We work with real estate investors with varying levels of experience. Many of them have been slowly building a portfolio for years, and they are always looking for new opportunities to leverage what they have and potentially acquire new investments. We also work with new investors, who have been planning to buy an investment property for a long time, and they’re finally feeling ready to wade into the waters of the real estate market.
No two investors are alike; all of us have our own investment goals and our own definitions of success. What we can say about all investors, however, is that they’re making a good decision. Investing in real estate is one of the most lucrative financial decisions one can make. Aside from providing a steady source of passive income, real estate is also an asset that appreciates over time, thus ensuring long-term financial stability.
That success assumes you understand the market and the challenges that are often involved in finding the right investment property. Finding the ideal property to buy comes with unexpected complexities, even for experienced investors.
We focus on rental markets like Idaho Falls and Pocatello because they’re strong regions that offer a lot of opportunity for the investors we work with. To prepare you for the types of problems that may arise while you’re looking to buy a rental property, we’re talking about the most common roadblocks that tend to land at inopportune times while you’re navigating the local market.
Buying a property should be the easy part of investing, right? Not always. Here’s what you will need to be aware of, and how you can lean towards practical solutions.
Low Inventory Levels in Pocatello and Idaho Falls Real Estate Markets
At the end of 2022, the National Association of Realtors reported that nationwide, the housing inventory was at the lowest level they’d ever had on record. This tracks in Idaho Falls and Pocatello, too. Inventory has been tight for a while now, especially following the intensely competitive market we’ve been navigating over the last couple of years. The demand for housing has outpaced the supply, and that’s leaving investors with fewer options than they’d like when it’s time to buy an investment property.
This is problematic not only for the investors, but also for the growing pool of tenants who are looking for well-maintained, affordable homes to rent in good neighborhoods. Finding the right investment at the right time isn’t easy. As an investor, you don’t want to settle for a property that doesn’t fit your investment goals or project the earnings you want to see.
With more new construction properties coming onto the market, there is some indication that the problems with inventory may ease. However, those buildings may not be ready if you’re an investor looking to buy today.
Be as proactive as you can and widen your professional network so that everyone knows what you’re looking for. If you hear about opportunities before they hit the market, you’ll be well-positioned to make an offer on an investment property that meets your needs.
Higher Home Prices in the Real Estate Market
While the frenzy of buying and selling over the last few years certainly drove up home values and housing prices, there are a number of factors that have impacted the rising home prices. There’s also some indication that those high prices have peaked. So, the good news is this: prices should not go much higher in Idaho Falls and Pocatello. The bad news is that prices are still high; you’re not likely to have positive cash flow coming in the months right after you close the deal. It may take a bit longer for you to begin to see some real returns. Higher home values also lead to higher property taxes. Prepare for that, too.
Many investors are strict about staying within their budget. That’s a good thing but it’s also limiting a lot of investors in terms of what they can buy and where they can look. It’s a challenge that many investors have had to grapple with recently; are you willing to pay more for a property than you would like to?
Inflation Driving Up Mortgage Rates and Financing Challenges
Another potential challenge for investors is the cost of getting a mortgage or any kind of loan. If you’re planning to finance the purchase of your rental property with a transitional loan, you can expect that it will be more expensive, thanks to higher interest rates. In many ways, leveraging your real estate investment by financing the purchase is still your best option in terms of the cash flow you hope to earn and the long term ROI you expect to gain. You’ll have to adjust your growth metrics, however, and understand that any debt will be more expensive until interest rates begin to come back down.
Financing challenges can show up outside of the inflation problem and the higher mortgage rates. Accessing the money you need to invest in your rental property can sometimes require extra time and effort. You need capital, especially if you’re hoping to buy an entire building or a handful of units within a larger rental property. Even if you’re buying a duplex or a fourplex; you’ll have to figure out how to pay for that purchase.
Investors have several financing options available—including bank loans, hard money loans, owner financing, personal savings, partnership, and even crowdfunding. Still, securing funds, especially in the current economic climate, can be a daunting task.
As an investor, you can improve your chances of finding the funding you need by keeping your credit score in great shape, reducing your debt-to-income ratio, and considering the diversification of your funding options, even if it means exploring unconventional financing methods.
Always stay within your budget, otherwise those financing challenges can follow you right into your future.
Accessing Accurate Information: Market Analysis Challenges
Sometimes, buyers have a hard time even understanding where they’re starting from, especially in a market that seems to be changing constantly. Investors who do not perform a comprehensive market analysis before buying a property are generally set up for failure. Even the analysis you conducted a week or two ago could be useless tomorrow, however. That’s just how quickly things are changing.
You still want to be diligent about understanding the current state of the market. Analyze its strengths, weaknesses, opportunities, and threats. Once you collect the data, you’ll need to understand what it all means. If you’re feeling outside of your element or ill-equipped to make sense of it, don’t get frustrated. Instead, reach out for professional help. You can talk to a property manager or a real estate investment professional who can offer advice and direction. When someone who does this expertly can walk you through the research and the trends, you’ll gain a better understanding of yourself, which will serve you for the future plans and decisions you make around your investment portfolio.
Finding the Right Rental Property in Pocatello and Idaho Falls
Here’s a problem that a lot of investors and buyers don’t talk about a lot: finding the right property. You imagine there’s an entire sea of available investment properties out there, and all you have to do is pick the one you like best.
Not in this market.
Even in a market with more supply than demand, investors still must identify the right property to buy. This does require some strategy. You’re not looking for a home that you would want to live in yourself. You’re looking for a rental property that will earn you income.
While you’re looking for the right property, you’re evaluating:
Potential rental value
- Neighborhood and location
- Property condition and the repairs that would be required before you rent it out
- Potential vacancy length
Property type matters. Are you looking for a multifamily unit? An entire building? Single-family homes or condos?
What you’re really looking for is a property that will earn you consistent and recurring monthly rental income as well as a profitable return on investment. You’ll need to know how to measure potential, and for that you can certainly benefit from a partnership with a good property manager.
Investing in real estate is a good idea, especially in markets like Idaho Falls and Pocatello. We always encourage investors to look at the opportunities here, whether you’re building or beginning a successful investment career.
However, we also want you to be realistic about what you’re going to find and what you’re going to need. That’s why we’re always shining a light on potential challenges and concerns.
This is an excellent reason to get some help. If you’re not already working with a property manager in Idaho Falls or Pocatello, look for that relationship. Not only will your property manager help you lease, manage, and maintain your home once you purchase it; we can also help you identify the right property, negotiate a price that reflects what it’s worth, and get the property ready for the rental market.
If you’d like some property management help or investment advice in Idaho Falls, Pocatello, or the surrounding areas, please don’t hesitate to contact us at Jacob Grant Property Management.