How To Navigate An Uncertain Economic Climate As A Real Estate Investor

The current economic climate is turbulent, to say the least. Influences such as inflation, fluctuating interest rates, sudden onset of global pandemics, and changing government policies, among others, are constantly informing the value of real estate investments.

As a real estate investor, it’s essential to keep up to date with all of these influencing factors and make informed investment decisions. In this article, we’ll discuss how you can best choose and manage your real estate investments in an uncertain economic climate. Let’s begin.

Factors To Consider For Real Estate Investment

Let’s get into the most essential factors you need to stay in touch with when navigating today’s property market.

1.   Property Location

No matter what the state of the economy is, your investment property’s location is the most crucial aspect of how lucrative it is. When considering investing in buying and/or selling land, you need to scope out the right location.

When we say “the right location” we mean different things for different types of rental properties.

For example, if you’ve invested into a residential property like an apartment complex or a condo, the right location would be close to amenities, marketplaces, preferably with a scenic view as well.

Prospective tenants are more likely to be attracted to your property if it’s convenient for them to get around and get things done. A close proximity to transportation, shops, and freeways play into your investment’s rental value.

It’s also important to consider the future of your property if you’re investing long term. A quiet and empty plot of land right now could become a problem down the line if occupied.

You have no control over surrounding properties, so it’s best to make an informed judgment. Look around, ask the locals as well as experts you know about the intended use of any empty land surrounding your property. Public entities like town hall can help you gauge the usage of these empty plots.

In the current uncertain economic climate, there are so many factors that remain out of our immediate control. It’s vital for your investment’s success to weigh all the information you can find and go for a decision accordingly.

2.   Property Valuation

The economy is always fluctuating, consequently, the value of properties is always fluctuating as well. Still, there are some properties that remain high-value despite the turbulence. Listing prices, insurance, taxes; all of these depend on the overall value of your property.

Therefore, for your investment to pay off, you need to conduct in-depth research into the valuation of the property you’re buying. Here are a few ways you can go about doing this.

Sales Comparisons

This method dictates comparing the recent sales of real estate like yours and deducing the value of your own property. Look at the sale value of any properties around you that fit the characteristics of your prospective rental properties, it’ll give you a better idea of your property’s valuation.

Income-based Approach

An income-based property valuation approach means assessing the expected cash flow from your property. If you’re investing in a rental property, this is the best approach for valuation.

3.   Why Are You Investing?

Real estate is a tricky market to deal with. For one, it has very low liquidity. Since liquidity relates to how an asset can be turned into cash, low liquidity means lesser opportunities sell properties. To avoid a financially distressing situation in an already uncertain economic climate, you need to be sure of why you’re investing in a particular property.

Ask yourself what purpose your real estate investment will serve. Are you planning to purchase and live in a property yourself? If so, you’re likely looking at value appreciation in the future.

Similarly, if you want to purchase and lease a property, you’re likely to get a decent cash flow going if you do it right, increasing the value of your property. Being a landlord is not an easy task though and certainly not for the faint of heart or folks that are short on time.

4.   Handling Loans

Since real estate investments are pricey investments, many folks take out loans when investing in real estate. Think of the long-term interest you’re incurring on your finances when taking out a hefty loan.

If done wrong, you could get yourself into an overleveraged situation which is less than ideal. Research and calculate your projected earnings in the future. This will depend on the type and valuation of the property you’re investing in.

If you’re taking out a mortgage, look into the type of mortgage best suited for your finances. There are several kinds of mortgages out there to choose from such as:

• Interest-only, zero down payment
• Adjustable-rate mortgage (ARM), and
• Fixed-rate

Take your time and keep searching for the best interest rates before settling on a mortgage.

5.   Credit Score

To get a better mortgage deal, you’ll need a high credit score or improve your existing credit score. Ideally, your credit score should be higher than 800 to grant you a good mortgage. If your credit score is lower, here are some ways you can improve it.

• Pay bills timely
• Utilize as little of your credit as possible; ideally less than 30%
• Pay off as much debt as you can
• Keep unused credit cards open
• Reduce requests for new credit
• Go over your credit report and if you find inaccuracies, dispute them with the listed authorities.

6.   Indirect Real Estate Investments

There are ways you can invest in real estate without taking up complete ownership and responsibility of a property. Single-handedly managing real estate is not suited for everyone’s lifestyle, fortunately, there are alternatives.

You can indirectly invest in real estate in the following ways;

• Mortgage-backed securities
• Mortgage bonds
• ETFs and Real estate sector-focused mutual funds
• Real estate stocks
• Real Estate Investment Trusts (REITs)

Conclusion

Navigating a turbulent economic climate as a real estate investor is tricky, the key is to do your due research and remain informed. Conducting thorough research and doing the grunt work will equip you with the knowledge needed to confront the uncertainty and deal with it if the time comes.

Successfully investing in real estate takes up a significant amount of time and energy and you ought to be prepared to invest more than your money into managing your property.