Although real estate is a relatively dependable source of income for many investors, it still has its ups and downs. The market can vary widely from year to year, and without a proper guide to real estate pricing, you stand to lose a lot of money.
In the past few years, the industry has witnessed a lot of upheaval with recent inflations and a global recession. Thus, some foresight would be immensely helpful for any investor planning to profit from real estate.
Are you a seasoned investor looking for how to tackle your portfolio in the coming year? Or a newbie wondering, ‘is now a good time to buy a rental property? If so, you’re at the right place. Stick around till the end of this article to find out if expanding your investment soon would be worth your while. We’ll also discuss some possible predictions for 2023 below. Let’s get started:
Is Now a Good Time to Buy a Rental Property?
Unfortunately, no one answer fits all for every investor. Whether now is a good time to buy a rental property depends on your risk tolerance, location, and current financial situation. Here’s how:
1. Anticipate High Demand
The pandemic and its subsequent months caused a shortage in housing, peaking in the latter months of 2022. Lower inventory plunged the real estate industry into a seller’s market with more renters than homes available. However, with the return of near-normal activity, housing has increased in the past few months and should pick up subsequently.
2. Expect a Surge in Home Prices
Despite inventory increasing in the future, it’s unlikely that the industry will revert to a buyer’s market. Instead, it’s more likely that home prices will continue to soar as mortgage rates increase. With the cost of loans increasing, homeowners will most likely pass it on to their renters. Bay Property Management Group, Washington DC, can help landlords improve benefits on their rental investment.
3. Evaluate Your Financial Situation
Investing in real estate seems like a tenuous choice in 2023. It would be best to enter the market with a solid financial position and room to absorb potential losses. With the economy down, you might need to budget for more rental arrears to avoid running at a loss. Thus, it might help to be more conservative with your choices till 2023 rolls around.
What’s the bottom line?
If you don’t have a lot of capital, now might be difficult for you to purchase a rental property. That’s especially true if you’re a first-time buyer. As we highlighted earlier, mortgage rates are high and are still likely to rise. However, international happenings could easily throw the economy into a recession and bring down interest rates.
Thus, you could start home shopping now if you’re willing to bear the risk of entering the market at a higher price.
Possible Predictions for 2023
Rising Mortgage Rates
All indicators point to mortgage rates rising in 2023. Some experts even put a figure on that number at around 9%, topping today’s current figures by an additional 3%. Even though we don’t expect such rates to impact the housing market significantly, it’s bound to leave a mark. Higher rates increase the cost of taking loans and could make potential investors shy away from the market.
Higher Housing Demand
One of the first real estate predictions for 2023 is a higher demand for housing. According to experts, buyers are most likely to increase during the spring, and it doesn’t seem next year will be an exception. But, following the rental supply and demand laws, this scenario will likely lead to a seller’s market.
Besides, rising mortgage rates also mean buying a house would be costlier come next year. Thus, property owners that can afford to invest would be few and far between, putting more leverage in their hands.
Increased Mortgage Defaulters
If inflation and mortgage rates continue to soar, 2023 will likely see an increase in mortgage defaulters. Currently, defaulters are at a significant high in US history, with the first quarter of 2022 seeing an 11% increase in delinquencies.
With a recession looming overhead, banks and other lending institutions are bound to take action by introducing stricter lending requirements. Thus, not only is it likely to be more expensive to get a loan next year, but it’ll also be more challenging.
There you have it! As we highlighted earliest, the question, ‘is now a good time to buy a rental property?’ depends on each investor. Although we’re likely to see a rise in mortgage rates in the coming year, there’s still the potential of a recession causing the reverse. Thus, it would be best to be in a financially sound place before you invest.
If you require help deciding if now is the right time to expand your portfolio, you may consult an experienced third party. For example, a professional property management company could be an asset in guiding your investments.