The real estate investment market has been on a wild journey in recent years, and 2023 was no exception. It kicked off with historically low interest rates, soaring rents, and substantial appreciation gains, only to take a turn with rising interest rates, high inflation, and constant recession speculation for homeowners.
If you're feeling a bit disoriented by these ups and downs, you're not alone. The burning question now is whether investing in rental property remains a wise move in 2024.
To unravel the potential risks and rewards of the 2024 rental market.
Pros of Investing in the 2024 Real Estate Market
1. Rental Homes: The Inflation Safeguard
As inflation takes its course, so do rents. Real estate investments, especially those tied to fixed-rate mortgages, act as a buffer against inflation. While interest payments remain fixed, rental income has the potential to ascend over time. The added benefit? Building equity in the property sets the stage for long-term gains from inflation and appreciation. With the higher interest rates it may be intimidating to purchase a property that may not have an exorbitant amount of cash flow. Keep in mind rent as well as home values are estimated to increase over the next couple years.
2. Property Value Resilience Post Downturns
Despite recent economic hiccups, housing appreciation has witnessed remarkable spikes. While economic uncertainties pose a risk, historical patterns suggest that property values tend to rebound and soar after downturns. This implies that long-term investments may hold promise even amidst short-term value fluctuations. Values are still up and you may think that you should time the market and wait until they come down. You have a better chance of success if you hunt and find the properties you can get under market value. Some estimates of 2024 home prices still indicate a 13%-15% increase due to low supply and talks of bringing interest rates below 5%.
3. Fueling Rental Demand: Low Affordability
Housing prices might ease in some markets, but they remain beyond the reach of many Americans. Projections indicate that home prices will continue to climb in 2024 due to a shortage of available homes. This scarcity can sustain the appeal of rental investments in sought-after neighborhoods, attracting long-term residents with low vacancy rates. Along with home prices, Insurance and property taxes have also increased across the country. Not only is the renter to first time home owner gap expanding, I am expending more and more homeowners to be priced out of their homes from their payments going up. This won’t be a “flood” of inventory but you may have those homeowners selling or getting foreclosed and being forced to rent.
Navigating the Risks in the 2024 Real Estate Market
1. Scarcity of Inventory for Lucrative Investments
In hot demand periods, many cities transform into seller's markets, presenting challenges for new investors in finding profitable opportunities. Existing property owners may reap benefits, but newcomers might face short-term hurdles in rental cash flow. Finding the opportunities to invest in will take significantly more work. Think about sellers that are distressed or don’t have to buy a new home. Finding off market properties is going to be paramount.
2. Persistent High Interest Rates
There are so many outlets forecasting different outcomes for the interest rates in 2024, navigating these conditions might require a substantial capital reserve for a sizable deposit. Don’t purchase anything with negative cashflow in hopes that interest rates will come down. If we do see a reduction in interest rates you could refinance and increase your cashflow.
3. Potential Stall or Decline in Rental Prices
As inflation and home prices increase it could be that renters have less and less money for their housing. Rent prices may plateau as renters can’t afford the rising prices. Vacancy rates may increase. It may be that renters start looking outside of bigger cities in search of lower priced rents as well.
4. The Looming Threat of an Economic Downturn
The trajectory of the U.S. economy remains uncertain in 2024, raising the specter of a potential economic downturn. Such an event could pose risks to house prices and rental growth. Thorough research into investment locations becomes paramount in potentially volatile markets.
As the real estate narrative continues to unfold in 2024, it becomes clear that the script is multifaceted, presenting both challenges and opportunities. Investors equipped with informed decision-making, strategic planning, and a nuanced understanding of market dynamics will be better positioned to navigate the complexities and find success in this dynamic landscape.
