New data shows ideal investment conditions are emerging for landlords – solid and stable rental incomes combined with seller discounts that offer the opportunity to expand real estate portfolios.
The latest fall in cash rate guidance by the Federal Reserve – a quarter point drop to 3.75%-4% – is also welcome as it will improve borrowing power.
The latest Market Action survey by HousingWire claims average monthly rents are stable at $2,295. Simultaneously, it says prices are becoming increasingly attractive because of the rising number of homes for sale.
Its research suggests “a staggering” 42% of active listings have recorded a price reduction in recent weeks.
HousingWire says that's an indication of sellers having to realign their price expectations because of additional supply that entered the market during the spring selling season. This has given buyers – including ambitious investors – a strong negotiating position.
However, small discounts and concessions in no way suggest there is a lack of demand, or there's some sort of correction is underway.
The latest data from the National Association of Realtors (NAR) points to the opposite trend. Its latest survey says that for September there was a 1.5% increase in the sale of existing homes compared with August.
This is being driven by falling mortgage costs. Freddie Mac reports the average 30-year fixed-rate mortgage in September was 6.35%, a significant drop from 6.59% in August. Now the Fed has made its second rate cut this year, you can expect mortgage costs to dip further.
Values have increased 4.1% year-over-year and the median price is $415,200 – a 2.1% annual rise.
Twelve months ago, the average price stood $406,700. The US has now registered 27 successive months of year-over-year price increases.
According to HousingWire, some 80,170 homes moved under contract in September, outstripping the 64,328 new listings. If that trend continues, the opportunity for investors will not last long. It might be a great time to make your move.
Based on these current market trends, here are five tips for investors:
On the shelf – If you're looking to start or expand your portfolio, pay attention to properties that have been on the market for more than six weeks. It's likely the seller will be motivated to strike a deal.
Monitor rent trends – With mortgage costs falling, many renters will start to think about buying their own home. Watch how this might alter rental prices in the medium term. Your most important strategy is to retain high-quality tenants.
Diversify risk – Resist the temptation to sink investment funds into the same area and similar styles of property. While there are deals to be made currently, you must apply good investment discipline. Buying somewhere simply because it's cheap may be an expensive mistake.
Flipping strategy – If your strategy involves selling properties soon after acquisition, be aggressive in your bargaining position. You'll likely lose a few opportunities along the way, but eventually you'll find a gem that will pay you back handsomely.
Core business – Prioritize properties in locations where the rental rates are strong and stable. This provides an essential, predictable and defensible cash flow buffer regardless of minor market fluctuations either in property values or rent charges.
