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Property Management Blog

Published on Thursday, December 29, 2016

7 Real Estate Investing Trends For 2017

7 Real Estate Investing Trends For 2017

This week veteran real estate investor and property manager Larry Arth discusses what he sees as 7 real estate investing trends For 2017.

He says optimism is strong but watch these 7 trends.

By Larry Arth

I have held many discussions with investors, builders, buyers and sellers heading into 2017, and their consensus, as well as everything I have read, leads me to this conclusion:

Real estate investing over the next three years will bring slow and steady increases similar to what we saw in 2016.

Now you may be thinking we are navigating uncharted territories with all the changes happening in the political scene. You may see a mixed bag of information making it difficult to assess your investment strategy.

Many are asking, “Why do so many people have such a different perspective on what the market for real estate will look like?”

The reason is because real estate is a broad topic and no one answer can cover such a broad question. Just as a national weather forecast is not much help in your neighborhood, you also cannot give a national real estate investing forecast. That is why you are seeing such a broad array of ideas as to what the investing landscape will look like.

So let’s remove some of the cloud of mystery here and look at 7 trends real estate investors should watch this year. There is a way to invest in real estate and safeguard your investment dollar to ensure you are investing in a safe and sustainable investment if you watch these 7 things.

No. 1 – Housing and technology

More than 60 percent of the population believes that homeownership will continue to improve over the coming years. One thing to watch is the massive amount of technology being incorporated into the housing industry.  Millennials and technology needs go together. So this needs to be watched as the Millennial population is the strongest segment of our tenants and potential tenants based on sheer volume.

This request for technology running our homes will continue to be a dominant force in housing. Perhaps this will be something we, as investors, will want to keep a close eye on. We need to keep up with technology in our rentals to compete with this desire for technology by not just the Millennials but now older, affluent Baby Boomers who also expect certain technology advances in their rentals. Plus if your exit strategy is to sell to the retail buyer sometime in the future this will be a required asset.

No. 2 – Rising interest rates and housing

Perhaps the rising interest rates will not affect the housing market. It depends on what causes the rates to rise.

A large number of people are concerned about rising interest rates because we have become accustomed to the three and four percent rates we have enjoyed over the past decade.

The flip side however is that the economy and job growth, as well as wages, have been stagnant for the past decade as well. In order to keep the economy moving forward the rates needed to be low.

If jobs start to increase again and salaries go up, then the natural progression of affordability of housing will also be maintained. Buying a home tends to be less tied to the interest rates and more tied to the consumer’s feeling of wellbeing. If consumer household incomes continue increasing, the affordability will maintain its strength through interest rate increases.

No. 3 – There are not enough homes for the entry-level buyer

What may hurt the housing market in the near future, especially for entry level buyers is not the interest rates but instead the lack of available properties within the price points favored to the entry level buyer.

This lack of inventory will keep an upward pressure on the housing prices under the simple rules of supply and demand.

It is these types of homes that have been snatched up by investors over the past several years.

As these single-family homes are being made available to renters now instead of home buyers, I believe investor landlords will be well-positioned for good, sustainable returns in the coming years with this rental class.

No. 4 – The issues of new regulation, shortage of labor and buildable lots

There is a high demand for housing and there is low supply. Home builders are obviously happy and content. So why are they not building more at a faster pace?

New regulations have been costly and time consuming. Labor shortage has been a big factor and shortage of buildable lots has been a large factor.

The inability to build faster has kept overall housing supply short. That means prices will continue to rise and may do so until the balance of supply and demand are in check.

Builders are ok with this as they need to keep prices up to offset their increasing building expenses.  All this of course points to sustained growth in value, as long as jobs continue and incomes are sustained to keep housing affordable.

No. 5 – What will the author of the Art of the Deal bring?

What will housing under a Donald Trump presidency look like? There are many thoughts about how Trump will impact housing. Some fear he will cut many government programs and that may lead to a recession. We do know that Trump understands the housing sector is one of the country’s strongest economic engines.

He tapped Dr. Ben Carson to be the head of the U.S. Department of Housing and Urban Development. Both Trump and Carson believe in fewer regulatory restrictions, which should help in keeping rates low and more housing available to more people. Overall many see a Trump presidency as being good for the housing sector.

No. 6 – Location remains king

Many markets are strengthening. This is the time buyer’s markets balance and balanced markets turn to seller’s markets in real estate investing. Now more than ever you want to keep your eye on your market demographics and fundamentals.

When markets that you currently own reach seller-market status, you may opt to reposition for the next best markets. This is perhaps the best strategy for maintaining a strong portfolio. We are definitely at the point of keeping a close eye on the best and transitioning markets.

Markets always rise and fall. They always have and they always will. Real estate is the same exact way. Locations will rise in value and fall in value. Cash flow will rise in availability and will fall as well.

There fortunately is a way to invest in real estate and safeguard your investment dollar to ensure you are investing in a safe and sustainable investment in the right location.

The solution of course is making sure you are investing in affordable markets. This is not to be confused with what you can afford as an investor, but instead the industry standards. You simply want to identify the cities in affordable markets. And, markets running below the national average for affordability are even safer bets. Additional Resource: 3 Ways To Know If Your Market Is An Affordable Market 

In the simplest terms, median income times three should be the median home price. The city you invest in should fit within this rule to be a sustainable investment.

The flip side is, if you can purchase a median priced home for less than three times annual income you may have found an undervalued market which creates a longer sustainable time frame for your investments. Remember the fundamentals of real estate markets and the key things to look for in your real estate investing:

 - Population growth
 - Job growth
 - Job diversity
 - Cities 5 and 10 year vision plans

So location is king. See the big picture, but keep it simple and you will find investing more fun and much more lucrative. Following these simple principles will allow you to make great investments even when you are not sure what the political landscape is looking like because location is king.

No. 7 – The housing market will normalize in 2017 and beyond

Based on everything we are seeing and all the surveys being conducted, I believe 2107 will bring a more normalized housing market.

It is one that still boasts a healthy number of sales, but a moderate rate of price growth. Prices will have a more normal pace of increase and low supply will keep it sustainable. Those who cannot buy will continue to rent and the entry level houses that are in short demand will be winners for the landlords who own and rent them.

Landlords, now more than ever, will want to keep a handle on the latest trends in real estate so they can adjust to meet the wants and needs of their tenants.

Optimism is strong for real estate investing

The optimism looking forward continues to be strong.

 In fact a recent survey conducted by John Burns Real Estate Consulting shows 34% of respondents have an increase in optimism for the next 3 years versus a year ago

Happy Investing!
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Landlord Knowledge Base

If you’ve ever considered investing in a few rental properties in Philadelphia or Bucks County, PA now might be a good time. Prices are still low in Philadelphia, but have been on the upswing. According to the National Association of Realtors, the median price of an existing home in a US metropolitan area grew 13.7% between July 2012 and July 2013, the latest in a 17-month streak of year-over-year price increases. 

New landlords can choose from properties that are likely to appreciate and a large pool of potential renters.Licensed realtor Pat Mueller cites a few reasons for this trend: “Many families have lost their homes to foreclosure and are entering the rentals market for the first time in years. Mortgages are also harder to get now, so fewer people are qualifying for a new one.”The more skills you bring to the table to get into Houses for Rent in Philadelphia Philadelphia or Bucks County, PA and the more time you have to devote to your properties, the faster you can make a return on your investment. 

But investing in rentals can also be disastrous (or too stressful to be worthwhile) without expertise. Here are three professionals you may consult about your new rental properties, and what you can do to mitigate how much they cost you:Handyman:  You may need to hire a specialist for some work on your rental. If you need new outlets or new pipes, for example, hire an electrician, plumber or licensed contractor. Handymen usually tackle smaller, more manageable tasks, like:

  • Painting and paint removal
  • Drywall repair
  • Minor appliance repairs (fixing a leaky toilet or faucet, among others)
  • Installing tiling or flooring, moldings, windows, doors
  • Refinishing decks, cabinets and other wood items

When You Could Skip It: You could do any (or all) of these projects yourself if you have the time and interest in learning. Of course, this only works if you live relatively close to your rentals and are flexible enough to service them on short notice. And if you’re willing to respond to the occasional 5 AM basement flooding.

Average Savings: Any base rates or costs-per-hour vary from location to location in Philadelphia or Bucks County, PA , but nationally, you can expect to spend an average of $60 to $85 per hour for repair costs. It general costs less to hire an individual handyman than a handyman employed by a company. Expect an additional charge if your job requires a trip to the store for materials.

Resident Property Manager As the owner of a handful of rental properties, you may be able to manage them yourself, but if you want help, a single resident manager would probably be more cost efficient than a property management company. Resident managers may:

  • Serve as a handyman
  • Advertise vacancies in your units
  • Show apartments to prospective tenants
  • Review rental applications
  • Collect rents

When You Could Skip It: Again, the closer you live to your properties and the more spare time you have, the less likely you are to need a manager. The obligations of being a boss will also cut into the time you save on maintenance.

Average Savings: The national median wage for residential managers is just over $25 per hour. Research the wages in your community and adjust according to how much responsibility your manager will take on. 

Real Estate Agent: Once you’ve gotten your financials in order and done your own research on the neighborhood(s) you’re considering, you might contact a realtor to show you potential properties. You can also arrange for a realtor in Philadelphia or Bucks County, PA to show rentals once they’re ready to rent.

When You Could Skip It: It depends. Even if you’re a local, or have thoroughly researched the neighborhood(s) you’re considering, a realtor is a great resource for a first-time rental buyer. Realtors have access to data and statistics not necessarily available to the general public and first-time buyers may not know all the right questions to ask. Using a realtor to fill your Houses for Rent vacancies is less of a no-brainer, depending on your other time commitments or whether you plan to hire a resident manager who could do the same thing.

Average Savings: As a buyer of rental properties, as when buying your own home, sellers typically pay most, if not all, of the buyer’s realtor fees. In this case, Mueller points out there’s little reason not to work with a realtor. For help in filling your units in Philadelphia or Bucks County, PA, the services of a realtor would set you back between 10-20% of the unit’s rent per month.  Mueller recommends interviewing with several brokers before making your final decision to invest into Houses for Rent .

The Bottom Line: As a new landlord, you can’t necessarily control the flexibility of your schedule or the amount (and cost) of unexpected repairs to your properties. Rentals are a long-term investment. However, to maximize profits from your Houses for Rent, new rentals, you can buy close to home and start small. It is best to begin with just one or two properties. This will allow you to maximize the time you spend on your properties’ needs, and minimize the amount you’ll have to pay anyone else.


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