Market Conditions one of the six critical factors in Real Estate investing

Financial Planning Dentist

When it comes to investing in real estate, one of the most crucial factors to consider is market conditions. The real estate market is subject to various factors that can impact the profitability of your investment. Here are some reasons why market conditions are an important factor to consider before investing in real estate.

  1. Supply and Demand: Market conditions impact the supply and demand of real estate. When there is a high demand for properties and limited supply, property values tend to increase, and rental rates can also increase. In contrast, when there is a surplus of properties, it can lead to a decline in property values and rental rates. By understanding the current market conditions, you can make informed decisions about when and where to invest in real estate.
  2. Interest Rates: Interest rates can have a significant impact on the affordability of real estate investments. When interest rates are low, it can be easier to obtain financing for a property, which can increase the demand for properties and lead to increased property values. Conversely, when interest rates are high, it can make it more difficult to obtain financing and lead to decreased demand for properties.
  3. Economic Conditions: The state of the economy can impact the real estate market. Economic conditions such as job growth, inflation, and consumer confidence can influence the demand for properties and rental rates. Understanding the current economic conditions can help you identify which real estate markets are likely to experience growth and which ones may be more stagnant.
  4. Government Regulations: Government regulations, such as zoning laws and tax policies, can impact the real estate market. For example, changes in zoning laws can increase the value of properties in certain areas, while changes in tax policies can impact the affordability of real estate investments. Keeping up with changes in government regulations can help you identify new investment opportunities and avoid potential risks.

In conclusion, market conditions are an essential factor to consider before investing in real estate. By understanding supply and demand, interest rates, economic conditions, and government regulations, you can make informed decisions about when and where to invest in real estate. This knowledge can help you identify opportunities for growth and maximize your returns on investment. It is important to do your research and stay up-to-date with market trends to make the most informed investment decisions.

More related articles:

Peter Locke

How do the rich pay less in taxes than you?

A large number, if not the majority of our clients at InSight come to us looking for ways to mitigate their tax liability. While a CPA will find backward-looking ways to lower your tax liability, our clients are working to build a tax ecosystem that mitigates current and future instances of tax risk. Although their salary and bonuses are high, their take-home pay is a mere fraction of that. Now, I am no Allen Weisselberg, but I have found many ways after a decade in the industry to help clients pay far less in taxes than they do today. This article will provide several solutions that you’ll need to investigate further and talk with your tax professional more if you’re trying to implement them. Cash Balance Plans Are you a business owner or high-income earner at a small business? Implementing a cash balance plan in conjunction with a 401(k) profit-sharing plan can help high-income earners defer more than $400,000. Now many may say deferring just means I have to pay it later which is correct, however, later also means you get tax-deferred growth and that same person will also most likely be in a much lower tax bracket once they’re retired and not taking a salary. Life Insurance Come on, really? Absolutely! Do you ever wonder how the rich stay rich? They own permanent life insurance that enables them to borrow against their own money while simultaneously getting tax-free income. Additionally, providing a death benefit for your heirs means helping pay estate taxes with a lump sum death benefit for those lucky enough to have a very high net worth and want their legacy to live on for generations. Additionally, some banks enable you to use life insurance as collateral for loans which is a win-win especially if you have a non-direct dividend policy. Mega Backdoor Roth IRA Ever wondered how to get more money into your Roth 401(k)? Wouldn’t it be nice to add up to $64,500 into your Roth 401(k) each year? The answer is a resounding YES. At InSight, we help business owners change their 401(k) plans to enable after-tax contributions and in-plan rollovers so that you can store away an incredible amount of money today and get TAX-FREE money back in retirement. This strategy combined with a Cash Balance Plan is the one-two punch you’re looking for. Opportunity Zone Funds Use your capital gain proceeds from a recent sale and invest it into opportunity zone funds, real estate or businesses. The benefit now is the ability to defer your current tax liability until 2026 while also receiving tax-free growth on your investment after holding it for 10 years. This is a program that allows them to mitigate the past liability and avoid some of the taxes they will owe as the new asset grows in value. Private Placement Life Insurance An incredible way to fund a life insurance product that gives you tax-free growth and access to the cash value. The reason the rich like using this form of tax-free growth is it gives them the freedom and flexibility to fund other real estate ventures, grow their brokerage, or find other investments. This is only available for ultra-high net worth individuals. Debt It’s no surprise that those that have an appetite for risk and the ability to take it, accrue large amounts of debt instead of selling appreciated assets to grow their net worth. Most people want to pay off their debt as quickly as possible and this usually makes sense for those with high-interest erosive debt. However, if you accumulate accretive debt at extremely low-interest rates then your probability of success in terms of appreciation in net worth is high. For example, if you can borrow money against a business, bank, home, friend, etc at 2%-6% and reinvest that into something that averages 8%-12% then you have a positive delta in your return and you didn’t have to sell anything (i.e pay taxes on gains) to grow your net worth. These are just a few of the popular strategies we’ve implemented for clients in the past but they’re not appropriate for everyone. Make sure you speak with your CFP® and tax professional before implementing any of these strategies as they’re complex and if done incorrectly can be extremely detrimental.

Read More »
Kevin Taylor

How to Survive a Bear Attack? (Pt. 1)

Growing your Investment Balance During a Recession One of the biggest reasons the rank and file investor loses money during a recession is a lack of focus and plan. It is true that markets will get volatile from time to time. But why institutions tend to make money during these periods and private investors lose money is all in how they react. The pejorative term “smart money and dumb money” is never more clear than when tracking behaviors during a pandemic.  “Smart Money” is patient, it knows what it owns and why, and has a long-term view. Institutions watch markets daily and don’t react. They know what they’re looking for in market trends before the headlines tell them what to be excited about.  “Dumb Money” is reactive and follows markets where headlines lead them. They are concerned with “account balances” and what they hold. They will routinely sell and buy in synchrony with headlines and sentiment.  That being said, it’s easy to get fearful when the economy is down (a recession), and it’s even easier to react to what you hear about the market. Likewise, it is entirely normal for you to be curious about how you can make money by investing in these times.  Certain investments, such as stocks, can be riskier in a down market, this is true. However, you might be able to see large returns from a recession if you follow these basic and timeless strategies. While it’s tempting to try to “time the market” when stock prices are low and falling, what you end up doing is trying to front run other speculative investors. This is a costly and often errant strategy. You might be shocked then to hear that the best way to invest during a recession is the same as when the economy is growing. They are investors who own what they want and slowly accumulate more of it in a routine and measured way over a long period of time. You can do this as well by setting a monthly cadence and doing the following: Continue to Dollar-Cost Average (DCA) Whether you’re regularly contributing to a 401(k) or an IRA, or investing through your broker, it’s wise to continue doing so during a recession if you can. Recessions are not a permanent state of affairs and anyone who can tell you how and why they will end is guessing. The best investors work with CFP®s to develop a cadence to keep buying through the whole troughing phase of the recession. This allows the investor to capture the stocks they want, at typically lower prices and continually buy throughout the entirety of the business cycle.  You will likely miss out on important dividends and reinvestment opportunities if you are out of the market. However, buying more shares when the economy is weakened is some of the best buying opportunities an investor has. Those who are in the accumulation stage of investing should hold tight, know what they want, and put themselves in a position to own more of what they want.  As you continue to buy lower, you are making the average price you pay for stock lower, which tends to boost returns in the long run and allows you to be more tactical with your selling come to the retirement phase.  Rebalance Your Portfolio We own companies for a reason, some are essential businesses that will do well during or following the emergence of a recession; even if their activities beneath the surface are not immediately reflected in the share price. A good example of this was Amazon during the ‘08 financial crisis. This is a company that saw the stock fall from the mid $80s to the low $30s all while consumers were looking for a cheaper way to get their goods and shore up their own home economics. A gap Amazon was willing and able to step into. They grew their customer base incredibly through this period resulting in an appreciation of their stock price for the next decade.   You can change the balance of your holdings when you notice prices falling. You then rebalance your holdings or return your asset allocation to its original targets. This maneuver allows you to deliberately increase your exposure to “oversold” and “undervalued” positions in your portfolio. When these stocks rebound, you bring the exposure back down to the desired levels. This small and subtle re-posturing allows investors to take advantage of the short-term price dislocations in a long-term, value-based strategy.  For example, if your target balance is 20% software and technology, but the price drops to 15% in the portfolio, adjusting this back to 20% in the throes of a bear market will mean that when the sector or stock returns to a higher price, you will have a higher exposure (say 25%) and you will be in a position to sell.  Keep a Long-Term View If you’re buying stocks, ETFs, or stock mutual funds, you won’t need to withdraw from your account(s) for at least five years to ten years. If that is your timeframe, the current recession will be well in the rearview mirror before you need these funds. The average “recession” since World War II is one year (11.2 months). This is a combination of a few economic reasons, but suffice it to say, that while the sentiment becomes bleak, relative to the length of a bullish economy, it is a very small part of the investment cycle. That being said, it’s important to keep the long-term view – markets restore balance and are still the best way to increase your individual wealth. The historic 10.5% return of the S&P 500 takes into account these slowed economic times. In fact, if you step out of the market, don’t reinvest dividends at these levels, and don’t rebalance your portfolios, you will likely lower the long-term return that you are expecting. The Bottom Line Financial markets are the single most efficient way of transferring money from the national and global markets

Read More »

Pin It on Pinterest