Real estate is considered one of the most profitable sectors for short-term and long-term financial returns. Real property is also among the few assets rarely affected by inflation. Our local real estate market is seeing higher than normal inventory levels along with a 15-20% pricing correction, creating a unique opportunity for savvy investors.
Let’s explore why capitalizing on today’s market is profitable to build wealth through real estate.
There is high growth potential in today’s real estate market. The market is correcting itself, leaving it more balanced for buyers and sellers. Given the current dynamics of the real estate industry, there is great potential for financial returns from buying and selling property. Historically, real property tends to appreciate 4-5% annually. However, in recent years, we have seen double-digit growth, or 12% on average, YOY, in the local Pacific Northwest market.
A few tips for success in the real estate sector start with being equipped with the right information. Being proactive by carrying out your due diligence on the front end will help you be decisive when purchasing. This includes getting your financing in order and, most importantly, choosing a local broker with insight on investment properties.
Even as interest rates have risen, long-standing investors know the current rates are still well below historical averages. Besides, experienced investors know your rate is simply a function of servicing your debt with a payment they feel comfortable making. Furthermore, our rates won’t be here forever, and you can always refinance in the future.
Timing is Everything.
Despite the market correction we have seen over the last few months, the real estate market is still thriving. Properties priced right from the start are selling on average 5 days or less, and 39% of properties are selling over list price. As mentioned above, we also have more inventory than we have seen in almost three years! This doesn’t mean we are in a balanced market – in fact, there are only between 4-8 weeks of inventory, depending on where you are looking. It does mean that you have more homes to choose from and fewer buyers to compete with.
Market research helps you understand the market dynamics, including fluctuations in demand. Observing the market and noting the demand trends and patterns will help you maximize what the real estate sector offers. As a result, you can make well-informed investment decisions, allowing you to grow your real estate portfolio.
Wealth Planning Strategy
Investing in real estate in today’s market is a great wealth planning strategy. That said, it’s important to have a well-structured plan for how you plan to manage and operate the home once you purchase it. The plan should outline financial goals, a budget, and a long-term plan to manage the property.
Finding the right property is half the battle in investing. Evaluating your goals, whether short-term or long-term, is essential. If you are looking for short-term profits, consider a fix and flip type property. This requires some skill as you will need to hire a general contractor you can trust, is reliable, and can stay within budget. You might also want to consider working with a designer unless you have experience with this.
If a short-term rental is more your thing, consider investing in an area you want to vacation or retire. Then your property can do double duty as you can utilize the benefits of owning a second home. Historically, rental homes have always been used for long-term rentals. It wasn’t until the last ten years that short-term rentals took over a new sector of the real estate market, but investors have seen higher returns than any long-term rental could.
However, when looking at the long-term, you may consider renting and getting a lease on properties. Evaluating long-term rentals is a little different as this is more about appreciation while hopefully covering your monthly expenses related to the property. It’s also important to consider the cost of getting it ready for rental, the location, amenities, and so on. Renting to long-term tenants requires less time and management than an STR, but you will need to start with finding the right tenant, as this will be priceless and can save you $$$ in the long run.
Diversify Your Investments with Real Estate
There are several options for investing in your wealth plan, with real estate being a leading option for long-term investments. Today, real estate offers many options for short-term rentals, like Airbnb, VRBO, and long-term rental homes. Each property has a unique skillset and requirement for management and potential renter. One thing is certain, though—they all allow you to grow your wealth and make you money (if run correctly) while you live your life and sleep!
Consider investing in real estate in other cities or states with high tourist rates so you’ll have access to a larger pool of opportunities and increase your potential for consistent passive income. Diversifying your investments across a larger geographic area also sets you up to protect your portfolio against any potential volatility of local markets.
Ready to learn more about how to get started in short-term vacation rentals or investing in real estate to broaden your portfolio and retirement plan? Reach out
I’d love to talk with you about your real estate wealth planning.