The nightmare that is 2020 is finally behind us and everyone’s hoping the new year will bring in better days. In the financial sector, this means a stronger stock market, an economic revival and just better business as a whole.
As for the property market, analysts believe investors should be optimistic about real estate investment opportunities this 2021. One of the biggest reasons is the urban exodus of families to escape the densely populated cities which was further accelerated by the pandemic. With companies adapting to the new normal and having their employees do remote work, Americans now have more reasons to invest in a property than ever.
Moreover, real estate investments can be used to hedge against inflation and market volatility. For opportunistic investors, the time is now and if you’re one of them, you may want to explore the real estate sector and get started in diversifying your portfolio.
Why is real estate a good investment in 2021?
According to experts, the real estate market will continue its growth in 2021 as interest rates remain down. Record-low rates played a huge role in the market’s growth last year despite high unemployment and the economic uncertainty caused by the coronavirus pandemic.
The housing sector will continue to benefit from this as the home is now the focal point of everyone’s lives across the globe — the place to meet, eat, host, work and study, and all these are done virtually.
For those who have the purchasing power to buy and invest in residential properties, 2021 is an excellent year to do so because mortgage rates are still very low. In fact, it hit all-time lows in April 2020, and as of this time of writing, the average 30-year fixed rate is just 2.981%.
For those looking beyond residential real estate, some of the commercial real estate (CRE) investment opportunities that investors should watch out for this year are the rise of adaptive reuse, industrial real estate, and medical offices that perform necessary treatments.
CRE investments can provide stable returns and a steady cash flow, specifically industrial real estate, health care and/or data centers which have been positively disrupted by the pandemic. Especially in the U.S., where analysts believe economic activity will normalize by mid-2021 following the release and deployment of the COVID-19 vaccine across states.
What makes real estate a good investment?
Residential real estate is a great investment for those who are willing to face the risks and challenges involved. Owning residential rental properties is a viable investment if you’re willing to get into the nitty-gritty of paying rental property taxes, improvements, maintenance, emergency repairs and all other property upkeeps that will make up a responsible and excellent landlord or lessor.
This option may generate ongoing income, but the upfront capital investment (the down payment) is high. The average rental income varies, depending on the type of property, location, quality of amenities and size. For instance, a 1-bedroom vacation home rental generates about $38,490 per year, while a 3-bedroom can earn owners about $98,688, according to Build Up Bookings.
If you are not ready to own residential properties, real estate investment trusts (REITs) offer alternative options to diversify your portfolio with an average annual return of 10.5%. When comparing real estate versus stocks, long-term returns on the former have higher potential than the latter based on total historical returns of the S&P 500 stocks index and Vanguard RE mutual funds. All in all, real estate investment can be rewarding if the investor is looking for long-term rewards.
Another option is to invest in commercial real estate. CRE properties are built for business-related purposes as opposed to just a single-family living space. These spaces — be it for office, retail, industrial or multi-family properties — can be leased to tenants and can also be a good income-generating investment, without the burden of becoming a landlord.
3 ways to start investing in real estate
There are other ways to capitalize on real estate investment opportunities aside from owning properties:
Real Estate Investment Groups (REIGs) buy, sell, renovate and finance properties to gain profits. They create real estate portfolios for investors and diversify them by investing in rental properties and commercial units. In short, they pool the investments and do the work for you. However, success isn’t always guaranteed, as you need to rely heavily on these professionals’ expertise, knowledge and skills. You’re investing in people, not the business, so you need to verify their credibility and reputation.
Real Estate Investment Trusts (REITs) own, operate and finance properties that generate income. They’re not operating the same as REIGs because they are modeled after mutual funds where investors or shareholders receive dividends. Moreso, they don’t renovate or refurbish properties. In short, they pool the funds of investors and shareholders and put the money in several profitable properties as part of their investment portfolios like commercial units, malls, residential buildings, office units, etc. You can check these top REITs to buy in 2021 to give you an idea of how they work.
Online Real Estate Investing Platforms act as middlemen, connecting investors to real estate and property developers who are looking for financing. These can be via crowdfunding as the developers pool funds from the investors and target various return metrics based on their projections. This form requires little experience in real estate, and you can invest in single or multiple projects. These offerings are usually illiquid within the lock-up period and require management fees.
These offer an easier way to invest in real estate without the legwork as in-depth research and market analysis are done by these platforms, and investing can be done online.
One of the leading investment platforms in this market is CrowdStreet.
Get direct access to real estate investment opportunities
CrowdStreet offers one of the easiest ways to start investing and earning from real estate. This online platform has democratized real estate investing by providing individual investors direct access to commercial real estate investment opportunities online, giving you the access and tools so you can start investing in projects and track your investment straight from a digital dashboard.
CrowdStreet’s professional Investments team conducts rigorous reviews to evaluate potential sponsors who are looking to raise private equity l to purchase, upgrade and/or manage commercial properties. These sponsors welcome individual investors looking to diversify their portfolio through direct investments. They evaluate the firm, the asset, and the deal’s legal documents.
As an investor, you can easily compare and review multiple offers, determine which ones match your financial goals and track your investment’s performance. The individual deals are the best-sellers among the services, allowing investors to get started with a minimum of $25,000. Moreover, once you have full access to the Marketplace, you also have full control of how you want to grow your portfolio by picking and choosing the individual deals that work for you.
Since 2014, the CrowdStreet Marketplace has closed 459 commercial real estate investment offerings, with 40 having fully realized. It has raised $1.62 billion in capital across all deals and delivered $162 million in investor distributions.
An online marketplace like CrowdStreet gets rid of the silos and barriers to commercial real estate investment opportunities.
To learn more about how you can start investing in real estate this 2021, click here