Real estate investors saw a surge of opportunity between 2020 and 2021 with record low interest rates, allowing for more aggressive buying opportunities and a competitive market.
With the Fed and Jerome Powell taking interest rates to an unfavorable level and home prices still largely elevated, real estate investing just became much harder.
Current mortgage rates are above 7% making the traditional approach to single-family home investing feel out of reach. A $400,000 home with a 2.5% interest rate one year ago would result in a $1,580 monthly payment. Now that same home is likely selling for $420,000 and with a 7% interest rate, the payment today is around $2,794.
A new trend and a way around the current interest rates is investing in fractional ownership of properties.
Without a reserve of cash, interest rates are complicating the risk for real estate investors. Although there are other options available for investors that may even be more passive and alluring given the market conditions.
Some newer proptech companies are allowing investors to purchase shares of properties and eliminating most of the buying process altogether. Arrived Homes recently acquired another $23 million worth of single-family homes and is backed by Amazon.com Inc. founder Jeff Bezos.
The platform allows investors to buy shares of rental properties all over the country for as little as $100.
Another familiar face and billionaire, Bill Gates, founder of Microsoft has infamously is buying up farmland throughout the United States.
This investment strategy is also available to everyone. Another platform, AcreTrader allows investors to buy shares of acreage. This strategy has been touted as less volatile than the markets, and since 1990 returns have outpaced the S&P 500.
An increasingly popular real estate investment strategy centers around short-term rentals, or Airbnbs.
Websites like Airdna.co provide insights into revenue opportunities based on region and zip code. Similar to single-family homes, investors can buy shares of short-term rentals with as little as $100.
A REIT, or a Real Estate Investment Trust is a company that owns income-generating real estate. While most popular REITs are publicly traded, current market conditions make non-traded REITs a more attractive option to some investors. These REITs aren’t vulnerable to wild market swings and have historically maintained their value through various market cycles.
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The message is simple. Be greedy when others are fearful.
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