The last year or so has seen the real estate market in general start to really heat up. The Chattanooga market recently saw year over year gains in the double digits-a big move for a market like this one. Rents are up. Vacancies are down. Days On Market (a metric measuring the average number of days it takes to sell a house) have been cut nearly in half. There are many other factors we could illustrate, but we think you get the point. So what does this mean for you as an investor?
More than likely it means it’s harder to find a good deal. It also means you most likely pay more for the deal you do find. The question then becomes should you make the purchase? The answer, as it is with most things real estate, is ‘it depends.’
If you are investing solely for cash flow (as you should) then you’ll want to be cautious because rising home prices mean lower cash flow. Similarly if you are looking for appreciation you’ll capitalize on it less by purchasing now since people that bought in the downturn will have locked in larger gains and you very well might experience a loss in value depending on where you buy in the curve. There is however one other way to look at it.
Rents in many markets often outstrip home price inflation. What that means is by locking in now your purchase price will be fixed while your rents will rise over time, giving you a larger spread. It’s also true that rents recover quicker coming out of a recession than do home prices. In other words regardless of where you buy in the cycle, as long as you don’t wildly over pay for a property you will be ok in the long run.
All that said, you can still find good deals in any cycle of the market. One just has to use more caution and make sure not to let emotion dictate your actions. Let the numbers be your guide.