The coming year will offer many lucrative opportunities for investing—as long as investors analyze the market, use reliable data, and follow recent developments and forecasts.
The last few years have witnes-sed a series of crises in the real estate market in general, but specifically in rental property. The COVID-19 pandemic, the hottest residential market in decades, and the recent rise in mortgage interest rates have all impacted the industry and affected the ways in which investors think and act. Nevertheless, things seem to be stabilizing in real estate at the moment, sending positive signals to all who consider investing in rental properties in the coming months.
With that in mind, let’s take a look at the five most important trends expected in 2023.
Although the pandemic had a major debilitating effect on the vacation rental industry, the slowdown was relatively short, and the market has already started recovering. The recovery is expected to continue during the remaining months of 2022. By 2023, short-term rentals are expected to have reestablished their position as the more profitable rental strategy when compared to traditional, long-term rentals.
The most encouraging sign is the return to travel. In April 2022, the monthly travel expenditure in the U.S. surpassed the pre-pandemic level (April 2019) for the first time, by 3%. Short-term rentals are directly related to traveling. This means that as more people resume traveling, the demand for Airbnb-style rental properties will increase, allowing for higher daily rates and pushing up return on investment.
If you are interested in this rental property strategy, you should focus on markets with strong Airbnb demand. According to nationwide analysis conducted by Mashvisor, a real estate data analytics company, these cities boasted the highest Airbnb occupancy rates in the U.S. market in the summer of 2022: Portland, Oregon (67.5%); Seattle, Washington (67.4%); Tucson, Arizona (67.3%); and San Francisco, California (66.9%).
The second 2023 trend in the rental property investing industry is the continued growth of small, rural markets. The pandemic and the consequent switch to remote working across numerous industries affected the real estate market in major ways. One of the most significant changes to keep in mind as an investor is the massive move from primary markets like New York, Los Angeles, Boston, and Chicago to secondary and tertiary markets.
Because work-from-home policies are expected to remain in many businesses, the trend to smaller markets is forecast to continue into 2023 and beyond. Many professionals and families prefer the peace, comfort, and security small towns and rural areas offer. Although some people might choose to buy a home, others will decide to rent, creating an opportunity for investors.
For those considering investing in a long-term rental property, smaller markets will offer more demand and higher return. Importantly, such locations come with lower property prices, which makes them affordable even for new investors.
Another important trend the global pandemic stimulated is the emergence of a hybrid rental strategy that combines the benefits of investing in short-term and long-term rentals. As traveling nurses and other traveling professionals need temporary housing in various locations, we have seen a rise in long-term Airbnb rentals, also known as furnished apartments.
From an investor’s perspective, this rental strategy provides higher rental income than traditional rental properties and more predictability and stability in terms of occupancy than vacation rentals. The combined result is optimized return on investment.
As many people continue to work remotely, some will choose to travel to new locations for extended periods, which will further drive the growth of monthly furnished rentals in 2023.
Yet another major trend in recent years is fractional investing within the real estate industry. Technology has dictated this move rather than the pandemic. Real estate crowdfunding platforms like Fundrise, Realty Mogul, and Crowdstreet have allowed small-scale investors to own fractions of residential, commer-cial, and industrial properties together with other investors.
The benefits this rental property investing strategy offers are numerous; being affordable and passive are the most important. As technology continues to advance in real estate, fractional investing is expected to accelerate in 2023 and beyond.
Finally, we cannot talk about 2023 trends in rental property investing without discussing the role technology will play. High-tech will continue to be a main driving force in all aspects of the industry and all stages of the investor journey: from identifying profitable investment opportunities, to purchasing income properties, to renting out and managing both short-term and long-term rental properties.
We can expect existing proptech companies to grow and new ones to appear in the next couple of years to meet all investor needs, making the real estate investing process even more seamless and profitable.
In 2023, the rental market is expected to remain as dynamic as it has always been. There will be numerous lucrative opportunities for investing as long as investors analyze the market, use reliable data, and follow recent developments and forecasts. The five trends outlined here should help you make confident and profitable investment decisions.
Daniela Andreevska is vice president of content at Mashvisor, a real estate analytics tool that helps real estate investors quickly find traditional and Airbnb investment properties. A research process that usually takes three months can now be accomplished in 15 minutes.
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