The Realestatejournal has two informative articles here and here that emphasize a couple of things about the changing real estate market that seem to have been forgotten during the recent boom. 1) Real estate is an illiquid investment and 2) Plan (and be prepared for) for the worst – a vacant house that you can’t sell in a timely manner.
And don’t kid yourself: If you have a cash-flow problem now, it could get a lot worse. What if you have trouble finding tenants, or your tenants stiff you on the rent? If the property is already a cash drain, imagine how grim things could get without any rental income coming in.
Real estate has proven to a be, in most cases, an excellent long-term investment. Note use of the words “long-term.”
The current slowdown reflects three broad trends, according to real-estate agents and economists. One of the most important is that many speculators have started to dump homes that were purchased as investments. In addition, high prices and rising interest rates have reduced affordability for middle-class families.
The third – hurricanes – does not directly impact the Central Virginia market. The Charlottesville-area market has seen a reduction in price gains, more inventory on the market and longer marketing times. Patience is the key.
When second homes account for 40% of home sales nation-wide, there may be cause for concern. I do not know the specific percentage of investment properties in our market, but anecdotally, my educated guess-timate is that about 25% of homes in CharlAlbemarle are investment properties. Many realize that the true investment return comes long-term and via rental income.