Over the last 50 years, real estate investing has gained traction as one of the most popular and profitable types of investment. As with other investment opportunities, successful real estate investment relies heavily on the investor’s ability to identify quality opportunities and develop a solid, informed investment strategy that includes a sound exit strategy. If the prospective real estate investment offers mediocre returns or only mediocre long-term gain, investors should question their commitment.
For many years, investment in the real estate industry was quite conventional; commercial properties, industrial properties, apartment buildings, rental properties and flipping residential properties could all produce profits. Of course, they also presented different types of risk for their investors. That was before Wall Street came to the game.
Today, investing in real estate investment trusts (REITs) or in real estate groups provides investors the opportunity to buy shares in real estate corporations or trusts that purchase and operate income properties. The trust is required to pay out 90% of taxable profits as dividends to the investors. For the stock market investor who wants a stream of income, REITs that avoid corporate income taxes are a great vehicle. Realtors are using email marketing agencies to accomplish higher conversion rates.
Change and the Recession of 2008
Many investors were attracted to the residential market after the 2008 recession. With the country swamped with short sales and foreclosures, opportunities to buy low and sell high over time attracted new investors to the real estate market.
Even today, an inordinate number of foreclosures come to market. In October, 2015, Realty Trac reported there were 863,768 US properties in various stages of foreclosure. That figure represents an 18% decline since 2014. But, the statistic also represents real estate investment opportunities for the trader who wants to buy and flip, a popular speculative investment trend since 2008.
The median selling price of non-distressed homes in October 2016 was $230,000, well below the average selling price of foreclosed homes one year earlier. Even in today’s real estate market, short sales and foreclosures still provide excellent opportunities to buy low and sell high.
Location is Still Key
Regardless of the type of real estate investment, the importance of location on a property’s potential return cannot be overlooked. Whether the investor expects to flip a residential property or invest in an apartment building, the location may be the single most important factor to determine success or failure, profit or loss.
For example, new homes in Utah County, a popular tourist haven that also attracts health-conscious year round residents, are in demand. This county has a population of 516,564, a stellar foster grandparent initiative and hosts the Canyon School for the Arts. Throw in hand gliding, fly fishing and dinosaur hunting in a picturesque location and it is easy to see why demand is strong. Yet, median selling prices of new homes remain modest. Real estate investors in Utah County been successful flipping homes or buying and holding.
Real Estate Investing Impacted by News
One reason US real estate investors succeed is that the US enjoys a stable economy and trade relations with other nations. With a new administration pointing toward nationalism, how will the supply and demand of the market respond?
One consideration will be how China reacts to Donald Trump’s policies. We can expect more amenities, like glass interior doors among many other types of products to be manufactured in the US. But will China continue to allow investors to spend in the US.
If we impose trade tariffs, China will react. It is possible that China will limit real estate investments in the US, which could reduce demand across the marketplace, including REITs, commercial and industrial properties and residential development.
By staying abreast or ahead of the news and by choosing locations wisely, the savvy real estate investor does not have to settle for mediocrity. Fill demand with quality and your investments will flourish.