December 12, 2017 By Larry Arth

What is in store for you 2018 real estate investors? Pull up a chair, grab a cup of coffee and let’s talk about real estate investments for next year.

This, of course, is the topic of many coffee shops I visit lately. With the recent tax law changes being talked about and passed in both the senate and the house, everyone is watching to see how these changes will impact their buying decisions. As of now the final bill is not set in stone, but the infamous 1031 exchange does appear to be left intact comforting many investors.


We will want to monitor final tax changes to see how that affects us and what provisions we must put in place to protect our investing dollar. The one thing that the country does seem to be all on the same page with is that there will be more discretionary dollars available for investing.

2018 is looking very positive

Most people have always seen real estate as a solid investment. After all better than 90% of all millionaires created their wealth in real estate.

Consumer confidence is now at a 17 year high and the economies are looking strong. Unemployment rate is low and continues to drop which suggest the wages will continue to rise as employers compete for quality work force. With less tax liabilities these employers feel comfortable investing back into their businesses. So rising wages and soaring confidence is leading the way to a strong investment demand.

Mortgages remain low

Rates have indeed picked up a bit, but that is a healthy thing and they still remain historically low. Lending standards have lightened up for a full 14 consecutive quarters (according to the Federal Reserve senior loan survey).

These loans remain much healthier than before the bubble as loan standards (while loosening) are still tight enough to prohibit the fallout that occurred leading to the past real estate bubble. In fact nearly 60 percent of newly originated loans went to buyers with credit scores above 760. Rates may continue to rise a bit in 2018, but the increase will be gentle and monitored.

Supply and demand

After 3 years of extremely tight supplies we may actually see a more balanced supply by around mid year (varies by location of course) the sheer number of available properties available to house the U.S. population is low. New construction has not been able to keep up with supply. Low labor force and high material cost has aided in the shortage. As builders start to ramp up their work force the inventory will slowly replenish.

All this of course is at a cost as a quality labor force is not cheap and building costs continue to soar. Add to that the massive number of houses that were damaged in the hurricanes of 2017 which further strains material supplies.

As new constructions picks up, supply for move up buyers, the shortages of starter homes (the homes investors like most) continue to be the shortfall. First time home buyers and investors all competing for a class of properties that are not being replenished will keep upward pressure on this class of properties.

Home values

As supply recovers things are looking better for the higher end homes first, followed by medium priced homes and then starter homes. The appreciation growth will also follow suit, leaving the lower priced homes appreciating longer and at a higher pace than the higher price homes. It is estimated to be around a 3.25 growth rate on a national scale, but rest assured this will not be consistent throughout the country. Lower priced homes will appreciate more and will definitely be location driven.

Room for recovery

Residential investment property has hovered around 4.4% of GDP during the 80s and 90s. Today U.S. residential investments are only running at 3.8% of GDP. With a growing demand for rentals even beyond that of the 80s and 90s, we clearly have a nice growth path for investment properties.

Single family homes rental is where it is at

The single family homes rental market continues to soar. The largest growing segment in housing is the single family homes rental market. Luckily this is also the best appreciating class of real estate (the entry level single family home) with a 3/2/2 being the most highly sought after property for a home buyer and in high demand for a renter, the investors are perfectly positioned for a great investment.

The (almost) perfect storm

With a strong economy and very strong rental demand, landlords are perfectly positioned to build a thriving investment business. Rental demand is stronger than it has been in decades. The overall number of properties devoted to investment properties is lower than historic highs. As any entrepreneur will tell you if you find a need and fulfill that need you have the recipe for a great business. Perhaps this is why so many people are looking to get into real estate investing.

I understand prices today are much higher than they were over the past few years. Indeed that was the most optimum time to buy, but is it too late? In some places perhaps, but as you know real estate is all about location. Everything I highlighted here is based on a national average. When you find the best markets where the economics and fundamentals are positioned better than the national average you will find dynamic investment opportunities.

If you are looking for guidance navigating through the investment potential that 2018 has to offer just give us a shout we will be happy to assist.  Happy investing!