Is Real Estate Investing Too Saturated?

Throughout the COVID-19 pandemic, the real estate market boomed and experienced a huge surge in transactions. With a limited supply but an intense demand for rental properties, not only were there more individuals buying and selling property, but the average house price increased as well. Some homeowners who sold their homes during this surge were able to sell their homes for double their asking and more than double what they bought them at.

This was great news for individuals who were taking advantage of the high demand and owning investment properties or rental property that they were willing to let go of in order to make a significant amount of profit. However, the boom had to come down eventually and we have seen home prices slowly start to decline in 2022.

If you have just dipped your toe in or are completely brand new to the real estate investing life, a hot market is both exciting and intimidating. Now, even as the market starts to slow, understanding market saturation can help you stay on top of real estate transactions and build your portfolio.

What Is Market Saturation? How Do I Know If The Market Is Over Saturated?

Before we can dive into a conversation on market saturation, we first must define what it is.

Investopedia author Marshall Hargrave says that "market saturation arises when the volume of a product or service in a marketplace has been maximized. At the point of saturation, a company can only achieve further growth through new product improvements by taking existing market share from competitors or increasing overall consumer demand." Ian other simple terms, it also often means that the supply of the product or service is higher than the demand.

When it comes to market saturation, there are two main perspectives to consider: macro and microeconomic. The micro perspective looks at markets that aren't providing new demand often due to intense competition. the macro perspective, on the other hand, looks at markets that have already serviced their entire target audience and currently don't have any new customer opportunities.

A saturated market can look different depending on the industry. Often, a business may try many different strategies within its power to prevent reaching the saturation point. Some of these strategies include:

1. Lowering Prices: market share can increase among customers when the price of the product or service decreases.
2. Cutting Costs: as a way of getting by, a business may do some temporary cost-cutting until it can increase its cash flow and market share.
3. Expanding Product Line: without adding new products, a company may expand its business into other geographical locations outside its own country in order to reach different potential buyers or add new value.
4. Diversifying: to reach a new market or bring back former clients, companies may rebrand or create new value for their goods or services.
5. Developing Products: in order to keep a stable appetite for a product, companies can create products that are intentionally "breakable" and therefore bring in multiple repurchases from buyers.

The Real Estate Market and Saturation

Understanding market saturation allows real estate investors or real estate agents to make strategic decisions for themselves or their potential clients. Real estate investments require knowledge and research on a specific area's market and potential clientele.

Back in 2020-21, the housing market saw a significant increase in appetite for single-family homes, apartments, rental properties, and other properties. During this time, the supply of properties available was not enough to appease this appetite.

Now, as the housing and rental market slows, it looks as though the supply of available units is slowly outweighing the number of buyers. This can signify that the housing and rental market is saturated, but there are a few other things to consider as an investor in real estate.

As average house prices and interest rates continue to rise, most people are renting instead of buying. This means that there are many potential tenants and renters out there who are looking for new rental units.

That being said, there seems to be a growing population of investors looking to deal with their own debt and build equity by renting out basements of their primary residence to college kids in their local market. Others purchased another single-family home as a rental property to make some extra cash. Because of this, there are so many investors and landlords out there hoping to invest in units, make deals happen, and rent out their units.

If you're a real estate investor, one strategy for dealing with market saturation is to be wise about the property you decide to buy, sell, and rent out to people in your city. It's also important to make your rentals and new properties appealing to a wider group of people in order to reach more people.

You also need to have an idea of what you'd be willing to compromise on. One thing you won't want to compromise on is your due diligence, especially home inspections. Having a quality house or property available for rent will boost your reputation as an investor.

Also, don't be afraid to make sales in the future. When you hold properties too long, you can miss out on money and great investment opportunities.

Conclusion

The real estate market is different from other markets because there will always be potential buyers, sellers, and renters. That being said, it's important to understand how to market your property wisely and make wise financial decisions as the market changes and develops over time. Especially considering the housing market is predicted to slow in 2023 as the economy slows, managing your properties and cash will be extremely important for success.

Partnering with reliable realtors, inspectors, financial planners, and property managers can make navigating the rental market and the financing process that much easier.

Real estate investment can take a lot of focus and available cash, but when done properly, it can have a lot of benefits and opportunities to make money and build your wealth.