2019 is likely to bring higher levels of uncertainty for real estate investors, according to the experts we interviewed. Having experienced years of low-interest rates and growth, investors are questioning whether they can rely on either in the year ahead. Despite a changing real estate market, opportunities are still there to be had.
Here are insights into 2019 real estate investment trends from 22 real estate professionals.
1. Expect the United States Real Estate Growth to Slow
Keith Robinson, Chief Strategy Officer, NextHome
With the supply and demand side both softening, we will see a decrease in the rate of increase. This is healthy. We have been on a long run up in real estate values across the nation. Anything that grows too fast for too long isn’t healthy and is more inclined to a big fall. Is this a deep breath for the market before it starts to march back up? Is this the starting phase of a true downturn in real estate values? All real estate is hyper-local. There will be cities across the nation that buck the national trend regardless of where the market heads. What matters most is to pay attention to your local market and your needs. People, in general, buy their home because of timing in their lives, not timing in the market.
2. Urban Multifamily Properties Continue to Attract Renters & Buyers
Tom Bock, President & Founder, Bock Development Group
Urban cities like Philadelphia, Boston, Baltimore, and New York are booming with new construction. It’s where investors and developers want to be. Across the country, multifamily properties in major cities are attracting all age cohorts, especially millennials and retirees who seek the convenience and luxury of city living. We are seeing more suburban residents migrating to cities where they can “have it all” and enjoy service-filled and amenity-packed living. Since 2010, the urban rental inventory has increased by 32% while the suburbs recorded a 16% uptick. Urban multifamily properties will continue to attract both renters and buyers with their low-maintenance living and live-work-play environments well into 2019.
3. There’s a Retracement of Home Values After the Increase
Brett Jennings, Owner, Real Estate Experts
One of the things we saw was a rapid rise in home values in the first part of 2018. For Silicon Valley and the San Jose Bay Area, real estate prices rose 25% from the start of 2018 to the peak. The Nasdaq had risen quite a bit, and major companies like Facebook, Apple, Netflix, and Google all had banner years in the growth of their stock prices. Many of those employees are buying houses, and they cash in their stock to do so. What we can learn from 2018 is that we did hit a peak, and the market did the top in the late spring/early summer. However, with that 25% rise, we are now seeing almost a 50% retracement, meaning we’ve given back about half of that 25% growth. The reason for that is rising interest rates and the correction in the stock market.
4. Investors Should Not Count on a Thriving National Economy
Louis Swingrover, Founder & CEO, 1031Gateway
The American economy is cyclical. The average cycle is five years, the longest was 10, and we are currently at 9.5. Many macroeconomic indicators suggest the next downturn is imminent. The last recession wreaked havoc on property values and cash flows, so Californian real estate investors should consider using the 1031 exchange to diversify their capital into the property with long-term ― 10-plus years ― leases to financially stable tenants with necessity-based products, such as discount auto, discount grocery, and pharmacy. But watch out for California’s “clawback” provision. If you defer the taxes on California-source capital gains that get subsequently realized in a taxable sale in another state, you will end up paying double the capital gains taxes in California and in the state in which the sale occurred.
5. Stay Away From Luxury Price Points When Investing in Suburban Areas
Jonathan Faccone, Managing Member & Founder, HaloHomeBuyers LLC
The best areas to invest in are the suburban markets outside of major metropolitan areas ― like New York City or Philadelphia ― known for good public school systems, and/or have good transportation options into the cities. In New Jersey, these markets include Summit, Chatham, and Old Bridge. It’s recommended to stay away from the luxury price points, which will be different depending on the individual town. Higher price point markets tend to drop first when markets begin to stabilize, and we are currently seeing that in many markets throughout New Jersey as interest rates continue to climb. Focus on the median with regard to price points, where the demographic is the largest and most affordable. These markets tend to have less volatile price swings and, if you need to rent them, the market rental prices are high enough to cover the monthly costs.
6. Southeastern Pennsylvania Is an Area With High Demand
Russell Volk, Real Estate Agent, Bucks County Real Estate
The real estate market in Southeastern Pennsylvania is challenging, especially for the homebuyers. Housing inventory is very low, and quality homes are selling very fast, especially in the 55-plus and active adult market. These communities are extremely popular, and more of them are being built due to high demand. The only downside is, you have to be at least 55 years old to buy, but these communities are some of the best investments in Pennsylvania.
7. Invest in Cities With Populations of 50,000 and More
Nancy Wallace-Laabs, Founder, KBN Homes, LLC
Looking at the types of investments like single-family or multifamily residences, consider investing in cities that have a population of 50,000 people or more. There are pockets across the country that are better than others to invest in. For example, in a metropolitan area, an investor can choose to invest in houses, apartments, and condos whereas if you are interested to invest in land, consider choosing a rural community.
8. Florida Is a Top Choice for Short-term Rental Property Investments
Daniela Andreevska, Marketing Director, Mashvisor
Florida remains one of the best choices for investing in short-term rentals. In addition to being a hot tourist and business destination, the Sunshine State does not have the same prohibitive regulations that many other states have adopted. The occupancy rate is high, and so is the rental income, which leads to high return. Within Florida, Key West stands as a particularly profitable location for vacation rental investments as the average cap rate is 7.2%. Moreover, the island has a good cap rate for long-term rentals at 4.3% in case you decide to switch strategies in a couple of years. The only downside to investing in real estate in Florida is the high property prices. The median price in Key West is $931,100.
9. Rent Growth Is Slowing on National Scale
Joe Fairless, Real Estate Expert & Author, JoeFairless.com
Nationally, the average rent rate increased 1.1% from October 2017 to October 2018. In 2016 and 2015, the rent rate increased 2.8% and 2.6%, respectively. That means rent growth is slowing on a national scale compared to previous years. However, the top markets in the country continue to outpace even the national rates and previous years. For any investor, the supply and demand of their preferred property type indicate the current and future strength in a market. Apartment investors need to look at rent trends to determine supply and demand.
Right now, the top five cities that experienced rent growth in 2018 are:
- Orlando, Florida (+4.4%)
- Las Vegas (+3.6%)
- Knoxville, Tennessee (+3.6%)
- Corpus Christi, Texas (3.1%)
- Phoenix (+3.0%)
The bottom five cities:
- New Orleans (-1.0%)
- Portland, Oregon (-1.1%)
- Buffalo, New York (-1.3%)
- Seattle (-1.3%)
- Baltimore (-1.6%)
10. Arlington, Virginia, Is One of the Best Places to Invest
Keri Shull, CEO, The Keri Shull Team
Even before the announcement of Amazon’s HQ2 location, Arlington, Virginia, was already an investor’s dream. It’s a transient area and economically very strong because of the amount of political work in the Washington, D.C., Metro Area. Now, Amazon has announced a new headquarters in Arlington that’s poised to add more than 25,000 jobs, each of which pays $100,000 to $175,000 starting in 2019. When you study what happened to rental and property values in Seattle as a result of Amazon’s first location, it becomes clear that Arlington and the surrounding area is one of the best places to invest in real estate in the nation right now. Don’t wait to invest in this area, though. The market is going to move fast, and no investor should miss out on any of the rapid appreciation about to happen to rental and property values in Arlington.
11. U.S. Real Estate Is Still on the Upswing
Cassidy Melhorn, Founder, VOL Homes
The U.S. real estate market has been on the upswing since 2010 following the housing market crash in 2008. During the past 10 years, median house sales prices are up nearly $100,000. With median sales prices around $300,000, that’s a 30% increase. In the most recent years, housing prices have continued to soar in smaller cities and towns across the U.S. while price increases in urban areas have slowed in the past year and even flattened in some cases. The increase in median housing prices is primarily due to the lack of supply of homes for sale despite being a “seller’s market.” With housing affordability on a downward trend and the gap between home prices and household income growing, buyers are becoming increasingly frustrated. Coupled with increasing interest rates ― a historical indicator of slowing home sales ― this has created great cause for concern that another housing market crash might lay on the horizon but, until the supply of homes for sale can meet demand, a downturn is highly unlikely.
12. Investing in Rural Areas Is Difficult
Conrad Castillo, Purchase Manager, Home Sold Speedy
The more difficult places to invest in would be rural areas as there is less presence of available jobs and less overall job security. Additionally, places where there are available jobs, but homes prices are significantly higher tend to make your return on investment decrease and can make it harder or more difficult to invest in these areas. Try to target areas where the home purchase prices haven’t gotten too high and where there is a strong job base. You also want to look for places where people are moving to. People and jobs bring disposable income, and that is how people pay for houses and pay rent, making those cities ideal options to invest in.
13. A 20-year Market Usually Offers the Strongest Investment Opportunity
Ryan Boykin, Founder, Atlas Real Estate Group
There are endless factors that contribute to home price appreciation and investment that are determined by local economics and the supply and demand dynamic of a locale. If you’re thinking of investing, make sure to choose a 20-year market. This is almost a level of certainty that real estate you buy in a market will be worth more 20 years from now than what it is worth today. Also, acquire a property that has sufficient cash flow to provide a strong return on investment in both good times and recessionary times. This is what ensures that you don’t lose the asset in recessions. Finally, try to find specific investments that have a nice story around them. This could be a value-add that you can do to the asset or perhaps there is big investment coming into a corridor from the city or a major corporation developing a new headquarters. All this creates new demand for living in that specific submarket and thereby creates a stronger appreciation story. This final element is what often provides the icing on the cake, and it will be what brings the investment greater appreciation than the national average over the long-term.
14. 3-bedroom Single-family Home Rentals Are the Best Properties to Invest In
Jill Hussar, Broker & Owner, Hussar Real Estate
Best types of properties to invest in for a long-term rental are single-family homes with three bedrooms and two baths with an attached garage. In most areas, the purchase price point is at an affordable price combined with the local rental income which creates a break even or profit after the mortgage and expenses are paid. Rentability rate is high for the number of bedrooms this type of home has. A three-bedroom home suits the needs of a wide variety of renters ― single professionals, a young couple starting their lives together, a family with two kids and retired folks who are downsizing.
15. The U.S. Rental Vacancy Is at Its Lowest Since the 1990s
Anthemos Georgiades, CEO & Co-founder, Zumper
In the current rental market, prices are being driven up by a lack of available supply, as the U.S. rental vacancy is at its lowest point since the 1990s. This coupled with the fact that some major cities like San Francisco, where a price ceiling seems to have been hit, is the reason why we’ve seen double-digit rent growth in many mid and lower tiered markets throughout the country. This emphasis on the growing rental market goes hand-in-hand with the beginning of a softening of the for-sale market, which will continue to have increasing interest rates.
16. Tax Breaks in Florida Make It a Great State for Investing
Karen Elmir, CEO, The Elmir Group
In Florida, we’re seeing an influx of northeastern buyers now more than ever because of the tax breaks. Since there’s no state income tax, ultra-wealthy northeasterners are flocking to Florida and scooping up residences of more than $10 million to flee states like New York, where taxes can be as high as 8.82%. Florida’s sunshine and beaches also help sweeten the deal.
17. Rental Properties Are Still in High Demand in San Francisco
Ray Wei, Director of Marketing, Onerent Property Management
The median rent in the San Francisco Bay Area rose by $578 between quarter 2 and quarter 3 of 2018. The average target rent trends higher as the number of bedrooms increase. Based on our research, 70.9% of respondents have no plans to move cities in the near future. About 13.9% of respondents plan to move within two years, 10.1% plan to move within three years, and 5% plan to move within six months and 12 months. Around 36.36% of homeowners in San Francisco did not have plans to purchase another rental property while 26.1% of all homeowners surveyed do not know if they are planning to purchase another rental property in the future.
18. Location & Amenities Are Important Factors in Choosing the Right Investment Property
Suzy Minken, Real Estate Agent, Berkshire Hathaway HomeServices – NJ Properties
With the current shift in the real estate market, builders and developers of single-family homes as well as side-by-side townhomes, are being more cautious in the properties they choose to invest in. Right now, many builders and developers with a number of projects already underway are finding that these homes are taking longer to sell. For them, any new investment properties need to adhere to strict guidelines, and location is at the top of the list. This means, no busy roads, no yellow lines, and no railroad tracks. A great location in the suburbs can be defined by a short walk into town and close to public transportation. If you can combine a great location with a relatively easy renovation that can be done swiftly, this would be an ideal scenario for today’s builders and developers. The price needs to be attractive enough to yield a high return on their investment.
19. Home Prices Are Still Trending Upward
Colette Stevenson, CEO, Multiple Listing Service of Hilton Head Island
Home prices are growing each year due to the lack of inventory, strong mortgage demand, and improving incomes. We are seeing more homebuyers being driven to purchase based on what technology the home comes with. Buyers only have things that are provided to them in the home when they buy, so if a home has older appliances, buyers will have to spend more money and time upgrading to what they desire. Sellers should improve their home’s technology and appliances if they want to sell for the best price possible.
20. Housing Prices Are Dropping in Some States
Domenick Tiziano, Blogger & Landlord, AccidentalRental.com
During the last few months, home values seem to be dropping in the market. The value of my properties temporarily dropping is not a call for concern especially if you’re a buy and hold investor. Instead, it’s a good opportunity to reduce property taxes potentially and increase net operating income.
21. Small Residential Rental Properties Are Good Investments
Doug Brien, CEO & Co-founder, MYND Property Management
The Federal Reserve will likely raise interest rates each time it meets in 2019, displacing a number of first-time homebuyers, especially in Western regions of the country like San Francisco. Median home prices in San Francisco have been in the $1 million range for at least 18 months, and home prices in Los Angeles are nearing $600,000 with no short-term relief in sight. As a result, first-time buyers like millennials, Generation Xers, and others will be forced to rent instead of own in upcoming years. Furthermore, if there’s an economic downturn that translates into job losses nationwide, people could default on their mortgages. If they default like they did during the most recent economic downturn of 2008, they could lose their mortgages and be forced into the rental market. With rental demand anticipated to increase next year, small residential property investing becomes an extremely attractive option. A total of 84% of Americans reside in small residential properties, compared to only 16% of Americans who reside in large residential properties. In other words, the majority of rental demand is ― and will continue to be ― for small residential units.
22. Austin Is One of the Top Markets to Watch in 2019
Alex Parker, Customer Service Representative, Realty Austin
The Austin housing market continues to be on track for a record-breaking year in sales as 2018 draws to a close. The market is growing as it continues to attract the best and most innovative companies from every sector of the economy. Single-family home sales across the Austin-Round Rock Metropolitan Statistical Area (MSA) are up by 3.3% and the median home price increased by 2.2%.
The Bottom Line
Despite worries about a looming recession, there are still several opportunities for real estate investors across the country. States like Florida, Texas, Pennsylvania, and Virginia are good options. Rental properties continue to thrive, and single-family residences remain in high demand in some cities.