Real estate investing is not as easy as it seems. Certain factors determine the real estate market, which is out of your control. These factors affect the market irrespective of the work and dedication put into your investment property. Some are based on the economic theories, while geographical, political and demographical trends facilitate others. These factors affect the housing prices, optimal rental strategy and even returns on investments.
For guaranteed success in the real estate market, one has to have an understanding of these factors in other examine the conditions of your market and ascertain if buying an investment property at the time is a smart decision. Below are four factors which influence the real estate market:
1. Demographics: More often than not, demographic factors such as age, race, gender and median income are overlooked. However, they play a vital role to property investors. These factors would enable the anticipation of real estate market trends, in turn, influencing your investment decision. For example, having an understanding of areas which is home to millennials or retires can provide you with better knowledge of your potential buyers or renters. This will also affect the best type of rental property to invest in and what to look for in an investment property.
The housing market, in terms of demand, is likely to be affected by this factor. It is pivotal for investors in the property market to observant about the population increase or decrease.
2. Economic Conditions: There is a positively correlated relationship between the real estate market and the economy. When one increases, the other does and when one decreases the other decreases as well. The general state of the economy would eventually affect the value of real estate. This is the overall measurement by economic indicators such as the GDP, employment data, manufacturing activity, the prices of goods, etc. When the economy is slow, so is real estate. Ordinarily, the demand for home rests on the pillar of an income. When the economy is strengthened, and incomes are rising, there would be money for people to spend on properties, in turn, increase the demand and push the prices higher. A country with a strong and robust economy and low unemployment rates all contribute positively to the market, which helps to drive growth.
3. Geographic Location: Do you sometimes wonder why some properties in some cities are more expensive? This is because of the geographical location of where the investment property is, influences the housing market. Properties near the waterfront are usually priced higher than one not on the water. This because owning an investment property in such locations is riskier due to the geographical location, and an investor would put more into insuring the property.
4. Supply of Homes: There are several reasons why property investor should monitor supply vs demand. One of such reasons is to ascertain whether a real estate market is a seller’s or a buyers’ market. Also, a reduced supply will take the rental property prices up while a surplus supply will cause the prices to go down. This is basic economics. Having an understanding of this will influence your investment decision, irrespective of whether you are a buyer or seller.
Keeping an eye out for construction and buildings coming to the future housing market is one thing a smart real estate investor would do. Ensure that the supply of housing will be able to keep up with the increasing demand. However, it would cost you if you invest where there are more properties than people entering the housing market because this could result in high vacancy rates.
Real estate investing has always proven to be a great way to earn money, however, the important thing is investing in the right market. A successful investor understands that there are certain situations beyond control that could influence the market but keeping an eye out for them is important to ensure smart investment decisions are made.