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The housing market is an increasingly challenging place for investors right now. The costs of investing in real estate are undoubtedly rising, with more funds required both upfront and on an ongoing basis. Additionally, competition for good investment leads is fierce amid an ongoing shortage of homes for sale.
Fortunately, there are solutions to these challenges. They lie in the realm of precision data collection and analysis.
Top Real Estate Challenges in 2024
Here, we will cover the most pressing challenges facing real estate investors right now, and the ways in which data-backed tools can help them make game-changing tweaks to their investing strategies.
Low inventory
The challenge of low inventory is persistent, with no current indicators that it will improve anytime soon. Low inventory has shaped the U.S. housing market since the spike in interest rates from the historic low of 2.65% in 2021. Since then, interest rates have tripled with a high of over 8%, causing homeowner reluctance to sell due to the lock-in effect. Home sales have slowed dramatically since 2022.
The fact remains that current interest rates just cannot compete with the historically low rates homeowners locked in before 2022. Homeowners are hesitant to move and take on mortgages with much higher rates; their reluctance to sell is completely understandable. And although there are signs that interest rates are stabilizing, we’re just not there yet in terms of what sellers would like to see—and we won’t be there in 2024.
As Rick Sharga, founder, and CEO of CJ Patrick Company, a market intelligence and business advisory firm, told Forbes, “I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low-5% range, so probably not in 2024.”
Low inventory will continue propping up high home prices, and this will continue to present real estate investors with the challenge of finding affordable investment opportunities. However, there are ways investors can expand lead generation and maximize investment opportunities without having to wait for inventory to grow. The key is to identify off-market properties that are owned by motivated sellers—people who want to and have to sell sooner rather than later and will be more flexible on selling price.
Enter PropStream. Its powerful data-filtering tools allows investors to search any market in the U.S. (over 155 million properties), identifying off-market properties with motivated homeowners who need to sell based on over 120 filter options.
This granular approach means that an investor can have a much better understanding of what exactly is motivating a particular seller. A seller motivated by financial distress and/or threat of foreclosure requires a different approach from one desiring a home upgrade or a retiring homeowner wanting to downsize.
Identifying motivated sellers with precision allows a potential investor to tailor the best possible offer that will be effective and attractive to the specific seller. This is a much better lead strategy overall than relying only on SEO and outbound marketing or referrals.
Traditional lead-generation methods simply do not capture the entirety of existing opportunities. As an investor, you also can really stand out from the crowd if you are making a personalized offer that takes the seller’s specific circumstances into account.
High interest rates
High interest rates hit investors, too, not just regular buyers. Inevitably, those higher monthly mortgage payments have to translate into higher rent charges, which can make it more difficult for investors to find and retain tenants.
To illustrate the point, the average monthly mortgage payment in the U.S. reached $2,268 in 2023, an almost 50% hike from only two years before, when the average monthly payment was only $1,525.
Higher mortgage costs, coupled with rising home insurance costs, is bad news for investors at a time when rent growth is sluggish across the country. The solution? Access to more—and more accurate—data that will help investors identify better deals and combat the problem of higher monthly payments.
For example, filtering a property search by mortgage type, rate, and mortgage balance can help you zoom in on investment opportunities where an existing, low-rate mortgage could be transferred to you or where the mortgage balance is low and can be paid off sooner, making your investment more profitable in the longer term.
PropStream provides deep-dive insights into 155 million-plus properties nationwide, including mortgage and financial data. Armed with mortgage related information, you can make better investment decisions and achieve higher ROIs.
Of course, it’s never wise to make an investment decision solely based on lower monthly payments. You may be focusing in on an area where there aren’t suitable properties with transferable mortgages, for instance.
The solution here is not to write off suitable leads with high-interest rate mortgages but to look into more financing options. Creative financing can be a viable option, for example.
Remember: As an investor, you are not necessarily as constrained by a budget as a buyer who plans to live at a property. If the home is a lucrative investment opportunity and ticks all the other boxes, it can be worth it to secure alternative financing.
High competition for affordable investment opportunities
Finally, there is no way around the fact that the overall higher cost of housing across the U.S. is leading to lower returns, creating a feeding frenzy among investors for more affordable properties. Everybody wants below-market-value homes, and when these hit the market, fierce competition ensues.
Many investors rely on their local agents and the MLS to locate less expensive investment opportunities. The problem is that even if you have a good relationship with the agent and they have promised to alert you to new opportunities, it may just come down to where you are on their list of multiple investors.
The solution? Stop competing, and look where no one else is. You have to search beneath the tip of the iceberg for properties that haven’t yet been put on the market but could be soon.
What you need to do is identify homeowners with a high propensity to sell in your area, gather relevant data about the situation and the property, and then craft an offer that both gives the homeowner confidence to sell and gives them a valuable solution to whatever issue they may be having with the property.
It’s important to stress that you’re not necessarily or exclusively looking at pre-foreclosure properties. A homeowner may be reluctant to sell because of the repairs the home needs (which they feel they can’t afford) or because they have an insurance problem. There are a whole range of situations out there, and it should be your goal as an investor to tailor the best possible outcome for both yourself and the seller.
Utilizing PropStream’s data, you can identify properties that present profitable opportunities based on sellers’ current situations. Once you’ve located homeowners likely to want to sell, you can put yourself in a strong negotiating position by having access to the right data about the property.
About PropStream
PropStream® is the most trusted provider of comprehensive real estate data nationwide. We empower real estate entrepreneurs with the data, tools, and marketing solutions needed to make informed decisions and stay ahead of the game.
This article is presented by PropStream
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
