When I started my real estate investing journey in 2002, I didn’t have any training or a real estate license; like lots of folks starting out, I learned a lot as I went. At that time, the median price for new homes increased to $182,700 during the first quarter, which was up 8% from the first quarter of 2001. The average monthly rent price was just $658 dollars, which was a 3.95% increase from the previous year.
Fast forward to now, twenty years later: here in Phoenix, where I live, the median list price in February 2022 is $438,000! That’s an increase of 30.7% compared to last year!
If you’re looking to get into real estate investing, these numbers might send you running for the hills. But the good news is, you can invest in the market, you just need to have a strategy in place.
I recently joined a new podcast from BiggerPockets, On The Market, where Dave Meyer, myself, and a host of phenomenal panelists talk about what is going on in the market right now. One of the first things we discuss is how someone can get into investing in real estate this year with all the challenges the current market brings.
Here’s my take on how to master the market in 2022:
What the Current Trends & Predictions Mean
So what is the landscape of real estate investing right now? Three words: buyers are buying!
The reasons for it are simple:
- They’re taking down tighter deals
- They’re buying on speculation
- Inflation
Buyers aren’t dumb, so they’re pulling the trigger on deals today instead of waiting. There’s tremendous volume and activity because of current market conditions. We already know that there was a 17% year over year gain in home sales at the start of 2021. This was following a tumultuous year, resulting in supply chain issues across the board which affected home construction in high numbers.
But Jamil! What about inflation?
The world is crazy right now, and prices have risen across the board, which is a huge factor in housing and the broader economy. But here’s the thing—the federal reserve will aggressively raise interest rates, but while supply chain issues were a huge challenge in 2020 and 2021, at some point, they have to settle down. At the same time, the world is starting to open back up and people are feeling a lot more comfortable in this ‘new’ normal as they say. When it comes to housing, there’s a lot of liquidity and hard money rates are low.
That’s why buyers are buying right now—they’re seeing the same speculation, they’re reading the same reports, and they’re acting on all of that information. So if buyers are buying during this time, how do new and seasoned investors combat the challenges and hurdles?
Strategies for Overcoming Current Market Challenges
The consensus is that there are no deals. Here’s the thing—despite all of these hurdles, I’m still getting deals. People I know working the landscape are getting deals. It can be done, but you need to have a strategy—especially in this climate—to ensure you’re getting the right deals.
The question is “how?” How am I getting deals in such a volatile market?
There are two tactics that you should learn and follow:
- There is always an opportunity for potential
- Learn to underwrite
Having a strategy is important because it helps you understand who’s sitting at the table; if you think of the market as a giant dinner party table, you’ll likely have your normal eaters. But now you’re starting to see ‘professional eaters’; these are the secondary buyers who are gobbling up all the homes right now.
Professional eaters have caused the primary buyers to pull the trigger on buying a house. But that’s where a strategy comes into play, because if you know who’s at the table, that makes it easier to serve the normal eaters, while letting the professional eaters eat whatever they want.
Let’s talk about these strategy tactics.
Opportunities for Real Estate Potential
Everyone is talking about low housing inventory, but in reality, they’re talking about a completely different product: retail product, the type of houses that have already been improved. The type of deals that I, as a wholesaler, am going after are distressed properties.
While pandemic-related supply chain shortages have affected the availability of new builds, there’s still plenty of opportunity when looking at distressed properties. In fact, for many folks, the pandemic has made it more necessary to to wholesale their homes.
Wholesaling can be a divisive topic, and I’m certainly not advocating being a predator; that’s not how I work and that’s not how many of my partners and team members work. When done in an ethical manner, wholesaling deals give everyone a win—winning for some people looks like being paid 100% of their as-is value. These are the opportunities and the potential opportunities new and seasoned investors should be going after.
Learning the Art of Underwriting
The second most important strategy point is to learn how to underwrite.
When you’re able to figure out and understand how much something should cost based on where it is currently, you’ll easily be able to spot the potential.
Underwriting means doing your research and learning the value of properties, which will then lead you to understanding the consequences of overpaying and the consequences of getting a good deal. Once you know how to leverage that knowledge, you can make money when the market is depressed and you’ll make money when the market’s hot.
When I first started, I had a lot of leverage but I didn’t know how to mitigate it. I’ve used those situations to better understand the market and learn how to spot potential opportunities so that I can use the market to my benefit.
Despite the unexpected surprises that the last few years have brought, there are still opportunities to be found. The market is always changing, so it’s important to be aware of what’s happening. Smart buyers are always investigating, reading, and learning. As wholesalers, fix-and-flippers, realtors, or investors, we need to be doing the same.
My one big takeaway is this: learn. Learn everything you can about the market, the trends, predictions, etc. Podcasts like On The Market are incredible resources, because you’re getting advice from experts and professionals on what they’re seeing, how they’re working in the market, advice on how to work in the market, etc.
The housing market will continue to change, but don’t let that scare you away from investing. As long as you have the tools, the strategy, and the determination, you’ll succeed in anything you do.
On The Market is presented by Fundrise
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