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4 Challenges Real Estate Investors Will Face in the Next Decade

The real estate market has shown great resilience in light of the COVID-19 pandemic, playing a major role in economic recovery. However, despite its proven track record investors will still face challenges ahead. Learn how you can plan ahead to avoid potential losses.

Victor Whittle
Victor Whittle

The real estate market is a historically solid one, which is why it has become the preferred investment option for many people. However, this market is not without its challenges, and investors need to be aware of the risks and the issues to tackle so that they can plan accordingly. Long-term planning can be the best tool to avoid losses and create a successful strategy.

Current Real Estate Market

Before broaching the upcoming challenges, it is necessary to have a good understanding of the present situation. Despite the economic turmoil created by the COVID-19 pandemic, the real estate market has shown resilience, and it has had an important role in economic recovery. In the US, there was even a 5.6% increase in houses sold compared to 2019.

This has led to an increased demand for investors. With a great number of houses going on sale and many interested buyers, it is a prime opportunity for investors to make a move while considering the challenges ahead.

Demographic Shifts

It has been observed that a great part of the population is interested in moving to the suburbs. This is in part fueled by the lockdowns that have taken place in the context of the pandemic. People who valued living in a city now see the benefits of having ample outdoor areas, especially in the case of families or pet-owners.

In addition, the increase in remote working has also led to a greater interest in living in the suburbs. Now that physical closeness to the place of work is not an issue; there is more flexibility on where people choose to live. Consequently, many people will be selling their houses fast for cash so that they can move as soon as possible.

Real estate investors need to adapt to this shift and consider the suburbs as a growing market that is going to continue to attract new residents. That said, changes within cities will be observed. It is expected that many companies will want to have more spacious headquarters, which might require them to acquire new real estate. In addition, cities with friendly taxes and regulations for businesses are also a new target for emerging and growing companies.

Compression of the Cap Rate

As the real estate market continues to show positive growth, prices also go up. This might be a challenging scenario for investors as it introduces a level of uncertainty that is difficult to handle. While people frequently bought houses in 2020, part of this was because prices went down for a time. In addition, once the exodus to the suburbs has reached its peak, the number of people choosing to do this might decrease.

This is where the risk of investing comes into play. There is no certainty on whether the return calculated will be able to be achieved. For starters, calculating said revenue is a challenge in and of itself in such a volatile time. This is why a comprehensive analysis of any investment opportunity must take place. It is the best way to account for all possible risks and to prepare for any eventuality. At the same time, taking the time to learn more about the investment in question can also shed light on how to make an accurate estimate of the possible return.

The use of digital tools has exploded during the past year and it is expected to continue to grow. Now, investors need to be able to offer virtual tours in which potential buyers can get a true sense of the property and what their life will be like once they own it. This has obvious benefits such as social distancing in a time of Covid but also the possibility to reach more people as well as showing and selling a property faster. At the same time, it requires a certain degree of adaptation and flexibility. Investors need to be willing to stay updated on these tools.

Digital developments related to real estate also include apps such as Tellus, which provide property management solutions for busy investors. This allows investors to use their time more wisely, while still being able to manage their investments efficiently and effectively. Owners can easily stay in the loop on any detail regarding their property by just checking the app.

Increased Competition

As people look for secure investments, real estate stands out as a stable market that even did well during 2020. This will lead to an increased interest in real estate investing, making the market a more competitive one for investors. Therefore, investors will need to have secure sources of funding, to ensure they will be able to make quick purchases when they see a property with potential. When it comes to financing, they must secure low-interest loans that will allow them to pay them back as fast as possible.

Real estate continues to be a great option when it comes to investing. Some of the main challenges investors face include increased competition, the desire of people from cities to move to the suburbs, the advent of digital trends, following best listings in the area, and investment uncertainty. Therefore, investors must understand their current position as well as the marketing options and channels that work best during this time. Lastly, the use of digital tools could be one of the strategies embraced by new investors, and it is something anyone interested in real estate should consider as part of their strategy.

Real Estate Investing