By Michael Del Prete | AZREIA
The 2023 real estate market is in an unusual place with soaring interest rates, elevated purchase prices, and cash flow difficult to find. Such unpredictability might deter novice investors, tempting them to skip this market cycle. However, seasoned investors advise against it.
Recall the age-old wisdom: Don’t wait to buy real estate, buy real estate, and wait. This sentiment rings true for the real estate market this year. While the current market demands a more cautious and strategic approach, the consensus is clear: it’s better to be engaged than on the sidelines.
We sought insights from seasoned AZREIA members while at our monthly meeting in Scottsdale. Their observations on the current market are as follows:
Persistent Highs: Despite expectations, high interest rates haven’t led to a dip in home prices. One seasoned AZREIA member notes, “Many assume there’s an inverse relationship between interest rates and price, expecting prices to drop when rates soar. But that’s not the trend we’re observing.”
Scarce Inventory: With a majority of homes either fully paid off or mortgaged at rates below 4%, homeowners are reluctant to sell and take on a 7% mortgage. This limited availability can drive up property values due to increased demand and limited supply. Furthermore, with fewer properties available for purchase, rental rates may also increase as potential buyers might opt to rent in the interim, further tightening the rental market.
Four Strategies for Thriving in the Current Market:
- Adapt and Overcome: Perfect market conditions are a myth. Every era has its challenges. The key is to adapt and find ways to invest despite the hurdles. Think back to the Great Recession. The market flipped upside down and everyone ran for the hills looking at it as a crash while the savvy real estate investor saw that Arizona was on sale and seized the opportunity.
- Focus on the Future: While achieving immediate cash flow might be a challenge, seasoned AZREIA members emphasize sticking to the fundamentals. With inflation in mind, they highlight the potential for value appreciation and rising rents over the next 5-10 years.
- Get Creative: Seasoned AZREIA members have been leveraging off-market deals, especially seller carryback, Subto, and Wraps. This strategy allows for creative financing arrangements, often resulting in lower interest rates than traditional mortgages.
- Conservative Underwriting: Seasoned AZREIA members emphasize the importance of accurate and conservative underwriting. In the current market, it’s advisable to increase both your expense ratio and reserves. By doing so, investors can create a safety net against unforeseen market fluctuations or property-related expenses. For instance, if an unexpected maintenance issue arises or there’s a sudden downturn in the market, having a higher reserve can prevent financial strain. Similarly, a more conservative expense ratio ensures that even if property expenses increase, the investment remains viable and profitable.
While the current real estate market presents its challenges, it also offers opportunities for those willing to adapt, strategize, and maintain a long-term perspective. To stay informed and continue benefiting from expert insights, don’t miss our upcoming AZREIA monthly meetings. Register now and mark your calendars by visiting azreia.org/calendar. Engage, learn, and thrive with the AZREIA community!