Capital with No Place to Go:
Investment Opportunities for Smart Money in the Phoenix Residential Real Estate Market
The national real estate market is operating within a challenging paradox: a massive abundance of money is looking for investment opportunities, yet most investors are trapped following a conservative approach. That blessing of abundant capital can transform into a curse when it creates the temptation to “invest somewhere, anywhere,” with resulting consequences of bad bets, increased risk and more uncertainty.
The Phoenix residential real estate market is likewise in the midst of a multi-year run of favorable conditions, also marked by easy access to debt and substantially rising prices. Abundant investment capital is prioritizing residential real estate and looking for opportunities with solid risk-adjusted returns to grow portfolios, but there’s still a stubborn conservative streak that is causing some investors to miss those opportunities.
Here’s what you need to know to support your decisions about how and when to invest in Phoenix real estate and homes.
The Perils of Dumb Money
As far as market problems go, you can do a lot worse than being challenged by a surplus of low-cost debt and equity. But there’s no doubt that formula can be an engine that churns out dumb money scenarios, especially in the hands of institutional investors who are desperate for places to park their capital. In the real estate market, dumb money results in record prices for assets, investors racing increasingly ahead of market fundamentals and an inevitable correction that sorts out winners from losers.
Bottom line: one of the primary reasons to purchase a home is to invest in an appreciating asset and thereby grow your wealth. Don’t let the market force your decision making, stay composed and look for true opportunities, rather than embarking on investment at any cost.
Looking Ahead in 2020
Industry experts at Realtor.com are predicting that investment capital will remain abundant in the coming year and high liquidity will continue to define the market. Despite the likelihood of slower economic growth and the growing urge to hedge bets against a downturn, the United States’ real estate market in particular will be an attractive target for investors everywhere.
Key issues affecting the residential market are the growing challenge of housing affordability, the lack of accessible housing options for older Americans and retrofits increasingly replacing new building activity. Phoenix’s market mirrors the larger national trends, particularly the accessibility issues for older buyers. Housing prices are rising faster than incomes, which is driving a gap in price-to-income ratios. All of these challenges should inform your decision making when looking at opportunities to buy or sell.
Making Certain Your Money Is Smart Money
So how do you make sure your money is the smart money? Stay in control of your decision making and let the facts guide you, rather than being tied to a specific outcome. The following three principles can help you remain in control, instead of letting the the market control your money:
Don’t be tempted by the “invest somewhere, anywhere” mentality. Jumping in because you think you have to inevitably leads to getting ahead of the market and overpaying. Stay patient, stay focused on value and understand that opportunity cost is real, but the cost of a bad deal is substantially worse. If desperation is driving decision making, mistakes are bound to be made.
Keep market fundamentals in mind. Supply and demand, mortgage and lending rates, and the economy as a whole are the pillars that support the real estate market. Add in the rate of new home construction and median home prices, and you have in your toolbox everything you need to efficiently and effectively make investing decisions. Don’t let the market make your decisions for you, instead rely on your knowledge of the fundamentals and whether these crucial metrics say you should buy or sell.
Look for opportunities away from the crowd. Dumb money tends to chase the same targets, looking to perpetuate the forces that are driving the market. That thinking drives prices upwards, as they compete for the same shallow pool of properties. Look further afield for more targets and more opportunities. Exploring off the beaten path helps protect you from competition-driven price pressures, allowing you to find properties that are more affordable and less risky.
Collective Concepts: Focused on Developing Real Estate Opportunities
Collective Concepts is your trusted partner for the full range of residential real estate services, including investment advisement, property development, valuation advisement, home sales and consulting. With a focus on high-end properties and homes, our experienced team of real estate professionals has an unrivaled knowledge of the local Phoenix residential market.
The tools to help you make informed investments, to avoid the trap of too much money on hand and not enough good opportunities. To learn more about Phoenix real estate investment opportunities and how Collective Concepts can help you grow, manage and enjoy leading value for your capital, fill out the form below – a member of our residential team will connect with you as soon as possible.