Owning an income property is a great way to generate steady revenue. But you may reach a point when you’re ready to move on.
Overseeing an income property can be a lot of work. You have to make sure the property is continuously maintained, deal with repairs as they arise, and ensure leases are current. And you may be in a place where you no longer want to do that work and would rather find a more hands-off way to generate passive income.
But if you’re looking to sell an income property in the near term, it could pay to move quickly. There are already signs indicating that the red-hot housing market is cooling off. And in some markets, home prices are already coming down in a notable way.
Bidding wars no more
Over the past couple of years, bidding wars have been a mainstay in the real estate market due to a glaring lack of housing inventory. But while inventory is still sluggish, the reality is that buyer demand is starting to wane due to a number of factors. These include the sky-high home prices buyers may finally have had enough of, and also, rising mortgage rates.
Last summer, housing supply was far from abundant, and home prices were way up. But at least mortgage rates were very affordable, which gave everyday buyers and real estate investors alike an opportunity to scoop up properties. Now, buyers get the worst of both worlds — and some finally may be saying they’re not going to play ball.
As such, there’s been a downtick in recent bidding wars, despite a continued lack of inventory. And that’s something sellers should be aware of.
Be careful in these specific markets
Some markets are seeing a more rapid cooling off of the real estate market than others. In fact, Redfin has named these five markets in particular as cooler based on factors like recent median sales price, price drops, inventory, and more:
- San Jose, California
- Sacramento, California
- Oakland, California
- Stockton, California
Clearly, the housing market cooldown seems to initially be impacting the West Coast more so than other parts of the country. But that doesn’t mean that market conditions won’t change in other major metro areas soon. As such, those looking to unload an income property, not just in these markets but anywhere, should consider getting a listing together sooner rather than later.
There’s a good chance mortgage rates will continue to rise in 2022 as the Federal Reserve moves forward with interest rate hikes. That could, in turn, lead to a more notable buyer pullback.
If you’re serious about selling an income property, it pays to do so before borrowing gets more expensive for buyers and also before recession fears turn more potential buyers away. If the Fed’s next interest rate hike is substantial, buyers could pull out of the real estate market not just because of higher borrowing costs but due to general economic uncertainty. That’s a situation you’ll really want to get ahead of.
Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Redfin. The Motley Fool recommends the following options: short August 2022 $13 calls on Redfin. The Motley Fool has a disclosure policy.