Billionaire industrialist Andrew Carnegie once said that 90% of all millionaires earned their wealth by owning real estate. Real estate investing continues to be one of the best ways to make money and grow wealth.
Tax benefits, appreciation, diversification and protection against inflation are just a few reasons that people invest in real estate. Many like to own tangible assets instead of stocks or bonds.
For investors, there are many options, including single-family real estate, commercial real estate and Real Estate Investment Trusts.
There are properties available across a wide range of budgets. For example, a home mortgage in Virginia Beach, A VA with an average home price of $ 310,000 will be significantly less than a home in Ventura, California, where the average price exceeds $ 700,000, or in San Francisco, which now has an average sale price of $ 1.3 million.
Let’s take a look at the different types of real estate investing, check the current state of markets, and hear what some experts have to say for everyone.
Investing in Single Family Properties
Domestic values in the United States have exploded over the past year. The average selling price for a home in May 2021 was just over $ 350,000 and the average selling price was up 23.6% more than a year ago, according to the National Association of Real Estate Agents (POMEGRANATE).
With mortgage rates still at some of the lowest levels in the past 50 years and charged demand after a year of life with the threat of COVID, most experts predict at least another year and a half of rising prices.
Not everyone agrees. A recent survey revealed that 41% of respondents predicted the house market bubble is created sometime in 2021 and will start pricing along with the downward slide. More than a quarter thought low prices would not occur until 2022 and 13% did not predict another housing market.
The economy that caused the housing crisis in 2008 was significantly different than in today’s market. In 2008, the housing crash was caused by subprime mortgages, which were written in record numbers, then put together and resold at an astonishing rate. The industry has learned a lot since then and is more cautious about lending. The government is also more experienced in protecting the housing market, such as the tolerance and market modifications it has made during the pandemic.
Investing in Commercial Real Estate
The commercial real estate market is recovering more slowly and has not yet reached pre-COVID levels, according to the NAR.
Performance for large-scale commercial real estate decreased by 28% year-on-year after 1 2021. Transactions for portfolios exceeding $ 2.5 million decreased for all types of real estate except hotels. For smaller commercial real estate portfolios of less than $ 2.5 million, transaction volume decreased by only 1% year-on-year.
Prices are also falling, as average real estate is up 6% less than a year ago.
Experts expect the market to continue to recover, but fear that employment trends could impact some sectors of commercial real estate. With companies shrinking and increasingly allowing employees to work from home, there are some concerns that organizations will need a smaller footprint. The Wall Street Journal, for example, reported on this 42 million square feet of office space was marketed in Q2 and Q3 of 2020.
Real Estate Investment Trusts (REITs)
There is also growing activity in Real Estate Investment (REIT). REIT is backed by a company that uses investment funds to buy and exploit income real estate. They are bought and sold in the market like stocks. These have also become attractive to investors who want to include real estate in their portfolios but do not want to make a traditional property.
REITS, in essence, works similarly to dividend-paying stocks. They have to pay 90% of their taxable profits in the form of dividends to maintain their REIT status, which allows them to avoid paying corporate income tax.
REIT shares buy and own buildings. Mortgage REITs provide real estate and may include mortgage securities.
While REIT decreased by more than 5% in 202, according to the FTSE Index Nareit All Equity REIT, many fund managers have a positive outlook for REITS in 2021.
Is Real Estate Investing Right For You?
Currently, high valuation rates and negative yields of many government bonds are not aimed at attractive bids. Interest rates, expected to remain low at least until the end of the year, will continue to make real estate investment attractive options for many business borrowers.
Investors should always compensate any investment against other potential opportunities. Every investment is subject to risk.
Whether real estate investing is right for you and your investment portfolio will depend on the totality of your finances, risk tolerance and investment goals.