Is Fall the Season to Start Investing in Real Estate?
If you are reading this, you are already intrigued by real estate as an investment opportunity. It's an exciting business where many people have started with a relatively small investment and reaped significant rewards over time. Unlike putting money in a stock or mutual fund subject to wild fluctuations in value in just a few weeks or months, it takes sustained economic disruption to affect real estate. Yes, we've certainly seen disruption play out in 2020. The COVID-19 pandemic strangled the incomes of many renters, affecting their ability to pay rent. Real estate is, however, largely resilient; if you purchased a property to cash flow, you could very well weather a few bad economic quarters and withstand lower earnings, at least for a while.
4 factors to help you determine if fall is a good time to purchase a rental property.
During a typical year, fall signals that most kids are back in school, which means families are eager to settle down if they haven't already. Housing in highly rated school districts is always in demand. Families who cannot purchase a house will be looking to rent in a good school district if they have school-age children. If you have a rental property in these districts, and you are marketing to families with school-age children, you could have it filled as soon as you show it to a potential tenant.
Winter moves in
In most northern states, winter means a slowdown to real estate activity. With cold weather and holidays approaching, there's generally less buying, selling, and moving going on. There is still demand for housing in the fall because anyone considering a move will want to get it done soon. If you can get your rental property on the market in October or early November, you're in a good position to ensure you will have new tenants move in before the snow starts falling.
Do local rental rates support investment now?
A prospective real estate investor can use a good rental rate evaluation tool like Rentometer to see the neighborhood's rental trends over every season for the past 48 months. This will help you determine if likely market rates for the fall will give you enough cash flow to support your investment. If you find a deal, you want to fill it quickly. Price it right, and you'll appeal to tenants' urgency to get into their new home before the weather derails moving plans.
Summer sellers get motivated by fall
If someone has had their house on the market all summer, they may be ready to deal. Yes, even if the market is hot. Someone who has held out over the busy season may have been unwilling to negotiate much at the time, but now faces reduced interest and activity. A seller in this position might decide they need to make a move before winter. A situation like this could reveal a good deal from a motivated seller during the fall months.
These current rental housing market indicators suggest that fall could be a good time to invest in real estate
Shortage of low- to mid-priced rentals
Over the past eight years, home prices have increased year-over-year, which has supported the robust demand for rental housing. Many people hoped home prices would come down by the time they were ready to buy and are still waiting for that to happen. Others have decided it's wiser to continue to rent rather than get stuck with a big mortgage if the market crashes like it did in 2008. According to Buildium, these market factors have led to increasing demand for low- and mid-priced rentals. This demand creates an opportunity for a real estate investor to fill the void.
Rent control regulations more prevalent
The pandemic-induced economic turmoil has forced many local governments to impose more stringent rent control regulations. These regulations affect whether, when, and how much a landlord or property manager can raise the rent. (For a deeper dive, see our related article on rent control.) Greater regulation may prompt some investors to cash in while their market is hot. Real estate investors looking for a deal this fall might find willing sellers among "Mom & Pop" landlords who are ready to hang up their keys.
Secondary markets are ripe for the picking
Most media coverage on rent regulation reduced earnings, and out-of-control housing prices revolves around large metro areas with booming economies. Examples of these markets are New York City, San Francisco, Boston, Los Angeles, Washington, D.C., and Chicago. Secondary markets include mid-sized cities or towns that have seen steady growth but still have less competitive housing prices than you'll find in primary markets. A few examples of strong secondary markets are Austin, Charleston, Charlotte, and Miami.
These secondary markets boast neighborhoods that appeal to millennials and baby boomers alike who want walkable suburban living, short commutes, and a small-community atmosphere with shopping, transportation, and other amenities nearby. Even though rent and home prices have increased in these areas, they are still affordable and in demand. These factors make secondary markets the perfect place for a real estate investor to find a deal.
Real estate investing is typically a "buy and hold" game. Investors benefit from a slow-burn appreciation of their property while tenants help them pay down mortgages. Plus, there are tax advantages to holding real estate, all of which combine to make it a smart and worthwhile investment – after all, people will always need housing.
Successful real estate investors will tell you that the right timing to buy your first investment property is similar to the old Chinese proverb, "The best time to plant a tree was 20 years ago. The second best time is now." Deals will come in different forms at different times – and of course, there is no guarantee of success – but you must begin to succeed.
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