BiggerPockets' housing guru shares his top 4 real-estate investing strategies for today's market

Publish date: 2024-06-30
2024-01-25T11:15:01Z

These days, going into real-estate investing is riskier than it was a few years ago.

Mortgage rates have shot through the roof, making positive cash flow thinner and harder to come by. Home-price appreciation has also slowed — and in many cities turned negative — making strategies like flipping much less viable.

But for those willing to take a long-term approach, there are still ways to build wealth through real estate, says Dave Meyer, the resident housing market guru at BiggerPockets and the author of "Start With Strategy: Craft Your Personal Real Estate Portfolio for Lasting Financial Freedom."

4 ways to build wealth in today's market

In an interview with Business Insider on Wednesday, Meyer listed four strategies real-estate investors should consider at the moment. The first is house hacking, which is essentially renting out a part of your own house, whether it's a sectioned off part like a basement, or an individual room.

This strategy is fairly risk-free because the owner is already able to afford the monthly cost of the property, and renting out a part of the house allows them to share or eliminate those expenses.

Next, Meyer said "value add" — or fixing up a property that's "not up to its highest and best use" to increase rental cash flow or its sale value — is a good approach. This may work best for properties that investors already own, with some experts warning against strategies like BRRRR and flipping with home prices falling or stagnating in many markets.

Third, it's a favorable time to become the bank yourself, Meyer said. With rates high and deals harder to find in the market, investors could find returns by lending out their own money to other investors. Doing this can mitigate risk by having their loan backed by the property purchased.

"It is a good option if you can afford it," Meyer said.

And finally, Meyer pointed out that despite conventional wisdom, buying a newly-built home, or having one built, could be cheaper than buying an existing home. According to Rocket Mortgage, the median new home cost is $298,136, which is indeed lower than the overall median sales price of $431,000. Of course, one has to own a plot of land to build a new house on.

"For really the first time at least in my career, purchasing new construction is working well for some people," he said. "There's very little supply on the market right for existing homes. Typically new construction makes up about 11% of inventory. Right now it's closer to 30%."

He said building companies typically want to sell more quickly than existing homeowners.

"Builders have a bit of a different business model and a different calculus than typical homesellers where they need to move inventory quickly. And to do that they're offering a lot of rate buydowns," Meyer said.

A rate buydown is when the seller effectively makes mortgage rates temporarily cheaper for the buyer by giving them the equivalent amount of money it would take to reduce rates from, say, 5% to 6% for a year or two.

According to Redfin, this type of deal-sweetener is increasingly being offered by existing homesellers as well, and gives buyers some time to ride out the higher-rate environment before potentially being able to refinance a few years down the road if rates have fallen.

Rates on 30-year fixed-rate mortgages are around 7% right now, and Meyer expects rates to stay between 6-7% in the near-future. The Federal Reserve is expected to slightly reduce interest rates in 2024, but their policy ultimately depends on how the labor market holds up and how inflation behaves.

Watch: After 25 years of investing in real estate, this guy says buying a home is for suckers

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