Real estate investments have the potential to pay off big — but they can also end up costing you big if you choose the wrong property. And although there are no guarantees when it comes to investing, certain types of real estate have more potential than others when it comes to netting you a healthy ROI.
Given the current real estate market, knowing where to invest your money is key. I spoke to top real estate investing experts to get their predictions for the best types of real estate investments for 2022.
Mindy Jensen, co-host of the “BiggerPockets Money” podcast and the co-author of “First-Time Home Buyer, The Complete Playbook To Avoiding Rookie Mistakes,” said that she is “still bullish on long-term rentals.”
“In cash-flowing markets, they are still cash-flowing, and in appreciating markets, they are still appreciating,” she said. “While the Fed has indicated they will raise rates three times this year, rates are still ridiculously low, making these investments a good, long-term choice using leverage to lock in low-cost financing for 30 years.”
“Short-term rentals are also a great option, so long as you’re buying in areas with established short-term rental policies and a healthy, existing short-term market, like vacation spots,” Jensen said.
However, avoid investing in short-term rentals in areas with more ambiguous laws and policies regarding this type of property.
“Cities that have ambiguous laws can change those laws, and your rental can go from excellent cash flow to complete dud with the changing laws,” Jensen said.
“Medium-term rentals are starting to fill the gaps between the long-term and short-term markets,” Jensen said. “In many cities where they have created strict short-term rental laws, they allow medium-term rentals — furnished rentals for longer stays.”
Medium-term rentals are gaining in popularity thanks to the rise of remote jobs.
“In this gig economy, there are digital nomads who can work from anywhere there’s a Wi-Fi connection and choose to travel for fun, as well as people who travel extensively for their job (like travel nurses) who don’t want to stay in a hotel for an extended time,” Jensen said. “These rentals are the best of both worlds — providing the higher rental rate of a furnished rental while still complying with local rental laws.”
Single or Multifamily Homes in Neighborhoods With Growth Potential
Jaspreet Singh, founder of Minority Mindset, said the best real estate investments to make this year are residential properties in areas with growing demand for rental homes.
“Inflation is turning America into a renter nation,” he said. “As housing costs go up, more Americans will choose to rent rather than own. As inflation destroys the value of the dollar, real estate will continue to appreciate, and rent prices will continue going up. If you own the asset, you benefit from inflation.”
Singh said to focus specifically on buying rental properties in neighborhoods with growth potential.
“A growth neighborhood is one where you have a growing population, growing business and growing demand,” he said. “Florida, Texas and Arizona are the most obvious, but they’re also the most expensive. You’ll find better deals if you’re investing where no one is looking. Every state has growing neighborhoods — find them and invest there. In the midwest, you can find single-family homes for under $150,000 in growth neighborhoods that will rent for $1,500 a month or more.”
Residential Properties in Metropolitan Areas
Kevin Swanson, CFP, CEO of Potentia Wealth, believes that many people who left large cities will return in the coming years as employers reopen their offices. That’s why he said that now is the time to buy properties in these areas.
“For our clients looking for real estate opportunities in today’s market, we are looking to larger metropolitan cities that have shown softness in this pandemic market and are urging them to move quickly,” he said. “As the pandemic wains, we believe many companies will require their employees to come back to the office and demand will increase for housing close to corporate headquarters, creating an arbitrage opportunity in the real estate market.”
But investors need to act quickly to get the best deals.
“In Portland, Oregon, a client found a new condo complex that had just completed construction and began selling units three months before the pandemic began. The complex had to reduce its prices by nearly 50% in order to get units sold in 2020 and 2021,” Swanson said. “Along with this buying opportunity, we have low interest rates, which we expect to disappear over the next two years as the Fed deals with persistently high inflation rates.”
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Gabrielle Olya contributed to the reporting for this article.