Real estate moves in cycles, and we have been seeing an ‘up’ market in the past year, as record low interest rates, shifting work requirements, and lifestyle preferences sent homebuyers rushing for new spaces. While concerns around a bubble are heightened, buyers continue to drive demand in a competitive market.
Real estate investors are rightfully seeking opportunity in the single-family housing market, but current property values mean investors must look harder to find good deals in the sector. While the recent surge is notable, the ability to generate a consistent return on investment means real estate is still an appealing long-term investment. Investors saving for retirement will often look to self-directed IRAs (SDIRAs) as a vehicle to hold real estate investments.
The Great American Move Prompts a New Dynamic in Single-Family Housing
The pandemic was a direct driver in the real estate market’s recent history-making runs. “The Great American Move” of 2020 created a real issue with supply and demand, sending an outsized number of buyers to a smaller number of available properties. While this helps elevate prices, it also decreases the chances of finding and acquiring below-value real estate opportunities, especially in the single-family market. Investors must be very particular with what they’re willing to purchase but opportunities are still out there; they are just harder to find.
2021 Real Estate Trends Push Opportunity in Industrial, Commercial Properties
While the single-family market might be not as lucrative as it was in the past few years, opportunity abounds across the real estate market. According to PwC’s 2021 Emerging Trends in Real Estate report, there is an upward trend in many areas including industrial, commercial and warehouse properties.
E-commerce, food and beverage, and apparel businesses are looking for short-term logistical solutions to keep pace with the shopping-at-home demand. The pandemic also brought to light the need for additional large data center projects as the consumer demand is much faster than the current development. Looking ahead, there could be significant opportunities to invest in projects that have ties to hospitality, retail shopping and tech, as those industries bounce back from the dips they took during the height of the pandemic.
Many of these real estate investment projects are opening opportunities to individual investors through private Real Estate Investment Trust (REITs). Differing from traditional REIT investments, which typically deal with larger investment projects that hold real estate in multi-family developments, industrial commercial real estate, hospitality and retail shopping centers, these private crowdfunding opportunities offer smaller private placements that invest in real estate. These projects are managed by real estate developers and controlled by investors that hold shares or ‘units’ in their private projects. These types of holdings allow the investor to gain exposure to real estate without the responsibility of acquiring, directly overseeing, or needing local knowledge to invest in the real estate project. These opportunities are available through SDIRAs.
As the stock market hit peaks and valleys during the pandemic, the real estate market remained consistent. For this reason, adding real estate to a retirement portfolio can be appealing. Real estate provides diversification and allows the investor the opportunity to include an asset class that is not tied to the stock market.
Learn More About Real Estate IRAs
A Real Estate IRA can be an important piece of a well-rounded retirement portfolio. It presents an opportunity to use your knowledge and expertise to build wealth on a tax-deferred or tax-free (if in a Roth IRA) basis. Through a self-directed IRA, an investor can own physical property in the form of raw land, single-family homes, multifamily structures or even commercial property. Take a deeper dive into real estate IRAs, learn how to avoid potential pitfalls and additional tips for maximizing your real estate investment. Download STRATA’s Real Estate IRA.