A 2016 Investors Dashboard: A Look Into Cash Flow and Capital Growth
A lot has happened in the past few years real estate investing wise. Investors have been enjoying investment opportunities like we never would have imagined. 2015 has been a year of neutralizing and this trend will continue into 2016. Inventory of the highly sought after investment class properties has been shrinking along with lower inventories and increased prices.
Seasoned investors are Bullish
This is a year that the new investors who have been casually looking into investing will either have to become serious or they will be left behind. The easy investment purchases are fading away and being replaced with purposeful, strategic investments. I have always said there are always great investment properties available. The question has and always will be where?
Where is the location today that reflects the best return on investments. Seasoned investors tend to do very well in times where the thundering herd is replaced by only serious investors as the competition is less because fewer people are simply throwing money at properties. Today’s extra diligence that is required to find the best properties, along with low interest rates, high demand for rentals and still undervalued markets have the seasoned investors bullish on investing and many plan to continue to buy through 2016.
Talk of inflation
This has been discussed for a couple of years and of course inflation will be tied to home values, interest rates and a number of items. Savvy investors are gearing up to buy everything they can before the pending inflation kicks in.
Interest rate increases
We have seen threats of rate hikes for a couple of years and it looks like they may actually happen in 2016. Feds raising the rates does not necessarily guarantee a rate increase on home mortgages however. It is speculated that the mortgage increases will not exceed a half of a percentage point throughout the year.
New household formation
The population of the U.S. continues to grow; adding to the need for housing is the number of households formed from the millennial children who have finally moved away from their parents and started another household. Investors are excited because of the growing number of these households who have chosen to rent as opposed to buying. Landlords are excited over the huge growth in renter demand.
Rent rate increases
Rates are still forecast to climb this year but at a more modest pace than in the past. As the markets stabilize, landlords will be expected to show tenants they have something to offer them that their competition does not offer. There will be plenty of tenants and the time to impress these tenants to secure them long term for yourself will be now.
New construction homes enter the playing field
With single family homes being the most highly sought after rental property, new home builders have taken notice. They have specifically designed new homes to cater to rentals. Some builders will become landlords while other builders cater their sales to investors. NOTE: as an investor you want to make sure the builder restricts new home sales to 10% for investors. Many do this but the sustainability of your equity growth will require these neighborhoods to be largely owner occupied areas.
One of the most important attributes for sustainable growth is affordability. Affordable markets rotate all the time. While many affordable markets of the past have experienced growth and may have lost their affordable status, there are always markets that exist that are considered affordable and undervalued. The test for this is the area’s median home price needs to be able to make mortgage payments based on a third of the area’s median income.
Median income x 3 equal affordable
So markets that take less than 33% to pay for housing are considered undervalued. This is where your equity growth will come from. Going into 2016 we are excited about markets like Kansas City, Indianapolis, Atlanta, and Philadelphia. To see the list and keep current check out the affordable markets here!
With all the Household formation there has been a larger buildup of multifamily construction going on. Small investors will not need to be concerned about these however as they are catering to the more affluent and higher priced rentals.
Indeed 2016 will be another great year for investors, more education will be required by newer investors to stay competitive with the savvy investors, but there is always room at the top.