Deciding how to invest in real estate can sometimes seem complex and overwhelming, especially when you don’t know what’s hot and what’s not. So we at Kiplinger.com asked some of the financial experts among our Building Wealth contributors and Kiplinger Advisor Collective members to answer, in a few sentences, this question:
What is one current trend in real estate investing, and how can investors take advantage of it?
Their responses range from checking out online real estate investing platforms, to exploring tax-advantaged qualified opportunity zones, to keeping an eye on the debt issues of commercial real estate. Or maybe you might be interested in owning some rental property that you can also use as a vacation home. Wherever your real estate interests may lie, there’s bound to be a tip here that could snag your interest.
Perhaps you’ll even be inspired to check out some of the stellar financial advice these experts offer Kiplinger.com readers on a regular basis (just click on their name to see their contributions and learn more about them).
Here’s what our experts had to say…
Online platforms can forge connections
“One current trend is using online real estate platforms. The advantage of using online real estate platforms is helping investors get involved in bigger commercial deals without having to put down thousands or even millions of dollars. It is a very lucrative avenue due to the fact that a novice investor does not have the connections or the relationships to be introduced to opportunities in order to invest in that type of real estate. And so, online platforms now are giving more exposure to the individual investor. Whether you are a savvy investor or just getting started, online platforms have numerous starting points for all investors.” — Edward E. Fernandez, a Building Wealth contributor
Look for areas of business growth
“Identify areas where growth in business is starting to happen, because more business brings more people — and a greater need for real estate. It’s also important to remember not to limit this to your home city or state. You can take advantage of it by buying real estate while the cost and interest is lower. Over time, its value will increase, and then you can consider selling at the right time.” — Angela Ruth, a Kiplinger Advisor Collective member
QOZs for the tax-advantaged win
“Real estate investments in qualified opportunity zones (QOZs) have reached record highs as billions of dollars of private investors’ capital have been invested over the past five years into QOZ funds. Many consider QOZs to be one of the best pieces of tax legislation in a generation to combine tax benefits with some very attractive real estate development projects around the USA. QOZs accept funds resulting from any capital gain (long or short term), and the gains can come from the sale of real estate assets, appreciated stocks, crypto, closely held businesses or any other form of capital gain. QOZs typically invest in Class A multifamily apartments, self-storage, medical, industrial and life science facilities. Capital gains tax can be deferred until 2027 for most taxpayers, and if the QOZ investments are held for 10 years, then 100% of the gains can be tax-free to the QOZ investor.” — Daniel Goodwin, a Building Wealth contributor
Consider passive real estate investing
“If your only idea of real estate investing is owning a property that requires regular upkeep and attention, you’re missing a big opportunity. Passive real estate investing is becoming more popular and offers the potential to make a return without actively managing a property. Through crowdfunding, you can invest in real estate projects that help diversify your overall portfolio.” — Tore Steen, a Kiplinger Advisor Collective member
Opportunities in real estate debt
“With the Fed pushing rates higher for longer, it has eliminated the majority of investment strategies that have worked over the past 15 years. Our view is that the opportunities now and in the next few years will be in real estate debt rather than direct equity investments or development projects. There are fantastic funds in the debt space that can capitalize on this generational opportunity, and it brings substantially less risk than direct real estate investing — just be sure to do your diligence ahead of any such investment.” — Tory Reiss, a Building Wealth contributor
A community of like-minded folks could help
“Find a community of like-minded people you have an authentic fit with to learn from, build relationships with and have an opportunity to be presented real estate opportunities through. If you can dream it, there is most likely a way for you to get into real estate investing. The better questions are: Where are you going? What vehicle would be best suited for you? And what is your timeline?” — Lyndsey Monahan, a Kiplinger Advisor Collective member
‘Industrial is better than ever’
“Investment properties still provide attractive risk-adjusted returns in investors’ portfolios. This is particularly true for investors/advisers seeking tax alpha (returns on an after-tax basis). If investors are relying on plentiful, cheap mortgages to create positive leveraged returns near term — that strategy is dead for a while. In addition, flipping (buy low/get lucky) is also played out for a while. Those buying solid real estate (good location, good tenants), leveraging the property modestly (i.e., investing real equity) so it pays the mortgage and provides stable cash flows have many opportunities in today’s market. The problem is this strategy takes real equity and time. Painting all ‘real estate’ with the same brush is foolish — office properties are in trouble; retail is a tale of haves and have-nots — so be careful. Industrial is better than ever. The demographics and lack of new supply represent strong fundamentals that can’t be stopped (even with higher interest rates).” — David Wieland, a Building Wealth contributor
‘Any property’s value has the potential to flourish’
“Find the cost-efficient deals when making the initial investments and work toward creating a passive income by adding value to the properties. Though this seems like a no-brainer, the key idea is to remember that the initial investment doesn’t have to be costly to have a good ROI. At the end of the day, any property’s value has the potential to flourish if you allocate your investments wisely.” — Justin Donald, a Kiplinger Advisor Collective member
‘Syndication offers the best of both worlds’
“If you have the money, syndication offers the best of both worlds: direct ownership in a specific existing property or ground-up development managed by seasoned professionals. It's cleaner (and less stressful) than piecing together a rental portfolio on your own and more profitable than REITs or crowdfunding. The catch is that the minimum investment is usually $25,000 to $50,000, sometimes more.” — Andrew Schrage, a Kiplinger Advisor Collective member
Discount commercial properties may be coming
“One of the main trends we are seeing, especially in the commercial real estate market, is the rapid increase in delinquency rates of commercial mortgage-backed securities (CMBS) backed by office properties. This is already causing significant waves throughout the commercial real estate industry, including forcing many owners of commercial properties to give back their properties to lenders because they can’t maintain the debt service. There are many reasons behind this trend, but the biggest takeaways that I see for investors is that in the coming couple of years, there is the likelihood that commercial properties will be able to be acquired at a discount, especially if they are purchased without leverage or on a debt-free basis.” — Dwight Kay, a Building Wealth contributor
Rental property that’s a second home
“Most people think of real estate investing as rental homes near their current residence. Think beyond where you currently live and consider destination spots that include beaches, mountains, lakes and other up-and-coming areas. If short-term rentals are allowed, consider the dual purpose of rental income during the peak season and then use it yourself as a second home in the off-season.” — John Bodrozic, a Kiplinger Advisor Collective member
Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisers, managers and executives.
