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Real estate properties are getting harder to acquire by the day. If you’ve been thinking about real estate investing, but you haven’t yet started, you have a limited window of time to jump into the game.
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Properties Are Getting Harder to Acquire
The housing market is booming in many areas, but there aren’t enough properties to meet the investing demand. However, a lack of inventory isn’t the only reason properties are becoming harder to acquire. Properties are scarce, but the current market isn’t a fair competition for all buyers.
In a normal real estate market, you’re competing against other investors and/or first-time homebuyers. While you might end up paying a premium for some of your acquisitions, that premium won’t price you out of the market at every turn. Unfortunately, that’s not how the market is operating right now.
In some areas, first-time homebuyers andinvestors are being priced out of the market by large companies. Investment firms like J.P. Morgan Asset Management and BlackRock have been buying up entire neighborhoods at exorbitant premiums. Some of those premiums are several hundred thousand dollars above asking price. That kind of premium is far beyond what a reasonable homebuyer or investor is willing to spend.
According to The Atlantic, BlackRock and other firms aren’t competing with individual homebuyers, since they’re buying up properties that need repairs. Although that could be the case, it’s still questionable since they’re buying entire neighborhoods at once. Regardless, it’s putting homes far out of reach for investors who can’t compete.
While the massive home grabs are mostly happening in Texas and Florida, it’s starting to spread to additional states. This is only going to make the real estate market more expensive. If you want to get into investing, now is the time.
If You Jump Into the Game Now, the Rules Haven’t Changed
Although the market is more challenging, traditional investment rules still apply. For example, if you plan on acquiring rental property, it’s important to generate a rental estimate to make sure it’s worth buying, especially if you’re paying a slight premium.
What seems to have changed is the buying power of investment firms. They’re acquiring massive amounts of investment capital and sinking it into housing. Sellers are more than happy to accept offers above market value; they’d be crazy to reject a high offer.
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New Constructions Are Coming to a Halt
You may have noticed that new construction has come to a halt in many areas. While this was originally said to be caused by the rise in lumber prices, there could be more to the story. Lumber prices have gone down, but new constructions are still on pause.
The lack of new construction means that homebuyers are buying existing properties instead, and that leaves fewer properties available for investors. If you’re going to start investing in real estate, get in now while there are properties available.
Can’t Find Local Property? Consider Investing Out of State
It’s not too late to get into investing, but you might have a difficult time if you live where these investment firms are buying. If you can’t compete for local investment properties, you might need to invest out of state. Investing out of state isn’t bad, but it does make things harder. For instance, you’ll have to hire a property management company to take care of your property and tenants.
Your Window of Opportunity Is Closing
Although all housing markets eventually rebound, this situation could be different. Aside from the financial collapse of 2008, there hasn’t been a time when so many investing firms have bought properties. Even in 2008, they were buying properties in foreclosure. Buying properties at enormous premiums is new.
If you’re serious about becoming a real estate investor, the time to jump into the game is right now. While the market may turn around later, you could be waiting quite a while for things to change. To get ahead of the game, you might want to consider alternative investing routes. For instance, think about diving into investing in real estate with your 401k Using your retirement fund to invest in real estate is a very intelligent way to diversify a portfolio while simultaneously reducing your tax burdens and reap a few income tax benefits. It is not without its risks (especially during a volatile market) but may offer a great opportunity for your investment future.
Considering the Market, It’s Okay to Settle
Investing in real estate is a good choice for generating long-term wealth. Don’t miss out on getting started by passing up less than ideal properties. If the market remains as it is, worst-case scenario, you can sell your first property and start fresh.
Start by acquiring your first property, even if it’s not your first pick. Competition is fierce, and you might need to settle for whatever you can get. However, given enough time, the market will eventually return to normal and you can acquire better properties then.
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