The Pitfalls of Winter Real Estate Investment
For real estate investors, rental property owners, and flippers alike, the winter season lull can seem like an appealing time to take advantage of an otherwise competitive market. With less competition, increasing leverage capacity, and a generally slower pace, the thought of entering into a property investment during the winter can be appealing. However, with seasonal weather conditions, a slew of potential hardships, and practical nightmares looming, winter investments can prove to be less of a windfall, and more of a catastrophe in the making.
Construction + Snow = Big Mess
One of the most obvious concerns for real estate investors in the winter looming possibility of harsh weather. Within winter markets, many of the construction-related tasks necessary in real estate become hindered, and completely at the mercy of the weather. The largest return on investment for many real estate investors lies in properties that require complete renovation, including exterior work, roofing and siding, gutter work, masonry, and landscaping. These tasks, however, cannot be effectively completed in wintery conditions. From materials freezing, to adhesives melting during rain, and even slippery conditions caused by ice, winter conditions are simply not conducive to extensive construction work.
While investing in properties that require little to no construction may appear like a better solution, the potential return on investment on these properties often does not compare to the investments that require an overhaul. Thus, tying up precious resources in a project with limited return will not yield the most favorable results on a long-term basis. When severe weather conditions subside, contractors are eager to return to working on large projects, including complete rehabilitation of properties, and will undoubtedly welcome the business, but their ability to do so is dependent on mother nature, making it a risky proposition.
Presentation of Property
For real estate investors, potential profitability and returns are contingent on many things: knowledge of the property and area, insight into the market, and the physical appearance of the property. When “surprises” pop up that require additional attention and funds, this profitability can suffer tremendously. With the need to make properly informed decisions, winter conditions can sometimes create misleading assumptions regarding a property. For example, snow-covered yards can hide sewer and drainage issues, can obscure structural issues in the roof, and even cover cracks and faults in the foundation. Similarly, getting a full-scale view of the neighborhood and its aesthetics can be made difficult by winter conditions, both past and present. Things like drainage systems, power lines, rural well systems, and even conditions of neighboring homes are important pieces of information for real estate investors, and they can be easily missed while touring a neighborhood throughout the winter.
Limited Liquidity
Throughout the winter, even seasoned real estate investors can find themselves with limited liquidity to invest in an investment project, especially if the project were to run into any unforeseen hiccups. With potentially limited financial opportunities that could buffer these unexpected expenses, real estate investors may find themselves in a position that requires them to take out loans or open new lines of credit in order to complete investment projects in the slower months. Though all investments are inherently risky, limited capital can increase the potential negative effects that less-than-perfect winter investments can place on a real estate investor. For rental investors, this could equate to having a rental property sitting vacant until spring, or a house remaining on the market months past its target sell date. Essentially, this leaves the investor with paying all taxes, fees, and even costs associated with keeping water pipes from freezing until the unit can be occupied.
Limited Buyers/Renters
While a limited competition may sound appealing to real estate investors looking to invest in property throughout the winter, there is also a downturn in the number of individuals who are looking to purchase or rent property. With limited interest from buyers and renters, real estate investors must sometimes choose between maintaining a vacant property until the spring or selling and renting properties for a more aggressive price, often cutting into profitability substantially. Thus, from a cost-benefit standpoint, targeting an investment project to complete and become available during an increasingly busy market can bring more positive results.
Success for real estate investors is all about timing, the ability to properly plan financially, and getting the best return on investment when trying to determine what will be a successful investment. Often, winter conditions disallow these factors from being completed in an effective manner and can change the market in an unfavorable manner. Thus, while limited competition for purchasing investment property many seem appealing, it is important that all potential investors consider all potentially detrimental aspects related to investing in real estate in the winter prior to diving into a seemingly undiscovered treasure trove of the real estate market.
