Have You Thought About Non-Economic Factors?
Many real estate investors (REI's) talk about how interest rate hikes or dives and the local or national economy affect real estate market values. Though this is true, they don’t always point out the non-economic factors that change values as well. REI's are in the business to make money. Knowing what can help or hurt your ROI is vital.
Seasons
The season you choose to start looking for a house can dictate the real estate values you find. In the winter months of December-February the number of homes on the market drop as they’re usually slow months in sales. People often post-pone house hunting as they’re dealing with the holidays and don’t like moving in the winter.
Sellers will take their homes off the market for the same reasons as well as there being less curb appeal. This is good for REI's as there are less buyers during these months and real estate values often decline.
During the summer months the number of buyers and values increase. The holidays are over, the school year ends, and moving is less of a hassle. Sellers put their houses back on the market as values increase with there being more buyers and curb appeal.
Social Factors
Change in real estate values could be the result of social factors like population changes, crime rates, and demographics. Look at what areas increase or decrease in population, did a large business move in or out of the area? Is there a trend of increased crime rates in a certain area? Are there areas that are starting to attract senior or student living?
As a REI you should know what made the change in real estate values and why. When you invest in a house after these changes in value have happened, your risk may increase if you don’t know the reason why.
Distressed Sellers
Distressed sellers are under pressure to sell and they’ll often reduce their asking price over time. They may be no longer able to afford their mortgage, are facing foreclosure, filing for bankruptcy, etc. This is why REI's need to find out why the owner is selling their house. Buyers who are able to help the seller solve their problem are more likely to become the buyer of choice as they provide a solution.
Longer Time on the Market
A house that’s on the market for a long time shows that the seller is having a hard time appealing to buyers. You should try to find out why. Is the listing price too high? Is the home in poor shape? Is the house for sale by owner (FSBO) instead of a real estate agent and they’re unable to find the right buyers?
The owner often becomes more motivated to sell the longer it’s been on the market. Remember that the seller has to pay for carrying costs until the house is sold. This gives the REI more leverage as the seller becomes more anxious with every passing day.
Location, Location, Location!
Where the property is located can make all the difference in its value. A house could be in poor shape and still have a strong value than a similar home in great condition because of its location. Values can go up if the area has planned development or has an increase in appeal.
If values go down, find out why. Are attractive amenities leaving the area? Are buildings, roads, traffic lights no longer being maintained as well as they once were? Did the area have a change in school districts? Is the property now included in a flood zone that it previously wasn’t a part of? If these are the reasons why prices have declined, you may want to avoid these areas as they’re not likely to change for the better any time soon.
Conclusion
Interest rates and economic factors often change real estate values, but they aren’t the only reason that prices change. These 5 non-economic factors could be why values go up or down. Some REI's could make the mistake of buying a house that once would’ve been a great deal, but because of a non-economic factors it has become a bad investment. If values change and you’re unsure why, find out before you buy.
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