The 2022 housing market is a tricky one for real estate investors in search of income properties to navigate. It's also a tough time to be looking to buy a home to live in yourself.
But that doesn't mean there aren't opportunities to make money in real estate this year. Here are a few ways to score significant wealth.
1. Sell a home and downsize
If you're a regular homeowner, you have a prime opportunity to walk away with a pile of cash by selling your home and downsizing to a less expensive one. Because home values are so inflated on a national level, the average property owner is now sitting on $185,000 in home equity, reports Black Knight. And while you may not make any money selling your home and buying a comparable one simultaneously, downsizing could produce very different results.
Imagine you're sitting on a home whose normal value is $500,000 with a $200,000 mortgage balance. In today's market, you might manage to fetch $600,000 for your home. Sell at that price, and you're looking at $400,000 in your pocket (not accounting for real estate agent fees and transfer taxes, if applicable). If you then take that pile of cash and use it to buy a $250,000 townhouse, you'll walk away with a nice profit.
2. Sell an underperforming income property at a premium
There's strong demand for both short-term and long-term rentals these days. But if you have an income property that hasn't been fetching a decent amount of rent or that you're struggling to maintain, then it may be a good time to unload that investment.
Property values rose 18.8% in the course of 2021, according to the S&P CoreLogic Case-Shiller National Home Price Index. That's the biggest increase in 34 years. And so chances are, if you put that income property up on the market, you'll get a decent price for it. From there, you can invest your sale proceeds in another property that might serve as a more robust income stream -- or just plain pocket your profit.
3. Invest in the right REIT sectors
Believe it or not, you can make a lot of money in the real estate market without actually owning property. If you load up on REITs, or real estate investment trusts, you might see your portfolio gain solid value over time. And because REITs commonly pay larger-than-average dividends, you can benefit from that added income stream, too.
That said, some REIT sectors may be more poised for growth this year than others. The shift to e-commerce and remote work is fueling a huge need for data centers, so data center REITs could end up being a good buy. Similarly, the explosion of digital sales has led to high demand for warehousing space, so industrial REITs could see a lot of growth this year.
There's plenty of money to be made in this year's real estate market -- whether you're a regular homeowner or an investor looking to profit. Be sure to take advantage of record-high home prices and solid REIT opportunities to end 2022 on a high note.