Mon. Sep 25th, 2023
How Market Trends Can Impact Real Estate Investment Strategies
How Market Trends Can Impact Real Estate Investment Strategies

If you’re a beginner to real estate investing, this Redfin article explores how market trends significantly influence investor strategies. From timing purchases and sales to choosing investment strategies, market trends are a guiding compass in an ever-changing landscape. 

Discover the secrets to negotiating power, potential profit margins, and how fluctuating interest rates impact financial choices. Whether you’re looking to buy an investment property in Los Angeles or Boston, join us on this insightful journey to equip yourself with the knowledge needed to make informed moves and achieve your real estate goals.

How Market Trends Can Impact Real Estate Investment Strategies

1. Market trends can determine when you acquire vs sell

It’s no secret that buying a home is ideal when the market is classified as a “buyers” market, whereas it is often best to sell a house when the market conditions are classified as a “sellers” market. But what does this mean? A buyer’s market is often characterized by more inventory than demand. This usually means buyers can negotiate a lower price – and even avoid a bidding war with other prospective buyers.

In a seller’s market, there is generally more demand than inventory. Sellers usually walk away the happiest in this situation. They’ll typically experience a multiple offers scenario that produces offers higher than the list price. For investors, selling in a seller’s market is ideal due to a higher probability of earning more significant profit margins.  

2. Laws and regulations may impact what you need to get started and continue operating

State and federal laws may also affect real estate investment strategies, which change yearly. These changes can impact real estate by introducing either incentives (such as tax breaks) or stricter regulations. The latter may deter investors from venturing in a specific city, whereas incentives may drive construction to another.

Karen Suhaka, Founder and Catalyst of LegiNation recommends, “Before investing in a property to list on websites like Airbnb and Vrbo, you might want to check out current short-term rental bills.” These bills can impact taxes and overall rental operations. An example of such regulation is in Seattle, where it is necessary to have a business license tax certificate to operate a short-term rental. Other states, such as California, are proposing bills (SB-584) to impose a 15% tax on short-term rentals, such as Airbnb and VRBO.

Computer generated image of a simple kitchen design with green wall. 3D rendering of modern kitchen interior with  three high chairs at island.

3. Interest rates can impact how much you charge tenants

Interest rates can fluctuate and are determined by numerous factors. Such fluctuations can vary holding costs by hundreds to thousands of dollars. They can even impact your rental strategy. For example, an investor with a higher interest rate is likely to set a higher rental rate to compensate; therefore, they may deter possible tenants. Suppose an investor with a rental strategy purchases a home with a lower interest rate. In that case, they will likely have more leeway in their listed rental price, possibly opening the door to a broader pool of prospective tenants.

Malisa Vincenti, Director of Marketing for Disrupt Equity Partners, shares how “multi-family homes are generally considered to be a safer bet than single-family homes.” This is primarily because, “banks are aware of this risk and are therefore more cautious when approving loans for single-family investment properties. As a result, you can expect to pay higher interest rates on these loans and undergo greater scrutiny in the approval process,” Vincenti adds.

4. Market trends can affect your renovation budget

In either a buyer’s or a seller’s market, considering your rehab budget (and abiding by it) can significantly impact your sales price or rental rate. Undoubtedly, designing a property that will attract buyers and renters should be top of mind. However, you’ll likely receive a greater return if you choose a lower-grade quartz countertop than a similar high-grade, more expensive option.

Kellie Rastegar, Co-Founder & Creative Director of Rastegar Property, shares that “investing in necessary maintenance and strategic upgrades can enhance your property’s appeal and attract more prospective tenants, allowing you to command higher rental rates for your investment properties.” Decide what is necessary to enhance your properties appeal and plan accordingly.

Team of women architect and men construction worker at  construction site. They are looking at blueprint. They are discussing about their project.

5. The current housing market can affect pricing strategies

Consult a real estate agent for their professional opinion when pricing your property. Accurate pricing, whether selling or renting, is essential as it attracts a broader pool of potential clients. Overpricing can deter interest, while underpricing may raise questions about the property’s quality.

Designing a winning strategy involves analyzing market trends and comparable property listings. Consider factors like square footage, bedrooms, bathrooms, design finishes, and location when determining the list price. These considerations are vital in optimizing your property’s appeal and achieving successful outcomes in the real estate market.

6. The changing of trends means you need to be more flexible

Staying updated with real estate market trends is crucial for making informed decisions. Long-term strategies may need adjustments as markets fluctuate. An illustrative example comes from Austin, Texas, where the median sales price surged from $475,000 in December 2022\ to $670,000 in May 2022, benefiting investors with higher profit margins from lower-valued properties.

However, a market downturn followed for those riding the wave of higher sales prices, with the median sales price dropping to $525,000 by January 2023. Days on the market increased, prompting some to reconsider selling and adopt a rental strategy to maximize future sales margins. Understanding these trends can help real estate investors navigate market shifts and optimize profitability.

businessman on cellphone

Real estate market trends wield significant influence over investment decisions, making it imperative for investors to stay up-to-date and conduct thorough research. Market awareness is critical when considering the opportune time to buy or sell, analyzing the impact of interest rate fluctuations on rental strategies, or navigating changing regulations.


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