Owning an income property is a great way to generate regular income. But you may reach a point where you are ready to move on.
Monitoring an income property can be a lot of work. You need to ensure that the property is maintained at all times, deal with repairs as they arise and ensure that leases are up to date. And you may be in a place where you no longer want to do that job and prefer to find a more convenient way to generate passive income.
But if you’re looking to sell an income property in the short term, it might pay to act quickly. There are already signs that the scorching housing market is cooling off. And in some markets, house prices are already dropping noticeably.
No more bidding wars
Over the past two years, bidding wars have been a mainstay in the real estate market due to a glaring lack of housing. But while inventory is still sluggish, the reality is that buyer demand is starting to decline due to a number of factors. These include exorbitant home prices that buyers may finally have had enough of, as well as rising mortgage rates.
Last summer, housing supply was far from abundant and house prices were up sharply. But at least the mortgage rates were very affordable, which gave ordinary buyers and real estate investors an opportunity to acquire properties. Now buyers have the worst of both worlds – and some may finally say they won’t play ball.
As such, there has been a dip in recent bidding wars, despite a continued lack of inventory. And this is something sellers need to be aware of.
Be careful in these specific markets
Some markets are experiencing a faster housing market cooling than others. In reality, red fin named these five markets in particular as colder based on factors such as recent median sale price, price drops, inventory, and more. :
- San Jose, California
- Sacramento, California
- Oakland, California
- Stockton, California
Clearly, the cooling housing market initially appears to have a greater impact on the West Coast than on other parts of the country. But that doesn’t mean market conditions won’t change soon in other major metropolitan areas. As such, those looking to unload revenue property, not just in these markets, but anywhere, should consider building a listing sooner rather than later.
There is a good chance that mortgage rates will continue to rise in 2022 as the Federal Reserve moves forward with interest rate hikes. This, in turn, could lead to a more noticeable pullback from buyers.
If you are seriously considering selling an income property, it pays to do so before borrowing becomes more expensive for buyers and also before recession fears turn away more potential buyers. If the next Fed interest rate hike is substantial, buyers could pull out of the housing market not just because of higher borrowing costs, but because of general economic uncertainty. This is a situation you really want to anticipate.
Maurie Backmann has no position in the stocks mentioned. The Motley Fool fills positions and recommends Redfin. The Motley Fool recommends the following options: $13 short calls in August 2022 on Redfin. The Motley Fool has a disclosure policy.