Should You Invest in Real Estate Now (Q4 2022) or Wait?

Investing has been a tricky game over the last few years. Global pandemics, shifting monetary policies, world conflict and instability, supply chain shortages and whispers of recession can make even the steeliest spined investor run for the sidelines.?

So what is the smart strategy for investing as we close out 2022 and head into 2023? Should real estate investors go all in on this dynamic market, or ride the bench and see what the next quarter brings??

If you’ve read my earlier pieces on Breaking Into Real Estate Investing and Multi-family investing, you know I’m a proponent of creating your own investment strategy that fits with your goals and your risk tolerance.?

One key principle of my own investing philosophy is that I’m in the real estate investing game for the long term. This isn’t a get rich quick scheme for me, so market fluctuations don’t have a dramatic impact on my overall strategy.?

But if you’re new to investing or early in your real estate investing efforts, let’s talk about why the next few months could be an excellent time for investing in real estate.?

Hedge Against Inflation

If you’ve opened a paper or picked up a gallon of milk (or gas) in the last 6 months, you know the US is experiencing record-high inflation. Inflation is a concern for many reasons (including that my kids’ morning bowls of cereal keep getting more expensive). But for property owners, rental rates and property values increase with inflation. So your cash flow should see minimal impact from the inflation pressures that are crushing so many business endeavors.?

The most recent Case-Shiller National Home Price Index (https://tradingeconomics.com/united-states/case-shiller-home-price-index-yoy) showed slowing growth in the value of property values across the US, but the growth rate still exceeded 16 percent year over year. When compared to the Consumer Price Index inflation rate of 8.1 percent, real estate investors can feel confident that their asset appreciation far outpaces inflation, even in this challenging market.

So if you’re looking to protect yourself and your portfolio from inflation pressures, real estate investment could be a great option in 2023.?

Rising Interest Rates

If you are a residential home buyer in the market for a mortgage, rising interest rates can significantly increase your cost to borrow money and slam the brakes on your plans. Multiply this scenario hundreds of thousands of times all over the country, and you see an overall slow-down in buying. That decline in buying may lead to an uptick in supply, making it an ideal time for cash buyers to find their first or next property.?

I would also argue that if you’re investing for the long-term, borrowing at the current interest rates (historically, still at record lows) continues to be a good investment strategy. For example, in my role as the Managing Partner of Aslan Holdings, I’m working with potential investors to secure investments for a fund dedicated to real estate projects in mixed use, commercial, and multi-family real estate across the Southeast. With stock market returns volatile, I continue to see investors ready to move investment dollars to real estate projects, even for buildings with longer development timelines.? ? Higher interest rates don’t change the overall outlook for a good return on the real estate investments.?

Limited Supply of Housing

Home values have increased dramatically over the last decade due in large part to the constrained housing supply across the country. The reality is that our population continues to grow, and our housing supply has just not kept pace. Supply chain shortages for building supplies don’t appear to be helping the situation.

Image source: whitehouse.gov

When markets feel uncertain, as a real estate professional, I rely on this basic principle of supply and demand when making investment decisions. The current market continues to show low supply and high demand, making any rental assets we acquire an economically sound strategy.

Abundant Demand for Rentals

The same market forces that are creating rising interest rates and continued high property values are pricing many would-be first time home buyers out of the market and keeping them in rental properties for the foreseeable future. Mortgages that would have offered an affordable monthly payment at 3 percent interest rates may be out of reach at 5 percent interest. This is a normal market fluctuation that indicates a strong time to be a landlord.?

If you’re providing quality housing at reasonable rates with responsive management, you should experience little to no vacancy or down time, bolstering strong cash flow. (Looking for a quality property management company to help build your returns? Call SVN Second Story today.)

Proven ROI

If you’ve read this far, I’m preaching to the choir. But real estate is a proven winner of an investment strategy. Investing in the stock market is part of my overall strategy, but timing when to buy and sell individual stocks is a risky proposition in my book.?

Buying value-oriented properties that both cash flow and appreciate? That’s the kind sustainable strategy that I like to build my own investment philosophy around.?

If you’re interested in more information on whether real estate investing is a good fit for you, see my article about Multi-Family Real Estate Investing or check out The Basics of Commercial Real Estate Syndication: What is it and how can you benefit from it?