It’s no secret that property values in the United States are on the rise across the board (and if you’re not convinced, ask any frustrated buyer who’s been struggling for months to find a home in their price range). In November, the National Association of Realtors reported that during the third quarter, the median selling price of existing single-family homes rose in 99% of 183 markets, with double-digit gains in 78% of those markets.
In total, the median sale price of an existing family home jumped 16% in the third quarter of 2021 from a year earlier, bringing that figure to $363,700. And while accelerating prices can be a bad thing for potential buyers, as a real estate investor with a portfolio of properties, it can be a positive thing for you.
That said, higher home values could also result in higher costs on your end. Here are three things you can expect as a short-term investor.
1. Higher property taxes
When home values skyrocket, so do property taxes. And so, if you own properties that you rent out, you may need to consider imposing rent increases on your tenants to offset your own rising costs.
Normally, it is possible to appeal a property tax increase. Technically, it is still possible on the current market. But whether you’re likely to win a call is another story.
To argue a property tax bill, you need comparable sales at lower prices. Because house price hikes are so prevalent, you may end up with the property tax hike on offer at the moment.
2. More equity to exploit
Because home values have skyrocketed nationally, American homeowners are now sitting on record levels of equity. Black Knight reports that in the third quarter of 2021, collective housing equity reached $9.4 trillion. This represents an average of approximately $178,000 in available equity per owner.
This gives you a great opportunity to leverage that equity and use it to expand your real estate portfolio. You can also access some of that equity and use it to renovate an existing property for a much higher rental rate.
In fact, if you have short-term rentals in your portfolio, you might want to upgrade them sooner rather than later. Due to recent developments on the COVID-19 front (thanks, omicron), travelers might, at least in the short term, favor private rentals over hotels. Doing a few quick upgrades could increase your nightly rates.
3. More opportunities to sell and walk away with a good profit
There may be a property or two in your portfolio that you’ve been looking to unload for some time because it’s been hard to find tenants or you’ve had trouble controlling market rates in that specific location. Either way, with house prices on the rise and home inventory so limited, now is a great time to put a house up for sale. If you do, there’s a good chance you’ll not only find a quick buyer, but also a loan paying a premium.
In fact, the real estate market is so starved of inventory that even a home in a less than desirable location could end up in a bidding war. And with mortgage rates still near historic lows, you can bet buyers will be willing to compromise when it comes to finding a home of their own.
How long will high house prices last?
Once inventory returns to the real estate market and supply can better meet demand, home values should begin to come back down. But that probably won’t happen for a while. Economic and pandemic-related uncertainty will likely prevent many sellers from listing their homes for sale in the near term, giving you a chance to make the most of inflated home prices.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.