When creating a strategy for your real estate investments, you need to think about which elements will impact your profit margin. In any market, there are specific factors that will affect your investment. If you plan on investing in real estate, here’s 6 key factors that can impact the market:
Demographics
Demographics of the real estate market can have a lasting impact that many investors often overlook. Demographics include age, gender, income, and population growth. These factors can contribute to real estate market trends, generating results that can last decades. Investors should always think about how the current demographics of the real estate market affect supply and demand, and how they will affect the future of the market. When generations retire, there will always be a shift in current trends and the type of demand in the real estate market.
The Economy
Th overall health of the economy can have an effect on the real estate market. For example, the nation’s GDP, employment data, and price of goods can all have an effect on real estate. When the price of goods is rapidly going up, you can expect to see construction costs go up which in turn impacts the real estate market. It’s not uncommon to see short-term real estate feel more downturn than long-term real estate during a declining economy.
Government Policy/Subsidies
Government policy can affect the real estate market by temporarily stimulating demand. When the tax credit for first-time homebuyer’s was introduced in 2009, this limited- time tax credit was taken advantage of by many homebuyers, creating a boost in demand in the market and helping to jumpstart the economy. Tax credits, deductions, and subsidies are just some of the ways the government can temporarily stimulate the real estate market.
Interest Rates
It should come as no surprise that interest rates are one of the key factors that impact the real estate market. When the market is experiencing low interest rates, there is a higher demand for housing. For many homebuyers, paying a smaller interest rate on a property is an incentive to purchase. Those who are considering purchasing a property but are not fully convinced can be persuaded with lower interest rates. When the market is experiencing high interest rates that are rapidly increasing, there may be a surge in demand as many homebuyers rush to grab a decent interest rate on their loan before the rate gets too high. If interest rates stay high, eventually, demand will die down as these buyers are squeezed out of the market.
Availability of Funds
During tough economic times, insufficient funding can lessen the demand in the real estate market. When emotions are high in the market, there is generally more risk associated with investing. Lenders will be more hesitant to approve loans to those with low personal cash flow. When there is a surge of capital in the market, lenders will loosen their standards regarding your personal cash flow as there is reduced risk. The availability of funds is associated with risk in lending, making it one of the key factors that impact the real estate market.
Supply and Demand
Like any industry, supply and demand will have its effect in the real estate market. Typically, there are two types of markets in real estate: the buyer’s market and the seller’s market. Both based on supply and demand, the buyer’s market is when demand for housing is weak and price can be easily negotiated. A seller’s market happens when the demand for properties is high and there is a shortage of good, quality homes. The balance in the market then shifts toward the seller. It can be hard to predict where the market is going, but listening to key economic factors can help you to develop your strategy.
RCN Capital
RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. Connect with us today to discuss your next real estate investment.
