Business is all about risk vs reward. Investors and entrepreneurs constantly weigh the pros and cons of how risky a move is against how large the potential payoff is, the upside. It’s a lot like chess, when you can see the entire board, you can make moves that pay off down the line.
While buying a home is an extremely personal experience, it is also one of the largest purchases you will ever make. Therefore, from an investment perspective, I want to talk about a strategy to mitigate risk and maximize your potential, all while finding a house you can love and live in and improve over time. That’s the American Dream, right?
There are three major factors when considering buying any property when you put your investor hat on supply, interest rates, and price. These three are completely interwoven and they act as the invisible hand of the real estate market.
Supply, or the number of homes for sale in your city, is often referred to in real estate as inventory. The amount of inventory directly affects home prices and buyers’ options. Just like in anything, economics 101 will teach you if demand outpaces supply, prices go up. See Nashville in 2020 and 2021.
Interest Rates are the cost of money to buy your home, like how much buyers are willing to pay the bank for the funds to get the dream house. When the economy is on an upswing, rates will rise. When we hit, say an international emergency, (ex. 2020), they may drop to historical lows to compensate and spur economic activity; people buy when it’s cheap.
Finally, list prices are often directly affected by both. If money costs more, people may hold off on buying. If supply is going up, buyers have more options. These combined can cause list prices to level off. On the contrary, low rates plus hardly any homes to choose from will drive pricing higher, along with factors like the city’s growth, population, economic outlet, etc.
So, when looking to buy your next property, keep all three of these in mind. You cannot control them but you can use them to your advantage. For example, Nashville is now seeing more supply and there is lots of news about interest rates on your phone every single day. This helps buyers because it levels the playing field quite a bit. On the contrary, prices haven’t shifted much because while supply is up, it still isn’t outpacing demand. It may take longer to sell your home than it did in 2021, but you will likely sell it if you’ve priced it right.
What if demand continues to increase with supply and then rates dip back down in the winter and spring? Well then, please once again refer to Nashville circa 2021.
The point is, timing can be everything. If you can remove one of these factors as a risk, take it off the table and strike while the getting is good as a buyer. This month, we know rates are higher than in recent years and supply is up, so it’s a strategic time to write offers. Next month is anyone’s guess.
Jacob Jones is a 16-year resident of East Nashville, a licensed Realtor, entrepreneur, and father.