Real estate is often touted as a nearly foolproof investment, as historically, property values have gone up over time. But in the current high-interest-rate environment, Jaspreet Singh, founder of Briefs Media, said that you really have to be sure a property will be a good investment before deciding to buy.
Here is Singh’s advice for anyone looking to invest in real estate right now.
Understand the Realities of the Current Real Estate Market
Singh said that it’s important to be aware of the truly unique market we are in before deciding whether or not you want to invest in real estate.
“Higher interest rates generally push real estate prices lower. We’ve seen mortgage rates go from sub-3% in 2021 to above 7% in 2023. If interest rates keep rising — and stay high — we will eventually see the effects of higher interest rates on the real estate market,” Singh told GOBankingRates. “I say ‘eventually’ because we are still facing a severe shortage of homes available for sale.”
Because of this shortage, we have yet to see the dip in prices that usually accompanies a surge in interest rates.
“That being said, I should also point out that nothing is guaranteed,” Singh said. “If the Fed starts cutting interest rates, that could cause real estate prices to soar again.”
What This Means for Real Estate Investors
Singh is a real estate investor himself, so he is taking the current market into consideration when deciding whether or not to invest, especially with home prices remaining high.
“This makes me very cautious and picky,” he said. “Many current real estate listings are overvalued. If a property isn’t producing strong positive cash flow after all expenses, it isn’t a good deal for me.”
Singh will only invest in a property if the cash flow from rental income can overcompensate for the high costs of buying in the current market.
“Many listings I’ve looked at recently aren’t producing positive cash flow after accounting for the higher mortgage interest rates,” he said. “I don’t want to jump into a real estate deal just because it’s a ‘hot deal’. I want to make sure it makes sense financially. And right now, the higher mortgage interest rates are making it harder to find good deals, so I’m being patient.”
Still, there are some properties that will be worth buying, even now.
“I am looking [for properties] in neighborhoods with growing business demand and populations,” Singh said. “You can do a quick Google search to find this information.”
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Gabrielle Olya contributed to the reporting for this article.