Today’s real estate market is not without its challenges for investors, particularly when considering navigating the industry’s waters immediately before, during, and not-quite-after a pandemic. In some ways, the industry had to evolve to accommodate new parameters put in place by a global crisis—some of which have been adopted into becoming more permanent mainstays. Whether pandemic induced or not, these are some of the biggest challenges, but also opportunities investors are facing today.
Rising interest rates
While higher interest rates tend to suggest that the real estate industry is expected to have a strong performance, a sudden spike after a track record of historically low rates (in this case, rates in part prompted by COVID) can foreshadow economic hardships. As a result, available capital for investors can slow down.
In the same vein as rising interest rates, much about the real estate industry can hang in the balance if we’re facing a weakening economy or the onset of a recession. For investors focused on a particular type of property—or those even just starting out—factors like yes, high interest rates, geographic areas heavily impacted by a downturned economy, and limited capital can all impact how the housing market is developed (or not).
Housing affordability and low inventory
It can feel a little like the chicken or the egg—are houses unaffordable because of low inventory or is there low inventory because houses—or land ready for developing—are unaffordable. Often, housing affordability is a symptom of low inventory where a shortage of available properties has caused large spikes in prices, which can make it difficult for new investors to pump up their portfolios with new projects.
The cost of construction, labor, and goods
For a moment in time, the high price of lumber dominated industry news. For ground-up construction investors, as well as fix-and-flip investors, the cost of labor, goods, and everything in between can mean two things: less housing inventory to work with due to supply chain issues and exorbitant prices, and pricey services from specialists and contractors, thus slowing down prospective projects and turning a profit.
Today, perhaps more than ever, investors have numerous financing options that can better fit their circumstances, projects, or goals. Outside of traditional banks, private money lenders are often willing to work with both new and experienced investors looking to develop their business, and that includes in moments of less-than-ideal economic circumstances.
The end of moratoriums
Part of what’s contributed to the inventory shortage today has been a freeze on foreclosure moratoriums due to the pandemic spurring on job losses. However, as we slowly come out on the other side of COVID-19, federal eviction and foreclosure moratoriums have ended, meaning there should be more distressed properties entering the wholesale market and auction houses, providing investors with more options and opportunities.
At Temple View Capital Funding, LP (“TVC Funding”), we pride ourselves on working collaboratively with our investors and customizing financing packages that fit their needs and project goals. If you are ready to discuss your next investment opportunity, contact us today.