Property values are currently at the high-end of their price cycle, which, when combined with rising interest rates and other factors, are making investors wary at taking on riskier assets. Profits, however, are possible during these times, investors just need to be mindful of the strategies they are employing when investing.

Investor Reactions

Most investors are aware of these new strategies for investing, which leave them with two choices. They can either back out of the market entirely or they can accept higher risks in the hope of getting an adequate return on their investments. Both choices are popular at the moment, but they appear to appeal to different groups.

American investors are displaying a great deal of caution. American investments during the third quarter came to 114.2 billion dollars, which is a decrease of approximately 9.2 percent year-over-year. Many of the investors who are declining to buy into the market at this time remain optimistic about the future and are simply retaining their assets so that they can make new investments when the market is more favorable for them.

The alternative strategy of accepting riskier investments is more popular with foreign investors. The bulk of those investors come from Asia, where the expected return on real estate is significantly lower than it is in the United States. While American investors are wary because the expected return is lower than normal, it is within a normal margin for many Asian investors.

The people who are investing in real estate are generally looking in secondary or tertiary markets with the hopes of finding assets that they can quickly flip to come out ahead on their investments. Other buyers are paying more attention to construction projects as an alternative to finished or entirely undeveloped properties. They are still risky choices, but they offer some of the best returns for experienced investors at this time.

Risk Premiums

These risky investments do come with a new problem. Traditionally, risky investments come with a significant risk premium in order to justify choosing them over safer investment options. Unfortunately, interest rates are rising, and that works with the rest of the financial situation to cut down on that risk premium.