When Investors Consider Real Estate
Investing in real estate beyond the purchase of a first or second home is a complicated and risky proposition. The emergence of real estate investment groups has reduced that risk, but investment in real estate products remained stable through 2019, despite unprecedented growth in the stock market.
Spectrem’s study on portfolio specifics shows that investment in real estate grew by value but not in terms of participation among investors. Portfolio Trends, Expenditures and Perceptions of Providers details how investors allocated their investable assets over the calendar year 2019, when the Dow Jones Industrial Average and other stock indices climbed more than 20 percent and most economic indicators demonstrated well-supported growth.
Real estate is an investment product that stands the test of time in terms of value, although there are management issues that can cause headaches to investors who become de factor landlords. However, real estate management groups take away that stress, and allow individuals to invest in residential rental properties and commercial rental properties without worrying about servicing renters.
Real estate will also continue to be a controversial topic in areas where housing has become limited in the face of demand for finding places for homeless people to live. Most urban areas are dealing with issues related to housing homeless people in the face of growing real estate values that increase rental costs for consumers.
According to Portfolio Trends, Expenditures and Perceptions of Providers, the one area of growth in real estate in terms of participation is in ownership of a principal residence, which grew from 84 percent of affluent investors to 91 percent by December of 2019. That rise could be caused by an increase of Millennials who are moving out of rental apartments and into homes (condominiums, townhouses or single-family houses).
For other types of real estate ownership, the percentage of investors invested stayed much the same through 2019. For example, ownership of undeveloped land bounced between 11 and 14 percent of all investors, and residential rental property investment was similar, from 12 to 15 percent. But the value of those investment accounts rose dramatically over the year: undeveloped land investment value rose from an average of $142,000 in June to $254,000 in December of 2019, and the value of residential rental property investment rose from $309,000 in Mach to $442,000 in December.
Advisors working with investors who want to test real estate as an investment opportunity can point to the growth in mean value as a positive return on investments in that area. Having a knowledgeable real estate source to bounce ideas off of is always a good suggestion for advisors who do not know the market well.
Real Estate Investment Trusts (REITs) allow investors to invest in real estate through companies which own or finance income-producing properties. They trade on the stock market and allow investors to earn dividend-based income. They also work as growth vehicles for particular communities, depending on the company property profile.
In 2019, 14 percent of investors invested in REITs, and the mean value of those investments bounced during the year, from a low of $91,000 on average in September to $153,000 in December.
The details of the real estate investment percentages and averages can be found in Portfolio Trends, Expenditures and Perceptions of Providers, as well as details about all forms of product investments.
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