In a world where increasingly digitized investments compete for attention and money – from cryptocurrencies to themed exchange-traded funds (ETFs) – trusty old land is still the most sought-after long-term asset, according to a recent Bankrate survey.
Yet despite its enduring popularity, real estate is becoming increasingly out of reach for more Americans. First-time buyers accounted for just 26% of all home purchases last year, the lowest portion on record. It’s also getting harder for the young to get their start, with the median age for a first-time buyer rising to 36, a historically high number.
Owning a family home – core to the American dream – is no longer a reality as it was in generations past. That means getting in on the real estate game requires more know-how. This post will look at the state of the real estate market now and strategies to get started in real estate investing in 2023.
Like much of the economy, the property market is giving off a curious mix of signals.
Despite the market cooling and a drop in overall sales due to increased interest rates, prices still hit record highs. Last year the median price for a home reached $386,300, up 10.2% from 2021.
Yet, pockets of the country are still inexpensive. This is especially true for the South. According to a study of 179 markets by the National Association of Realtors (NAR), many cities in the South are prime for real estate growth. The affordability of homes, job growth, and inventory in the area is expected to trigger a boom in value.
To get started, people looking to buy real estate need to get their finances in order, which starts with a healthy credit score. It is vital to have an excellent score to have better negotiating power for a reasonable mortgage rate, which helps close deals.
Aspiring buyers should also increase their savings rate to have enough money to put in a down payment. That can include cutting unnecessary expenses and spending less. If the goal is real estate, it takes good credit and a down payment to close the deal. The more you can improve these areas, the easier it becomes to buy that first home.
The trends show a higher barrier to entry for real estate, and conventional wisdom has us believe we need a good lump of cash to enter the market. However, that is not necessarily true. There are a variety of ways of clearing the high barrier to entry.
For instance, you can try house hacking, which does not need much capital upfront to get into the property. Also, with Federal Housing Administration (FHA) loans from the Department of Housing and Urban Development (HUD), you can get a first-time home with a down payment of 3.5%. Then you can rent out your rooms in your house or buy a duplex and rent the other half. That rental money can then pay off your mortgage.
Airbnb is like the advanced version of house hacking. Instead of having long-term residents, you could have short-term residents and will have higher returns than those long-term residents.
‘Bird Dogging’ method is another unique approach. This involves seeking out different properties for real estate investors to make a deal. You then get paid a fee for your work.
For those who don’t have the means to own a home outright, property crowdfunding is available. This allows several investors to pool their money together and buy a real estate investment property with the contributed pool.
You may need more time or money to get into a property, but crowdfunding allows the experts to manage, buy, and sell properties, and it takes minimum investments.
With many crowdfunding sites, you start as low as $500 or up to $10,000, allowing many people needing more capital to get started immediately. These crowdfunded real estate projects will enable you to spend your time focusing on other aspects of life and making real estate more of a passive income.
Crowdfunding does come with drawbacks. These projects may be affordable, but you must rely on others to manage and produce results. Some deals may return a little. It can be risky, but there is also the possibility of greater reward. Therefore, real estate is often used as a means to diversify a portfolio rather than a sole investment.
Real estate investment trusts (REITs) are another alternative. Often traded on the stock market, these funds offer another means of profiting from the real estate sector without owning property outright. Note, however, that REITs are not as tax-efficient as crowdfunding.
With crowdfunding, you can pick and choose your properties, but with REITs, the management company picks and chooses, and you may need to know what is being done with your money.
Investing in real estate is intimidating, yet armed with the right strategy, newcomers can still make it into this market and build long-term wealth.