The past two years in the real estate industry have been chaotic.
Perhaps the most interesting part of the past two years in the property industry is what didn’t happen rather than what did.
Agents and commentators forecast crashes in property values and rents falling rapidly as the covid lockdowns would destroy value. The opposite happened, property values increased sharply, and rents are now increasing at record rates.
2023 The Year of the Property Investor
Here are five easy steps that investors can take now to prepare for investing in real estate in the year ahead.
Most people are forecasting a correction, which no doubt will take place in certain parts of the property market. However, not all markets are likely to see experience the same correction.
2023 and 2024 will be two of the best years in recent history for property investors to buy. Now is the time for anyone with a portfolio or thinking about investing in property to get their house in-order.
Warren Buffett famously said, to be “fearful when others are greedy, and greedy when others are fearful.”
1. Get your Finances in Order
Understanding your finances is always the first step in real estate investing. Examine your existing savings, earnings, and outgoings, and think about how you anticipate these may evolve over the coming years. The amount of money you can spend on an investment property should then be estimated based on your present financial condition. Your budget should account for both the down payment and other loan fees, as well as the monthly mortgage payment and other ongoing expenses.
Budgeting is always necessary, but in 2023 it will be essential. Knowing how much you can afford to spend on a property while considering possible unforeseen events is key. Inflation is going to stick around in the high single digits for most of the year so smart investors need to allow for unexpected cost escalations.
It makes little sense to make an investment now, only to end up in trouble in the next few years.
2. Know what financing options are available to you
The profitability of your property investment is significantly influenced by the financing method you used to buy it. If you want to invest in real estate in 2023, you need start looking for financing options now.
The cost of borrowing has increased dramatically over the past 6 months. Interest rates are at their highest rates in several years and will probably increase. High inflation means that interest rates are not likely to come off significantly anytime soon. Investors need to think about how they will borrow in the years ahead.
Where to get traditional financing
Investors need to understand which banks are lending, what their lending criteria is, what rates are and how long it will take to get a loan approval. Being able to move quickly is the way investors will maximise returns in 2023, you won’t be able to do that if you don’t have funds in place to do that.
Speak to an independent mortgage broker who is regulated by the Financial Conduct Authority (FCA) to help.
For most property investors after, taxes will be their second highest cost. 2023 is likely to be a year of economic turmoil.
High inflation and a cost of living crisis means that rental affordability will be a major issue for many tenants. Rental affordability will become a political issue in 2023. Tenants will heap a huge amount of pressure on governments to deal with rising rents.
The only way to sustainably reduce rents is to increase housing supply. But governments don’t know how to increase housing supply. So they will likely revert to their short-term solution – tax. Taxing landlords is easy. Real estate one of the easiest asset classes for governments to tax – it is hard to hide.
Investors need to think about what the best way is to own and manage their real estate assets. For most investors now owning property in a company ownership structures is essential. You need to do the research, and work out what makes the most sense to you.
4. Understand your markets
The epidemic brought even more attention to the geographical nature of the real estate market. Secondary markets had very different experiences to primary markets. As residents moved to smaller towns and cities with more inexpensive real estate prices, many of the big city markets for long-term rentals began to chill. Working from home has becoming more popular, which supports this regional trend.
Most businesses will demand employees to return to the office at least partially by 2023. This will cause these trends to reverse. Demand will increase for higher priced property in major markets where businesses are concentrated. This will have a massive impact on increases for retal accomodation in larger cities. Developers have not built enough property in many of these markets during the pandemic and the lack of new housing supply will compound issues further.
You need to be vigilant about regional changes. Actively look for the ideal markets to implement your plan.
When researching your markets, you may find it makes more financial sense to invest offshore. We’ve written a series of country guides and investor guides on Australia, New Zealand and the UK which may help you understand which country best for you. Download our guides here.
5. Add to Your Arsenal – use PropTech
It is no longer possible to be an accidental landlord or simply buy a rental property and wing it.
If you buy an investment property and don’t do your research, you will lose. You will have no one to blame but yourself. Don’t get upset about the results you don’t get for the work you didn’t do.
The great news is there are now the tools around which you can use to get up to speed on property investing. Tools exist to help:
- Research the market – it is easier than ever to get all the data you need to understand real estate markets and their direction of travel
- Check your investment return (after tax) – make sure you understand your net return after tax and compare markets and test your assumptions
- Manage your asset(s) – buying well is just half of the challenge. Once you own it, make sure you are managing your return.
To stay competitive in a crowded market, it’s imperative to have access to the greatest tools for investors, regardless of your preferred style of investing.
Are you thinking about buying an investment property?
If you are thinking about buying a property, you need to make sure you do your homework before you buy. Mistakes made investing in property are very expensive to fix.
We have built Du Val Global to help investors think through the issues which matter when it comes to investing.
Du Val Global
We built Du Val Global, powerful real estate investment software designed to help investors make better investment decisions. Our platform provides investors with the real estate investment tools to help with critical decision-making, including
Research – access to powerful property analysis provides real-time market research, allowing
landlords to have a complete picture of tenant economics, prevailing
rents, and capital values
Financial Analysis – a property investment tool that investors can use to create financial models to determine net return after tax and return on investment. Investors can understand specific tax implications. Our property comparison tool allows investors to compare investments on an after-tax basis to determine the best investment for them. Investors can even compare properties in different countries
Du Val Dynamic Pricing™ – Du Val Global offers a range of properties for sale from leading developers in Australia, New Zealand, and the United Kingdom via its proprietary Du Val Dynamic Pricing™ algorithm. This sophisticated pricing model levels the playing field for small investors through aggregation, providing discounts of between 7.5% and 15% from retail prices, which, until now, have only been available to large institutional investors.
Portfolio Management – a property portfolio planning tool investors can use to monitor and track the performance of their investments.
Interested in giving our platform a go? Start your free trial today at Du Val Global.