returning and bringing a new boom to housing. National influences are at work, but real estate is still local. In starting this New Year, investors should take stock of their current assets, strategies they've been using, and most of all the changes that could be coming to their local markets.
I'm not predicting good or bad news, just that changes are likely, and we should be ready to react and adjust our strategies to continue our success.
The basics of valuation and market analysis don't change, but the data we feed into these calculations is definitely going to be changing. The changes may be small in your area, or they could be dramatic. It's time to do some forward looking research into local job creation or stagnation, as well as wage patterns. Be more diligent in selecting neighborhoods and you'll probably need to increase or sharpen your marketing to find motivated sellers.
Contact your best buyers and ask them about their plans for the coming year, as major changes in their buying will require the same in your property location activities. Never assume the status quo, as there are a lot of resolutions and decisions made this time of year.
Fix & Flip
Many businesses make pricing decisions at the beginning of the year, so you'll want to do some research into what material prices are doing. Check with your contractors to see if they anticipate pricing pressure from wage increases. Rehab is where the money is really made, but it's also the riskiest part of the flip. Assume changes in material and labor costs, and do the research to quantify them.
Just as in wholesaling, check with your major buyers to see what they're planning.
Rental Property Investing
In the other strategies, many of your buyers may be rental investors. Knowing what they believe is in the works for the short term will help you in adjusting your rental property buying and/or selling. Rent adjustments may be in order. Your local market may be changing in ways that will make it more profitable to sell homes and buy larger units or in better neighborhoods. Using the 1031 Exchange, you can move into higher cash flow properties while avoiding capital gains taxes on your profits. Survey your tenants to get an idea of their plans to move or stay put.
Change Brings Opportunities
Recognizing changes before the competition will serve you well. Rising prices for foreclosures, materials and/or labor are inevitable at some point, and you'll want to factor them into your purchases and resale prices in wholesaling and fix & flip. You may want to warn your buyers to get their reaction before you commit to buy. Prepare your tenants if rent increases are coming, and see if raising rents at lease renewal will be acceptable or create a vacancy you'll need to prepare to fill.
The only thing I'll predict for the coming year in real estate is that there will be change. Get ready for it, adapt, and you'll have another great year.