Is real estate a good investment right now?
ShutterOK / Shutterstock
Updated: February 08, 2024
We adhere to strict standards of editorial integrity to help you make decisions with confidence. Please be aware that some (or all) products and services linked in this article are from our sponsors.
We adhere to strict standards of editorial integrity to help you make decisions with confidence. Please be aware that some (or all) products and services linked in this article are from our sponsors.
Is this the right time to invest in real estate? The answer greatly depends on who’s asking the question.
Would-be homebuyers who think they’re ready for their first – or forever – home, the answer is a definite … maybe. The number of available homes is low, interest rates are higher, and bidding wars are common.
If you’re an investor seeking diversification and stable returns, now may be your time. But where do you put your money? Fortunately, investors have more options than ever for identifying properties, investing in them and making solid returns – all without becoming a landlord.
Whether you’re ready to buy a home or dip your toes in real estate investing, the sector is seen as a solid investment because of steady appreciation and the ability to generate passive income through rentals. Unlike more volatile markets, real estate often offers more stability and predictability over time. It's a tangible asset, providing a sense of security and control not typically found in other investment vehicles.
Additionally, real estate benefits from various tax advantages, including deductions and capital gains exemptions. Its value can also be enhanced through improvements, and it serves as a hedge against inflation, as property values and rents tend to rise with as broader costs go up.
But real estate can be a finicky beast, and whether it’s right for you depends on your investment aims and risk tolerance. If those are in order, this might be the right time to take the plunge.
Buying a home
There are signs of easing in the housing market. Rates have cooled somewhat, but obstacles remain – mainly in the form of higher prices and low inventory.
A positive indicator as 2024 gets underway is the trend in mortgage rates: After a year of high rates in 2023, some stabilization is happening, with the average rate for a 30-year fixed mortgage falling below 7%.
But even with the slow but downward trend in mortgage rates, the cost remains relatively high. Additionally, home prices continue to be inflated, largely due to the historically low availability of housing. This situation is especially challenging for first-time buyers, many of whom have indicated they’re reluctant to enter the home-buying market.
If you’re ready to jump in, remember these tips: Manage your expectations, get your mortgage loan pre-approved and buy what you can afford.
How much home can you afford?
Use a mortgage calculator to determine how much home you could afford given your income and other expenses.
Mortgage rate trends over the years
(Information taken from Freddie Mac)
Buying for investment
In an economic landscape marked by high inflation and uncertainty, portfolio diversification is important. That’s where real estate comes in.
Commercial real estate has historically been considered a solid choice for enhancing the stability of investment portfolios. But the sector was once accessible only to a select group of affluent investors. That scenario has changed now, with real estate investment trusts (REITs) offering everyday investors a more accessible route into the world of commercial real estate investing.
REITs take on the heavy lifting of property management and distribute the profits to their shareholders. This arrangement frees you from the responsibilities of tenant vetting, damage repairs, or dealing with overdue payments. Instead, you can enjoy a passive income stream through regular dividend payouts.
Another avenue is investing via crowdfunding platforms, which allow you to own a fraction of a tangible property. This method presents an attractive opportunity for generating passive earnings from commercial real estate.
For those with unused capital, a willingness to take on some risk, and access to a competent real estate attorney, becoming a private lender is another viable option.
As a private lender, you fund a portion or the entirety of the capital required for constructing, renovating, or developing real estate projects. The short-term nature of these investments enables you to charge interest rates comparable to those of conventional lenders.
Are properties still affordable?
Supply and demand are out of balance
The housing market in the U.S. is currently experiencing a lack of existing homes for sale, which has been fueling the rental market for the past several years.
The combination of moderate population growth and high mortgage rates, averaging around 7% in 2024, is impacting affordability and maintaining strong demand for rentals. Homeownership rates remain healthy, indicating a sustained interest in home buying, particularly among millennials.
However, supply of single-family rental properties remains limited, suggesting the housing market is not yet well balanced between supply and demand. There are regional differences too, with areas like the South seeing falling rental vacancy rates and increased single-family rental market activity due to population movements.
Overall, the market is showing signs of resilience but is still grappling with supply and affordability gaps.
Mortgage interest rates remain high
The average rate for 30-year fixed mortgages has seen a slight increase, moving from the mid-6% range to above 7%, before settling back to the mid-6s to start the new year. But rates have been relatively stable, which has encouraged potential homebuyers, particularly those concerned about affordability, to re-enter the market. Despite ongoing challenges with housing inventory, there's an expectation for a more active spring home buying season compared to 2023, with home prices projected to continue rising steadily.
Mortgage rate trends
With inflation rising again – inflation hit 3.4% in early 2024, compared to 3.1% in late 2023 – mortgage lenders can command higher interest rates to compensate for the eroding purchasing power of money due to inflation.
What makes a good rental property investment?
Investing in rental properties can yield returns in two key ways, and savvy buyers should aim to leverage both. First, choose a property that promises consistent short-term income through monthly rent. Secondly, select a property with strong potential for long-term value appreciation.
Additionally, rental properties offer these advantages for investors:
- Annual tax deductions due to property depreciation
- Equity growth as tenants' rent payments contribute to mortgage reduction
- Protection against inflation
But the primary factor for most investors is ensuring the property generates positive cash flow. This means the rental income exceeds all ownership-related expenses.
Essentially, a profitable rental property should not only be cash flow positive but also offer high cash flow for better investment returns.
A good rental property should be in a desirable location, offer positive cash flow and growth potential, require minimal maintenance, appeal to the right tenant demographic, comply with legal standards, and have a favorable outlook tied to future local developments.
Luckily for new real estate investors, an emerging class of firms specialize in REITs and other ways to expose investors to the sector, and they’ve made these investments much easier. Firms, like those listed below, simplify the process by making it easy for investors to scan available properties and choose which ones suit their risk tolerance.
Compare real estate investing platforms
| Service | Our rank | Review | Visit site |
|---|---|---|---|
| Fundrise | Our Score: 4.5/5 Fundrise’s low minimum investments and management fees make real estate accessible. | Fundwise review | Visit Fundrise |
| RealtyMogul | Our Score: 4/5 RealtyMogul combines REIT investment funds and direct real estate investments focused on a specific property. | RealtyMogul review | Visit RealtyMogul |
| EquityMultiple | Our Score: 4.3/5 EquityMultiple’s transparency on deals attracts experienced real estate investors. | EquityMultiple review | Visit EquityMultiple |
| First National Realty Partners |
Our Score: 4.5
FNRP helps investors find investment properties through a simple interface and gain access to high-traffic, commercial real estate assets, such as grocery-anchored retail. |
FNRP review | Visit FNRP |
| Roofstock | Our Score: 4.3/5 Roofstock allows non-accredited investors to invest in single-family rental real estate. This is a turnkey option to buy an individual property on your own. | Roofstock review | Visit Roofstock |
The bottom line: Is real estate a good investment in 2024?
Few investments capture the U.S. economy’s various interdependencies like real estate.
For investors, as interest rates rise, financing costs for real estate investments increase. That could potentially discourage investors. But that often leads to higher rents, which could make 2024 a favorable time for investing in real estate. There’s no such thing as a perfect time to invest. Instead, there’s only the most favorable time, based on your objectives.
For homebuyers, the future is a little cloudier. With housing inventory fairly low, buyers can expect prices to remain higher than in previous years. Competition for homes will be intense and could prompt some purchasers to buy more home than they can afford. If rates do fall, and inventories rise, the tables could turn in buyers’ favor.
More on real estate investing:
- 7 best places to invest in real estate in 2024
- How to invest in real estate with little money
- Commercial vs. residential real estate investing: Which is right for you?
- How to buy an investment property
Latest Articles
Disclaimer
The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.