There’s a new word to describe the U.S. real estate market: stuck. Real estate transactions haven’t picked up as expected, even after conscious cuts to interest rates. Even the Wall Street Journal declares that the real estate turnaround “ended before it started.”
Most buyers and sellers alike wait for ideal conditions before moving into the real estate market. And while we don’t blame anyone for this approach, we also need to clarify this: Investors can’t afford to wait.
We can’t sit by and twiddle our thumbs, even if we’re not actively buying or selling properties! Estimates say it could be 2026—or even later—before the market finds its footing again. You can’t wait that long. In real estate investing, time is of the essence.
Often, investors are waiting for the right time. They are trying to “time the market.” Any rental investor worth their salt will tell you that “time in the market” is the most important factor. You can’t afford to miss out on passive income or appreciation potential.
Five Things Investors Can Do When the Market Isn’t Moving
So, what’s an investor to do to keep moving in a “stuck” real estate market? Here are five action items.
1. Evaluate your portfolio
The first step is to look at what you already have. Whether active or passive, investors must attentively evaluate their assets to ensure they’re efficient, profitable, and aligned with their long-term investment goals. These particular metrics are not going to increase your return or income, but being aware is the first step to making informed and intentional decisions.
Here are a few metrics and indicators passive investors value and why they are important for evaluation:
- Net Operating Income (NOI): Income generated from the properties after operating expenses (excluding mortgage payments). Are there areas we can improve NOI? Increase income by offering low-cost services? Can we lower expenses or add low-cost services that provide greater revenue?
- Monthly/Yearly Cash Flow Analysis: The money left over after covering all expenses for that month/year, including debt service, taxes, and management fees. Indicates wealth-building. Cash flow is not calculated by deducting a percentage of income as phantom future expenses.
- Return on Investment (ROI): Profit relative to the amount invested. There are several ways to measure a successful investment, including cash-on-cash returns (the income received from cash invested) and total ROI, factoring in appreciation and tax benefits. These are real benefits, and smart investors have an all-inclusive view of how their portfolio is benefiting them.
- Cap Rate: NOI divided by property value. Shows the expected rate of return on a property. Aids in apples-to-apples asset comparison.
- Debt-to-Equity Ratio: Amount of debt relative to the equity in the portfolio. A high debt-to-equity ratio equals higher risk. Helps assess leverage and financial stability.
- Vacancy and Occupancy Rates: High occupancy rates suggest stability. Vacancy rates highlight issues in property management or market demand. Helps with market comparisons.
- Property Appreciation and Equity Growth: Monitor property appreciation, calculate the increase in equity, and assess whether properties are in areas with favorable long-term trends.
- Expense Ratios: Includes operating expense ratio (OER), which compares operating costs to gross income. Identifies if its properties are efficient or if expenses are cutting too much into profits.
- Tax Efficiency: Depreciation, interest deductions, and tax-deferred exchanges: How well are you utilizing these benefits?
- Portfolio Diversification: Holding multiple properties across several markets and investing in a variety of asset classes. Spreads out risk.
- Market Comparisons and Benchmarking: Compare portfolio performance against industry benchmarks or similar properties in the same markets. Are you competitive?
- Sensitivity to Economic Conditions: Evaluate projected performance under different conditions, like changing interest rates. Stress testing helps investors plan for adverse conditions.
- Exit Strategies and Liquidity: Assess property readiness for a potential sale, refinance, or repositioning. Improves agility for cash acquisition.
2. Make the most of what you have
Now is a great time to invest in new properties, but if your options are limited, it is also a great time to invest in your existing properties. Either utilize the money you would have used for a new acquisition or look into a HELOC (home equity line of credit) to finance.
While you don’t want to over-renovate your properties for the area, it may be wise to update and improve curb appeal, efficiency, flooring, paint, kitchens, bathrooms, appliances, etc. There is never a bad time to review how we can keep our properties in top shape.
3. Explore other avenues of diversification
We firmly believe in the value and potential of investing in turnkey real estate. That doesn’t mean we don’t believe in investing in other things. After all, only you can decide the right avenue for your wealth-building goals.
Look into different asset classes and investment strategies. It might be a good idea to look at the S&P 500, energy investments, or any other investment options. Just do your due diligence!
4. Reexamine risk exposure
How well are you managing your risk? If you’re not actively buying, make your current assets as valuable as possible. Examine your risk exposure and make a game plan to mitigate those risks. This can include reevaluating insurance coverage, investing in property improvements, or planning for diversification, among other things.
Passive investing does not mean passively sitting idle. You can still actively manage your passive investments and should be looking for small adjustments that can pay big dividends.
5. You are in control, so make the best decision for you
Finally, you can buy properties anyway, regardless of the market noise or what other investors are doing. A stuck real estate market doesn’t mean there aren’t opportunities to take advantage of. Remember, where you invest makes all the difference in the world: target markets with relative affordability, a strong local economy, and steady demand. Investors can help get real estate “unstuck” by persevering and carrying on as always.
Need help figuring out your next steps? Your REI Nation advisor is waiting to help you start on the path to financial freedom.
This article is presented by REI Nation
Ready to add turnkey real estate to your portfolio in 2024? If so, now’s the time to invest with REI Nation. Where you invest, and they handle the rest.
Discover stress-free real estate investing with the largest family-owned turnkey investment company, REI Nation. Whether you’re a seasoned investor or just starting, they are dedicated to helping you achieve your financial goals in the world of real estate investing. Visit our website to start your turnkey real estate journey, where your success is their commitment.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
