Real estate investments represent a major portion of an individual’s net wealth when compared to other investment schemes that he/she may opt for. Moreover, the size and scale of this highly lucrative market makes it an attractive option for many potential investors. Unlike other investment options available to most investors, real estate investments have a comparatively favorable risk/reward profile but a low liquidity.
Trusted real estate investment expert in the USA Dan Leimel Jr says many factors that influence this lucrative market and all potential investors need consider these factors before they intend to tap and take advantage of this market.
However, among these factors, the most prominent are:
Demographic represents the make-up and structure of the population in a particular area or locality in terms of age, race, gender, income pattern and availability of disposable income. However, the growth potential and the migration pattern of this population also influence the demographics of a particular region. There a number of ways in which a major demographic shift can influence the real estate market but the fundamental questions that potential investors need to know are:
- How would such changes affect the demand for second homes in popular destinations? and
- How would this factor influence the demand for larger homes if disposable incomes reduce and children leave for better educational and employment opportunities?
- 2. Interest Rates
As with other investment schemes, interest rates have a significant influence on the real estate market. Any significant changes in interest rates can influence an individual’s ability to purchase a residential or commercial property. The reason for this is that as the rates of interest fall, price that an individual has to pay to obtain a mortgage also decreases. The fall in the cost of mortgages creates a higher demand for real estate properties and pushes up their prices. Similarly, as the interest rates increases, the cost of obtaining a mortgage also increases that lowers the demand for real estate properties along with their prices.
The economy in a particular area or country is another critical factor that influences the real estate markets. When there is a recession in the economy, there is also a significant decrease in the demand for real estate property. Even cyclic conditions in the economy in a particular area or region can have varying influence on various types of real estate properties but residential and commercial.
4. Government Policies/Subsidies
Legislation is also a significant factor that influences that demand and prices of real estate properties. Government intervention in the form of tax credits, deduction and even subsidies can give a temporary boost to the real estate market in the short-run. Potential investors need to be aware of such government incentives that can help them identify the changes in the demand and supply in lucrative market. Such government incentives give these potential investors an idea of whether it is worth the risk to invest in this lucrative market.
Dan Leimel Jr says the scale and size of the real estate market makes it an attractive option for investors to invest in but they need to take into account the above factors before investing.