It is no secret a lot has changed in the real estate industry over the last couple years. Interest rates skyrocketing and then retreating from their highs are having a significant impact on the market, but more importantly are affecting the decisions of millions of Americans and their decisions around real estate. It is time for buyers to adjust their strategies and we are excited to help people through the process. Instead of dwelling on what you could afford in the past, it's time to reassess your options in the present and plan for the future.
Rethink about your view of the market
1. Forget What You Think You Know
We are encouraging buyers to let go of what they used to be able to afford and focus on what the numbers show now. Take a proactive approach by consulting with a mortgage broker to determine your current budget for both monthly payments and your down payment. The hardest part is keeping your eyes only on the houses that align with your new financial capacity, even if it means compromising on size, features, or benefits that you “used to” be able to afford. Remember, being in the real estate market with a smaller, affordable house within your budget will put you farther ahead than waiting for something that has everything you hoped for yet is beyond your budget.
2. Don't Let Interest Rates Hold You Back
While the numbers may shift, the timeless benefits of real estate still stay the same. Primary homes and secondary homes continue to offer huge advantages in wealth building, and though you might need to consider some compromises, the long-term benefits remain. Concerns about the higher interest rates may lead you to pause, but it's crucial to consider the bigger picture. Even if interest rates fluctuate, the potential for property appreciation often outpaces the increased cost of higher payments. Compromising on the house you buy now can lead to significant gains in the future.
3. How Does Inflation Come In To Play?
In an inflationary environment, real estate is the best way to get ahead. Historical trends show that real estate and large assets tend to appreciate greatly in high inflation periods. Simply look at how much real estate has appreciated in the last few years! Even as inflation changes the value of the dollar, real estate values have historically increased even more.
4. Leverage: Your Gateway To Wealth Creation
Leverage is another key part of this equation –obtaining a loan from a bank can significantly amplify your gains compared to an all-cash purchase. If you can secure a loan, the appreciation of the property can lead to exponential gains. Let me show you what I mean…
For example: When you buy a $1,000,000 property and put 20% down, you write a check for $200,000 and obtain a mortgage for the rest. When the market value of the real estate increases by 10%, your real estate is now worth $1,100,000 while you only put in $200,000 of cash at the start. Therefore, if you sold that real estate, your net proceeds are $300,000. When you subtract your original down payment, you have a gain of $100,000 from your $200,000 investment. That is a return of 50% on your cash invested. If you compare that to purchasing a $1,000,000 home in cash and the property value increases 10%, your return on cash invested also 10%. Of course, there are other expenses and carrying costs in the equation, but I would much rather be making a 50% return on the cash I invest!
For those who are skeptical of “leverage” or taking on debt, the most common objection is that leverage is just as dangerous when values fall. The response to this objection becomes an issue of how much time you have. Real estate has consistently proven to be a solid investment over the long haul (and I’m definitely not just talking about the last few years). In any economic environment, downturns are temporary, and real estate tends to rebound the longer the time involved. Stability and long-term appreciation make real estate a reliable choice in uncertain times even if values fall in the short term.
In summary, adapting to the current real estate market is essential. Whether facing difficult or prosperous economies, high or low inflation, or high mortgage interest rates, resetting expectations and making strategic compromises can position buyers for success in the long run. Waiting for the market to return to previous conditions may simply cause you to lose out.
Our advice is to embrace the current market, including the higher interest rates, and secure your real estate future with all the wealth-building benefits real estate has to offer. Contact us so we can know how to assist you though the process of building your wealth today.
