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2 Threats and 2 Opportunities for Real Estate Investors in Today's Market

From high interest rates and inflation to a wildly fluctuating stock market, investors are trying to follow a lot of bouncing balls right now. What might've been an amazing investment in the not-so-distant past might be a questionable one now, and vice versa.

So if you had recently been considering investing in real estate or expanding your real estate portfolio but are now afraid to make a move, that's understandable. But don't let fear keep you from exploring the unique advantages you might enjoy as a real estate investor right now.

In the interest of navigating this strange environment with eyes wide open, let's take an honest look at a couple of the threats real estate investors are facing. Then we'll explore a couple of the interesting opportunities emerging from of all this that may be worth checking out.

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Image source: Getty Images.

Threats

High interest rates and low housing supply

If you've been considering the purchase of a rental property lately, you're definitely onto something. Long-term landlords are unlikely to run into vacancy problems in the current high-cost, low-supply housing market. As a result, they can also charge considerably higher rent than they could just a year ago.

Meanwhile, vacation rental property owners are cleaning up, too. With people ready to travel again, short-term rental data analyzer AirDNA reported that rental property hosts actually saw their highest annual revenue ever last year, and the forecast for the future is bright, too.

But although interest rates have recently dropped a bit, averaging 5.10% at the time of this writing, they're still significantly higher than the 2.95% average we saw a year ago. It might still be worth crunching the numbers if you do happen to find the perfect rental property at a bargain, but you may find that now is simply not the best time to purchase a rental property.

Oppressive rental property regulations

But what if you already own a rental property? That's fantastic, right? Well, probably. The exception would be if your property is located in an area imposing regulations that could make your investment more trouble and/or less profit than it's worth -- or could even prohibit you from renting it out at all.

Some cities, including Portland and New York, have rent-control systems that could make passing on your rising costs to tenants over time difficult to impossible. And an increasing number of cities are cracking down on vacation rentals, reducing the allowed number or even eliminating them entirely. If you own a vacation rental, you'll want to keep an eye on what's happening with local legislation that could impact you.

Two people at outdoor shopping center smiling, carrying bags, and looking at window display.

Image source: Getty Images.

Opportunities

The desire to get out and live life

The pandemic kept people cooped up for far too long, and most are ready to get back out there. It doesn't look like that's going to change anytime soon, and several commercial real estate sectors are poised to benefit. According to a new report from Mastercard SpendingPulse, e-commerce transactions are down nearly 2% from a year ago while in-store sales are up a whopping 10% over the same period.

More specifically, grocery delivery hasn't hurt grocery-anchored shopping centers a bit. They've even maintained a strong showing through the ongoing inflation and supply issues. Meanwhile, open-air shopping centers are heating up as retail owners take into consideration shopper preferences to spend time outdoors and are building or remodeling properties accordingly. That could all make now a great time to consider investing in retail real estate investment trusts (REITs) with plenty of grocery-anchored and other open-air shopping centers.

The housing affordability crisis

Affordable housing has been a problem in need of solutions for years. But now, the aforementioned housing supply issues and skyrocketing interest rates are mushrooming the situation as an increasing number of would-be homebuyers are priced out. So how can these same issues we've listed as a threat to investors also represent an opportunity? One possible way to help solve the problem while boosting your bottom line could be investing in mobile home parks.

Mobile home parks have low overhead compared to many real estate investments, as the residents generally own and are responsible for maintaining their own mobile homes and pay rent for their lots. The Biden administration is even giving this investment avenue a boost by making financing mobile homes easier in an attempt to help alleviate the affordable housing issue. There may have never been a better time to invest in a mobile home park.

Navigating the threats and opportunities

The current economic climate isn't exactly run of the mill, and that can make dipping a toe into the real estate investing waters or even expanding your current portfolio look like a scary prospect. But like with most storms in life, there are still rays of sunlight to be found here. By knowing what to steer clear of and where the potential advantages lie, you can find some real estate investing opportunities that could lead to smooth sailing.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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