The real estate market is red hot. In Albuquerque, houses are selling as soon as they’re listed, and owners are seeing rapidly rising home values. If you’re wondering why the housing market is so energetic lately, you’re not alone. Many of our clients are considering whether sell their investment now and cash out, or look to add to their real estate portfolios.
In this blog, we’re going to discuss a few core characteristics of an investment in real estate, and analyze why many investors are solidifying their positions in the market right now.
Remember, this is not personalized investment advice, but hopefully we can shed some new light in the exciting landscape of real estate investing.
What Makes Real Estate So Great?
When you buy your first home, you reach an important benchmark in life. You become a homeowner and officially lay your claim on the land. It’s exciting. Usually, Americans strive to reach this benchmark as soon as possible, and for good reason.
It’s no secret that investing in real estate is one of the easiest, most commonly used strategies for accumulating wealth. Robert Kiyosaki, the author of Rich Dad Poor Dad says “Real Estate investing, even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth.” Robert identifies a crucially important quality of the market–the fact that real estate investing works on a small scale, making it an accessible investment vehicle for everyone.
Though there are many reasons to invest in real estate, these three attributes are crucial to understand when considering macro-economic conditions:
- The Market
The housing market is secure, flexible, and designed for simplicity. Our society wants to see people in homes, so our financial system is designed to significantly assist us when it’s time to buy a house. Banks give us loans, which allow us to access a greater amount of capital than we’d normally have. By doing this, they give individuals “leverage” and lower the barrier of entry into the market. Additionally, whether they are growing up, getting old, or just looking for new scenery, there will always be someone who needs housing. The speed of the sale and the price you get depend on market conditions, of course, but the exit strategy is sound.
- Tangible/Experiential Value
A property is an investment, sure. But it’s much more than that. It’s where you seek shelter from the storm. It’s where your son learns to ride a bike and where your daughter takes prom pictures. Or where your new puppy keeps peeing on the carpet. And if it’s not any of these things for you (because it’s a rental), it will be for someone else. Houses are physical things that you can feel and make memories in. Who doesn’t want to feel their hard work pay off rather than
see numbers on a screen? Most investment vehicles are just that, investments. Real estate not only beefs up our bank account, it also serves us in our day to day lives.
- Hard Asset/Hedge Against Inflation
Real estate is a hard asset, meaning it physically exists in the real world and has utility. In other words it has intrinsic value. Because of this, it will have value regardless of the market circumstances. During inflationary times, home values and rent prices go up. Or rather, the purchasing power of the dollar goes down in comparison to the value of the property.
Many investors look to protect their wealth during times of anticipated inflation by investing in hard assets like gold and real estate. However, unlike commodities, real estate can also be used to generate income and cash flow, making it a much more flexible investment, especially for small scale investors.
Why Right Now?
Since the beginning of the Coronavirus pandemic, economic uncertainty has loomed above our heads. Investors aren’t sure whether to be cautions due to the dramatic impacts of world wide shut down (permanently shut down businesses and high unemployment), or the second order effects which will come from printing trillions of dollars in stimulus packages. (For reference, the initial three trillion which was created in 2020 now accounts for approximately 40% of our currently circulating money supply.) Regardless, they’re deeply concerned. The underlying sentiment for tycoons and small scale investors alike is to carefully navigate these complex and unprecedented times.
Economic uncertainty calls for precautionary action. While all investments innately have risk, due to the reasons outlined above and more, the real estate market has a relatively low risk compared to equities, bonds, and other traditional assets. Additionally, interest rates are exceptionally low. Just two years ago, in 2019, interest rates were ~4.25% on a 30 year mortgage, however, during the height of the pandemic interest rates astonishingly went below 2%. And while rates have risen some over the past year (~.25%), the opportunity remains. Low interest rates create an ideal environment for those looking to build their wealth.
Wrap Up
Macro-economic conditions are steering large amounts of capital into the real estate market. Savvy investors anticipate an inflationary environment in the near future, and are acting accordingly by allocating more of their portfolios into hard assets. Hard assets, like real estate, preserve purchasing power so many investors use their positioning in real estate is a defensive measure. However, low interest rates entice some investors to move aggressively. Thus, we find ourselves in this hyper-active housing market full of opportunity.
Whether you’re looking to buy, sell, or rent a property, Thunderbird Property Management and Realty Company will be your best ally. We are industry experts, and help you navigate and identify exciting opportunities so you can invest with confidence.
