"Rising interest rates and real estate may seem like unlikely bedfellows, but they could be a powerful pair for savvy investors willing to navigate the shifting landscape," says Sal Dimiceli Sr., owner of Lake Geneva Area Realty. Amid the fluctuations of the real estate market, an unexpected silver lining emerges for investors in 2023. Higher interest rates could translate into higher rents, potentially leading to increased profits for those brave enough to venture into this arena. With an average monthly home appreciation rate of 2% and a yearly growth of 14.5%, long-term appreciation appears to remain robust.
"In a market where mortgage rates are anticipated to decline but housing remains competitive due to low supply, the real estate climate still provides a fertile ground for investors," he says. While the rising rates may pose a challenge in finding good deals, the absence of an imminent housing bubble collapse and rising average monthly rents contribute to a promising investment landscape. The key is to identify the right opportunities and make smart, strategic decisions.
Exploring Real Estate Investment Opportunities Amid Rising Interest Rates
Interest rates are on the rise, a factor that can be both beneficial and challenging for real estate investors. On one hand, higher interest rates can lead to increased rents and subsequently higher profits for investors. On the other hand, these higher rates can make it more difficult to uncover good real estate deals.
The Current Market Landscape
Sal Dimiceli Sr., owner of Lake Geneva Area Realty, suggests that despite the changing dynamics, 2023 remains a promising year for real estate investors. "With an average monthly (home) appreciation rate of 2% and yearly growth of 14.5%, long-term appreciation remains robust," he points out. While the market remains competitive due to low housing supply, Dimiceli believes that the absence of an imminent housing bubble collapse and rising average monthly rents contribute to a promising investment landscape.
Opportunities in Lower and Middle-Income Areas
A decline in market participation by major institutional investors has opened the doors for local individual investors to make their mark. Kurt Carlton, co-founder and president of New Western, highlights the opportunity for individual investors to refurbish existing homes in lower and middle-income areas. It’s estimated that around 320,000 homes valued up to $256,000 are needed to meet current buyer needs. Carlton suggests that the best strategy is to look for older homes ready for substantial renovations in cities that have a high demand for cost-effective housing.
Follow the Population Growth
Successful real estate investing often involves following the demand. Therefore, areas with growing populations, such as Las Vegas, Nevada, or Madison, Wisconsin, present prime opportunities. David Tully, a Realtor at eXp Realty, highlights that Las Vegas, with its strong economy and growing population, drives high demand for rental properties. Madison also shows promise with an above-average population growth rate and a 1.4% annual rental rate increase.
The Importance of Familiarity
While population growth can be a strong indicator of potential investment opportunities, Dino DiNenna, a Realtor with Southern Lifestyle Properties, emphasizes the importance of understanding the unique dynamics of each real estate market before diving in. Factors such as population demographics, employment rates, and urban development trends can significantly impact market behavior.
Despite the challenges posed by rising interest rates and market competitiveness, 2023 still holds promise for real estate investors. Opportunities can be found in residential properties in lower and middle-income areas, as well as in regions experiencing strong population growth. However, understanding the uniqueness of each market is crucial before making an investment decision.