Real estate investing is a tricky business that requires timing, finesse, and adaptability to shifts in the market. If you can navigate the waters though, many fortunes have been built on successes in real estate business.
It’s a challenging time for first-time investors to enter the real estate business, as properties are being gobbled up in a seller’s market that is experiencing rapid sales, aided by remote workers and the pandemic. In this article, we’re going to look at some pros and cons of starting a real estate business in 2021.
Supply will improve by late 2021
Housing supply has been an issue for some time, and it was reported last year that the U.S. is nearly at record lows with a 1.6-month supply of homes available on the market. This has been impacted by bidding wars and inflated prices, making it difficult for both investors and consumers to find properties.
It’s not all a bleak outlook though, as a survey of over 100 economists in a Zillow survey indicated that 43% of respondents expect the return of housing inventory in 2021, and another 26% estimate a much more stable market by early 2022.
It’s a good time to save capital for when more hot-commodity properties open up later in the year, and consider attending real estate business classes to have a strong game early on.
Pricing isn’t showing signs of slowing down
The average home in the U.S. was valued at around $266,104 last December, an 8.4% increase since 2019. Even with this increase though, over 5.64 million homes were sold in 2020, another 5.6% increase from 2019.
There are two factors at play here, urban and rural migration during the pandemic. Remote work allowed workers to move out of cities and into suburbs, or into rural areas. Young tech workers have been leaving California and heading to surrounding states. There’s also unemployment to consider, so people are moving to more affordable locations.
With the exodus of workers from cities, many expect suburban markets to be a very hot commodity, though competition will certainly be stiff. In fact, homes are selling so fast, some sellers are having to unexpectedly lease back the homes while they close the deal on a new property. We can expect a lot of high bidding wars for properties, but by 2021 it will be both a buyer’s and seller’s market.
Interest rates will remain low throughout 2021.
It’s more than likely that the Federal Reserve will favour short-term interest rates throughout 2021, which will stimulate a beneficial atmosphere for commercial borrowers, as well as a continued economic recovery.
The tax cuts for the real estate market allow investors to accumulate wealth over time.
Real estate’s exceptional tax cuts permit investors to develop their wealth over the long run. Rental properties for example are not dependent on independent contractor charges, and real estate investors receive a tax reduction from the public authority.
Because real estate is a business, there are a lot of tax deductibles to be aware of.
Appreciation isn’t slowing down
Real estate will continue to show appreciation value, as the market remains bullish. The population continues to grow exponentially, and as young tech workers flee the big cities to work remotely, we can certainly expect a demand for housing developments and subdivisions to crop up.
Rental properties are valuable as well because it’s reasonable to increase rent alongside inflation and property value increases. Even in areas where tax rates are set by voters, a property value assessment can increase its rent market value. Land appreciation is based on timing and the development of the surrounding area.