If you can find a deal that stacks up today with good cash flow margins and long-term appreciation potential then now could be a good time to secure a low mortgage rate for your next investment property.
However, the issue with buying today is that the market, subject to external factors, is currently unpredictable. House prices have fluctuated recently hitting record highs. Rent growth was stunted in 2020 with areas such as New York and San Francisco, seeing a decline in rent prices for the first time since 2008. “Up and coming” areas such as Boise, on the other hand, saw 18% year-on-year growth in March. However, these trends have proven to be short-lived and in the first half of 2021, we’ve seen them reverse.
What this means is that identifying the best place to invest today is not only hard due to the unpredictable fluctuations in the market, but also that there could be better deals to be had down the line.
In this article, we take a look at some of the central market trends we’ve seen over the past year and a half and explore whether now is a good time for you to be thinking about beginning or expanding your portfolio.
How To Judge Whether This Is The Right Time To Invest In Property?
Whether right now is a good time to invest depends on several things; where you’re looking, what style of investment you’re looking for, and whether you can get the property below market price.
Currently, many people are looking to “up and coming” cities, we’ve already mentioned Boise, for example. These offer affordable properties with good cash flow opportunities.
If you’re looking to invest in short-term rentals with properties in city center locations or in holiday locations COVID-19 has dramatically changed that landscape. The lockdown last year put many short-term rental businesses under huge financial strain. As such, this style of investment could be considered riskier at this time. However, as we’ve said, if you’re looking to invest in a property long term, and you’re confident you can secure tenants, now could still be a good time to purchase.
The final point, whether you can get a property for below market price, comes down to whether you can find and close a good deal with the current supply shortage. At the moment, across the US, finding properties below market value is difficult. In fact, on average the majority of properties in the US have been selling in under a week during the first half of 2021. The chances then of you finding that property that’s 20% below market value, when there are so many people looking and so little property to be found, is unlikely. This is not to say you shouldn’t stop looking.
What Key Market Trends Do You Need To Know About?
An undersupplied market has led to record appreciation of houses and record rent growth. Median house prices across the US reached $350,300 in May 2021, up 23.6% from May 2020 according to Zillow. According to Zumper’s National Rent Report, June 2021 saw a 4.9% increase in rent growth year on year for one-bedroom apartments and an astonishing 6.5% increase in rent across the US for two-bedroom apartments.
As inventory increases, we’re likely to see a correction of these record-high house prices which suggests buying now could lead to short-term capital losses.
Other trends that are worth considering are an increase in occupancy rates which can be seen in the data from Landlord Studio’s Rental Index. Between December 2020 and January 2021 we saw a 1% increase in vacant properties which has not recovered. This suggests that landlords are being affected by growing rent arrears and are being particularly cautious with the eviction moratorium still in place through to the end of July,
Landlord Studio’s data also highlights changes to rent collection trends with the rent collected by the due date down 4% year on year in April 2021.
A final consideration to bear in mind when considering investing in property at this time is the federal rent relief programs and stimulus packages. These have been vitally important to landlords and real estate investors over the last year and a half and have kept the market relatively stable. This suggests that the unusual fluctuations in the market that we can see could in fact be signifying greater underlying issues which are yet to come to the foreground.
Conclusion: Should You Invest In Property Now?
Whether you invest today or wait till tomorrow comes down to what you want from your investment properties. House prices currently are high. This will make it harder to find a property with good cash flow and could lead to short-term capital losses. However, if you plan to hold on to your property for a long time, then the eventual appreciation will help you see solid gains and by investing now you can start earning money and secure a low mortgage rate.
The trends in appreciation and rent growth also make now a particularly good time for landlords to increase the profitability of their current portfolios by refinancing and locking in a lower mortgage rate and it could be a good time to leverage existing equity or sell existing properties to consolidate underachieving assets. However, these same trends make now a challenging market for new investors and new homebuyers and investors should approach new investments with caution.