2 threats and 2 opportunities for real estate investors in today’s market

From high interest rates and inflation to a wildly volatile stock market, investors are currently trying to follow many bouncing balls. What might have been an amazing investment in the not too distant past might be a questionable one today, and vice versa.

So if you’ve recently considered investing in real estate or expanding your real estate portfolio but are now afraid to take a step, that’s understandable. But don’t let fear stop you from exploring the unique benefits you could be enjoying as a real estate investor right now.

To navigate this strange environment with open eyes, let’s take an honest look at some of the threats real estate investors face. Then we’ll examine a few of the interesting possibilities that come out of all this that might be worth exploring.

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High interest rates and low housing supply

If you’ve been considering buying a rental property lately, you’re definitely looking for something. Long-term landlords are unlikely to face vacancy problems in the current high-cost, low-supply housing market. As a result, they can also charge significantly higher rents than a year ago.

In the meantime, the owners of holiday accommodation are also cleaning up. As people get ready to travel again, short-term rentals data analyzer AirDNA reported that last year rental property owners indeed posted their highest annual revenue ever, and the outlook for the future is positive too.

But while interest rates have come down a bit recently, averaging 5.10% at the time of writing, they’re still well above the 2.95% average we saw a year ago. It might still be worth crunching the numbers if you happen to find the perfect rental property at a bargain price, but you may find that now is just not the best time to buy a rental property.

Oppressive tenancy laws

But what if you already own a rental property? That’s fantastic, isn’t it? We probably will. The exception would be if your property is in an area that imposes regulations that could bring your investment more trouble and/or less profit than it’s worth – or even prohibit you from renting it out at all.

Some cities, including Portland and New York, have rent control systems that could make it difficult if not impossible to pass your rising costs on to renters over time. And more and more cities are cracking down on vacation rentals, reducing the number allowed or even eliminating them altogether. If you own a holiday home you should keep an eye on what is happening with local legislation that may affect you.

Two people in outdoor shopping mall are smiling, carrying bags and looking at the shop windows.

Image source: Getty Images.


The desire to get out and live life

The pandemic has kept people locked down for far too long, and most are ready to get back outside. It doesn’t look like that’s going to change any time soon, and several commercial real estate sectors are poised to take advantage. According to a new report by MasterCard SpendingPulse, e-commerce transactions are down nearly 2% year over year, while in-store sales are up a whopping 10% over the same period.

More specifically, grocery delivery hasn’t hurt grocery-anchored malls one bit. They have even held up well despite ongoing inflation and supply issues. Meanwhile, open-air malls are heating up as retail owners take into account shoppers’ preferences for spending time outdoors and build or remodel buildings accordingly. All of this could be a good time to consider investing in retail real estate investment trusts (REITs) with lots of grocery stores and other open-air shopping malls.

The crisis of housing affordability

Affordable housing has been a problem in need of a solution for years. But now, the aforementioned housing supply problems and skyrocketing interest rates are exacerbating the situation as more potential homebuyers are priced out. So how can the same issues that we listed as a threat to investors also present an opportunity? One way to solve the problem while increasing your bottom line could be to invest in RV sites.

Mobile home parks have low overheads compared to many real estate investments because residents generally own and are responsible for the maintenance of their own mobile homes and pay rent on their properties. The Biden administration is even giving this investment avenue a boost by facilitating mobile home financing to alleviate the affordable housing problem. There has perhaps never been a better time to invest in an RV park.

Navigate through the threats and opportunities

The current economic climate isn’t exactly run-of-the-mill, and that can make dipping a toe in the waters of real estate investing, or even expanding your current portfolio, seem like a daunting prospect. But like most storms in life, there are rays of sunshine here too. By knowing what to avoid and where the potential benefits lie, you can find some real estate investment opportunities that could lead to smooth sailing.

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