Small Real Estate Investment Markets: The Perfect Storm

In the climax scene from the movie , a rare combination of weather circumstances converge to create a storm of immense power creating an event of unusual magnitude. Just like in the movie several factors are mounting as evidence that a perfect storm may be building for individuals and small firms interested in investing in real estate.

In other posts we have mentioned investing in real estate even part-time is a great alternative to riding the stock market roller coaster. Let's look at 3 converging factors in a perfectly developing investing market.

Interest Rates Rising

When the Federal Reserve begins to taper off its infusion of money into the mortgage industry, there will be more rate increases. This will hit first time home buyers the hardest, just as they were beginning to re-enter the market. First time buyers activity is down around 29% from a historical average of 40 percent. This will cause more individuals to rent thus leading you to more rent to own or leasing options for your flipped homes. Rising interest rates will become a barrier to many considering a home purchase.

The Problem for the Younger Generation

Both Generation X and Y are immersed in the largest student debt in history. Student debt now tops $1 billion and is growing. With student debt delinquency rates rising and now the biggest non-mortgage debt sector in the U.S., there just isn't any money left for a mortgage or a down payment. As long as rental unit supply can keep up with demand, the younger buyers will stay out of the buying markets. A lack of wage growth and higher home prices and interest rates will likely continue the trend of a drop in home ownership for the young.

Baby Boomers

Latest statistics show that about 10,000 Baby Boomers retire every day. Many of these retirees have little if any retirement savings. There will be a strong demand for entry level or affordable rental housing on a social security budget. It's a niche market and not for all investors, but there will be a high demand for smaller homes and units near medical, entertainment and shopping facilities.

Being Prepared for the Storm

It is important to note that over the past year, about 30 percent of all home purchases were made in cash by investors. They are buying in bulk for institutions and large banking firms, turning the inventory into rental housing or first time home owners.

The smart small investor shouldn't be discouraged by the big competition. Being aware of your market is the key. There are many people out there who lost homes to foreclosures that their only option is leasing or renting. And now with the younger would-be first time home buyers expecting to rent for years, there is going to be demand for something "better" than an apartment.

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