When governments responded to the coronavirus around the globe in 2020, many factors reshaped the world of business, employment, how and where people live, and how they wine and dine. Many things changed, including how people enjoy entertainment and sports and how they cope with financial changes, or navigate the real estate industry.
Potential homebuyers, commercial property buyers, including investors, prepared themselves to capitalize on distressed properties, and tried to assess the value of the real estate market due to the changes that affected the housing business. They soon discovered the real estate market is simply a playbook of estimated guesses.
“Find out where the people are going and buy the land before they get there,” Confederate Colonel William Penn Adair said, in a colorful quote, in reference to real estate investments.
Real estate investing can be lucrative for investors, yet it is very important to understand there are risk factors. Specific risks can include bad locations, negative cash flow, high vacancies, and tenant problems. Additional risks to consider include a lack of liquidity, hidden structural problems, and the unpredictable nature of the real estate market. Investors have options for reducing their risk by diversifying their portfolio with other investments.
Yet what happens to the inner workings of the real estate market when government response to a virus pandemic strikes like a bolt of lightning, just as it did last year? Adapting to change is challenging even during the best of times, but when dynamics change the landscape, the sudden change can disorient the savviest investors. The year (2020) has experienced an unprecedented shift in the projections of property value. Keep in mind, this is not to say that all property values have depreciated, only that the market dynamics have shifted.
“Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined,” Andrew Carnegie, once famously said.
Property investments can often carry excellent return potential to diversify an investor’s portfolio to stave off earnings from recessions and other adverse economic impacts.
Although investors are accustomed to analyzing opportunities in the context of cycles, real estate investors now face a series of structural changes that can transform how real estate investors will operate in the future. Real estate trends have also shown how people are pivoting away from high-density epicenters and focusing on more moderate locations. For example, the office market remains particularly uncertain as more work-from-home opportunities continue to saturate the commercial market for companies.
Meanwhile, the vacation rental market is not faring too well, either.
And for most investors, the uncertainty of the real estate market has been exacerbated in a post-Covid response world. But here is the brighter side: market appraisers believe that Covid-19 most likely had a considerable degree of positive property value implications. Overall, investors need to know where to search to find the gems staring them in the face. Investors must learn to weigh short-term bifurcations for long-term costs.
Knowledge is power.
Investors must use it to find the best real estate investments for their portfolio and keep the money flowing like a gushing oil pump.
Here are the top-ten real estate investments for 2021 in lieu of the deadly coronavirus:
Apartment Complexes
Apartment complexes’ net value has steadily risen. While some U.S. cities must struggle with slow rent, most have seen an upswing in demand for apartment sales.
Certain office blocks in the United Kingdom were converted into regular apartments because as the job market there suffered staggering unemployment, younger people opted to rent instead of buying. What does this mean? The demand for affordable rentals is steadily increasing. From an investor’s standpoint, this action means selling services to an influx of people seeking short or long-term rentals. Taken together, an investor can offer easier upfront investments due to low interest rates.
Airbnb (Air Bed and Breakfast)
Airbnb is simply another unique way for people to make side money. Whether people are looking for a treehouse for the weekend or an entire fully furnished house for the whole family, a warm welcome awaits, according to an Airbnb internet advertisement. But this temporary accommodation has gained much attention in the housing market as opposed to vacation condos and second homes. By far, Airbnb is steadily becoming a “hot market” for real estate investors in 2021.
Why is an investment in an Airbnb good for an investor?
Because people are searching for alternative short-term accommodations due to the Covid-19 pandemic including the fact that an Airbnb can be more lucrative than single unit rental properties. Furthermore, short-term rentals require the owner to charge higher fees as opposed to a long-term tenant under a lease. Market experts predict that an investor can likely earn much more money from Airbnb than from traditional renting.
Single Unit Residential Property
Rental (residential) property has always thrived in the real estate market. Single unit houses are undoubtedly a pretty sound investment, yet depending on price, the condition, and the location, if the property is in a metropolitan city.
Investors flock to residential property because these types of properties are an excellent stream of passive income, and although it takes time to deal with the mortgage, the profits will roll in.
As more people throughout the world work-from-home and study-from-home, this avenue has many positive indications for single-unit rental properties. What is good for investors is that flipping low-cost houses provides investors much leeway to obtain low upfront costs.
Crowdfunding
Crowdfunding real estate is the new hi-tech investment market. Real estate crowdfunding allows developers to solicit a vast array of potential investors, leveraging those social networks on technology platforms. This kind of investing has made real estate investments more accessible to individuals, including small-time investors, thus allowing greater access to U.S. real estate markets. The real estate crowdfunding site iFunding, estimates the market at more than $11 trillion!
So why is crowdfunding overwhelmingly attractive to investors?
Here is a snapshot:
- Crowdfunding is particularly attractive to young people hoping to establish financial security. Companies like Fundrise and Realty Mogul can help individuals start with $500 or $1000.
- No minimum net worth or income requirements like other investment methods.
- Lower capital outlay for each investment.
- There are generally no investment fees, unlike the additional costs associated with investing with traditional real estate firms such as closing costs or realtor commission.
Healthcare Real Estate
Commercial real estate like hotels and malls have suffered tremendously, and healthcare providers have expanded into retail due to the Covid-19 response. Healthcare real estate, for the most part, is thriving because of illnesses associated with the coronavirus, etc. For an investor, this means hospitals will cater to acute cases consistently while simultaneously integrating preventive clinics into the heartland of large populations.
What does this mean for investors? Simple answer.
Medical service providers will expand more into retail. And, by having medical retail throughout residential, this convenience allows more accessibility to immediate healthcare for many people. Medical retail is the crown jewel of the pandemic that will bring forth new ways that healthcare can be accessed. Investors should not pass up the opportunity to adhere to these changes and invest in emerging markets like medical retail in 2021.
Industrial Real Estate
Industrial real estate has parlayed into top-performing sectors of commercial real estate based on returns and demand. Global Covid-19 accelerated the demand for industrial space, applying pressure on cold storage, warehouses, distribution centers, and data centers.
Although this recent demand may only merit a temporary surge, it is likely this real estate will steadily evolve into an exceptionally good year and opportunity for investors in 2021. Industrial real estate includes: all land and buildings either utilized or suited for industrial activities.
Such activities are defined as: production, manufacturing, light storage, distribution and some related office requirements of tangible goods rather than service-related users.
Non Performing Mortgages
During economic hardship, lenders are pressured to sell mortgage loans that isn’t paying within timely manner which open the door for investors to buy non-performing mortgage notes at a discount. Buying, selling and creating real estate notes has been a time-tested investing bonanza for many years.
Although investors hurriedly seize performing notes, in recent years, investing in non-performing notes has become a “hot” business. Non-Performing mortgages are the direct result of delinquency payments or foreclosure of a property.
News media reports hinted recently that there may be widespread foreclosures on homes in 2021, and without foreclosure moratoriums or coronavirus aid relief in place by President Biden’s administration to help homebuyers and commercial property owners, a floodgate of foreclosures is destined to happen.
For example, as of October 2020, 4.5 percent of all residential loans are 90 days or more delinquent, equating to approximately 2.258 million properties, according to Black Knight (NYSE:BKI). This count does not include the 202,000 forbearance plans set to expire in November 2021.
Investors can purchase nonperforming loans from banks, credit unions and lenders at a steep discount. It is important to note investors interested in buying non-performing notes should understand how foreclosure laws work in the state they are operating in, including strategizing their budget for the time and cost associated with the foreclosure process.
Assuming a mortgage note investor ends up with the property either through a deed or foreclosure, they can do whatever they want with the property, including:
- Sell the home/property as is
- Fix up the property and sell it
- Rent the property
- Sell the property through owner finance
Laws vary in each state and the law will determine whether licensing is required to own a note in a particular state, including what the rules are for contacting borrowers. The reason for some rules is because a person may be in bankruptcy and note investors must learn the foreclosure process in the state they are operating in. Note investors can make lots of money in the six-figure range because rates of return are higher than the bank’s traditional low yield bonds, and higher than most stock dividends.
Office Markets
The lockdown response to the coronavirus pandemic forced the commercial real estate market into a tailspin, accelerating certain trends and bringing others almost to a standstill. During the third quarter, office rent declined compared to the second quarter, illustrating the depths of rising vacancies. Despite a considerable decline in office vacancies due to the pandemic, still, the prospects for commercial real estate are not so bleak if an investor can adapt to the new demands.
Here are a few listed:
- The need for office space will never cease, even in a post-COVID-19 world
- Restructured office markets are especially favorable for new investors because it is an opportunity to buy new spaces with potential for low-cost renovations
- Renovations will attract rising demand for restructured office designs
- Some office spaces remain in demand, particularly medical office buildings
Warehouse
Industrial real estate is projected to become the crown jewel of the commercial property market post Covid-19. America’s economic downturn has not suffered the deepest hits financially for industrial real estate such as warehouses and factories. Big-box warehouses have been almost 100 percent working despite the Covid-19 pandemic.
For example, according to seasonally adjusted data from the U.S. Department of Commerce, American consumers spent an estimated $209.5 billion online in the third-quarter, accounting for 14.3 percent of total sales. That total is up 36.7 percent from third-quarter 2019, when e-commerce sales made up 11.2 percent of total sales.
“We estimate the pandemic accelerated e-commerce adoption and direct-to-consumer sales by five years,” said Adam Roth, at foodlogistics.com. Roth is executive vice president of NAI Hiffman. “And once people have experienced the convenience and value of it, many won’t go back,” Roth suggested.
Investors who invest in commercial buildings, large warehouses and big-box retail businesses can expect to make money. Therefore, as technology continues to reshape the industrial and commercial market, warehouses are good for investors planning to dive into a safe and consistent real estate market.
Invest in Real Estate Investment Trusts
Many people want to earn steady returns on real estate investments, but do not want the hassle of owning and managing property on their own. The answer to that problem is welcome to the world of real estate investment trusts (REITs).
What is a real estate investment trust? A real estate investment trust is a company or trust that owns and operates properties like office blocks, apartment blocks, retail properties, and other kinds of buildings that people rent.
REITs can be public or private, with public REIT’s traded on the major stock exchanges, just like regular shares. Public REITs are subject to likewise scrutiny and regulation of publicly traded security, which can make public REITs a safer bet than private REITs.
Overall, unless an investor has sufficient experience to know what they are doing, experts recommend staying away from investing in private REITs.
REITs are generally good for investors because they do not have to devote time and energy to find and manage properties. An investor can get returns comparable to buying stocks.
With most hands-off investments, financial returns can be a bit lower than for a real estate investment where an individual actively manages day-to-day property operations. REIT’s are good to further diversify an investor’s portfolio, yet real estate experts will advise individuals to combine them with higher earnings.
Conclusion
Whether real estate investors use their properties to receive rental income or resell their property when the time is ripe, it is possible to build passive cash flow. Real estate has its pros and cons and it may not suit everyone.
New investors thinking about real estate investment chould have a chat with an investment professional. Be sure to work with a licensed, highly experienced real estate agent to help guide through these patches. 2021 could play out to be a good year for investors who are informed and ready for action.
Rule of thumb: Investors should conduct due diligence prior to considering each investment.
For more information on real estate investments, consider reading the books in the following link: https://www.thebalance.com/best-real-estate-investing-books-4686287
