Let’s pretend: It’s the evening of December 31, 2022, and you’ve decided to make a resolve you can stick to this time. You have resolved to make your first real estate investment purchase in the coming year. However, what would 2023 real estate be like? Do you think home prices will continue to fall? More questions arise than solutions.
If this describes your situation, the months ahead may seem daunting due to all the unknowns. Buying your first investment property at any time can feel hazardous, but doing so during a housing slump can feel downright terrifying. Perhaps you’re debating whether or not to go through with the purchase, wondering, “Is buying rental property worth it?”
However, before you give up on your goal altogether, you might want to reevaluate what you already know about real estate and how to keep and grow its worth. This essay will show you that 2023 is still a good time to buy your first house and provide you with the tools you need to invest in any market.
Just What is Meant by the Term “Housing Correction?”
After a sharp increase, certain areas may have a period of falling home prices known as a “housing correction.” U.S. News & World Report reports that this decline is typically 10% at most. The market “corrects” to sustainable levels of supply and demand when housing prices have been artificially inflated for some time. Although corrections tend to last less time than crashes in the property market, they can nevertheless continue for many months or even years.
Mortgage rates, supply, demand, affordability, inventory, and stock market developments all play a role in housing market corrections. Analysts keep an eye on these metrics over time for a drop in prices. Declining sales, slower home sales, and lower property prices compared to just a few months ago are all warning indications.
During a housing correction, many homeowners may worry that their homes are no longer worth what they once did. In any case, housing adjustments aren’t always “bad,” and they don’t have to mean the end of your rental business. Indeed, they can enable first-time homeowners or those beginning their investment careers to enter the housing market without having to compete with their more financially secure counterparts. Knowing what to expect during a correction in the real estate market will help you make wise decisions.
In 2023, What Will Occur?
Many analysts and economists are keeping an eye on the property market, and many of them believe that a correction has begun or will begin shortly. After rising by 15% in just a few short months, the national housing market is only up by around 6% compared to March 2022. Even in pricey areas, experts estimate that home prices will continue to fall until 2023, with the steepest declines likely to occur in the markets that experienced the most growth over the past year.
Just what is going on here? Several factors are cited by experts. One reason is that there are fewer potential buyers for high-priced homes than there were in the past. As a result of many Baby Boomers having retired and living on a limited income, there has been a decrease in demand for pricey real estate. Young families, meanwhile, are on the hunt for affordable initial residences.
Why and How You Can Still Make Money in a Falling Real Estate Market
Don’t allow the recent dip in real estate prices to put you off making a purchase. There is no such thing as a bad bargain, and if you put in the time and effort, you should be able to find a lucrative one.
The secret is to be patient and aware of market movements. You should take advantage of the current cheap prices because housing corrections are short-lived and facilitate the shift from a seller’s to a buyer’s market. Furthermore, as the analysts at BiggerPockets point out, rising home values do not necessarily translate into increased profits. Other than appreciation, real estate can be profitable in several other ways. Real estate is worthwhile even in subpar markets because of cash flow, value-add opportunities, and tax benefits. Although it is prudent to exercise caution, this should not prevent you from seizing excellent possibilities when they present themselves.
Investing in a Rental Home
You’ve finally settled on 2023 as the year to purchase a home: What information do you require? One of the most crucial aspects of buying a rental home is researching the neighbourhood. Since it will give you the best insight into the rental market in the area you’re targeting, local data is far more relevant than national averages.
Surveying local rent rates of comparable properties in the area is the greatest way to gain a picture of local demand when selecting a property. You will be able to roughly predict the return on investment for a certain piece of real estate in that area.
ROI, or return on investment, calculations will help with this. The return on investment (ROI) for a rental property is the expected revenue relative to the cost of the investment. The ROI can be determined by dividing the purchase price by the anticipated annual return. An acceptable rate of return is generally agreed upon as being 10% or higher.
Keep in mind that you can boost your return on investment by making improvements to your property and charging more for rent. For instance, the value of a single-family home increases dramatically once it has had an extra bedroom and bathroom added to it. You may have purchased the home at a discount during a market correction, but you will quickly recoup your investment through increased income and/or capital appreciation once the market recovers.
Casework and Paperwork
Buying a rental property also involves completing several legal and bureaucratic requirements. You should have a professional property inspector look it over before you commit to buying it. After committing to a purchase price, finding out the house has major infrastructure issues or water damage is a deal breaker.
Verifying the seller’s legal title to the property, checking tax records, and drafting a thorough purchase agreement are also critical steps. The use of a representative is optional here. The purpose of this document is to define and clarify the sale’s terms so that you understand precisely what you’re purchasing. Your lender has ownership in the property, too, so they want to make sure you’re not making any mistakes before giving you a mortgage.
Several difficulties come along with becoming a landlord for the first time. Finding and evaluating a fantastic bargain that can put you on the path to financial independence is the first thing to do. If you follow these guidelines, you’ll be able to invest in real estate with confidence no matter the time of year.