When it comes to investment opportunities, we think nothing is quite as resilient or reliable as real estate. If you’re interested in becoming an investor, you’ve likely thought about putting money into commercial properties. But is it the right time to invest?
The short answer is yes, we think it’s always a good time to consider investing in real estate. Let’s break down the current real estate investment market and the macroeconomic trends affecting it.
The Real Estate Market in 2022
If you’ve been paying attention to the news, you know that homes are selling at breakneck speed. Most listings only sit on the market for a few days (or hours) before getting a cash offer. Much of this investment is driven by hedge funds, but growing demand from Millennials and Baby Boomers is also making the housing market white-hot.
But, what about the commercial market? Fortunately, things are looking up there too, especially after a banner year in 2021. Through our analysis, we believe there are several factors that have the potential to make real estate a consistently reliable option, as well as others that support real estate, especially in the current economy.
One of the biggest selling points of commercial real estate investment is that it can help hedge against the dangers of inflation. Since inflation is at a 40-year high, this advantage looks mighty appealing to investors. Commercial real estate can hedge inflation for a few reasons. First, rent typically rises with inflation so that NOI is not watered down over time. Real estate is also a scarce asset with consistent demand. Its intrinsic value dictates that demand rarely declines, even when construction and rent prices increase. As we see it, the resilient nature of real estate provides an opportunity for investors to earn passive income in an inflationary environment.
Generally, real estate also appreciates over time, so investors have the opportunity to capitalize on rising rent as well as the sale of the property. Because it is a long-term investment, it serves investors to start early. We believe the historical performance of real estate indicates that prices may continue to increase, as they have for decades, making it a good time to consider investing.1
There are a number of available tax deductions for real estate investors including property taxes, mortgage interest, property management fees, property insurance, and the costs of ongoing maintenance, among others. Profits earned on the sale of property are also taxed as capital gains, which may be deferred with a 1031 Exchange.
Unlike the stock market, cryptocurrency, and other alternative assets, the real estate market is built on tangible and inherently valuable assets. Uncorrelated to the stock market and in increasing demand, real estate can offer investors an opportunity for a more stable investment option during a period of economic uncertainty. It is also an opportunity to diversify and earn passive income, which is beneficial to any portfolio, but especially so amidst volatile market conditions.
How to Invest
There are several ways for investors to invest in real estate with varying levels of risk, return, and active involvement.
Real Estate Ownership
As a landlord for a commercial property, one of the primary benefits is renting the building to tenants. Depending on the type of investment property, this can be multiple tenants, or just one.
For example, in an office building, units may be rented to small businesses and startups; a mixed-use building might have a restaurant or retail store along with office spaces; and a multifamily building leases individual apartment units out to different renters. Owners make money from the rent tenants pay, which should cover the mortgage and all operating costs, with a decent profit margin left over (assuming all goes well).
Real Estate Development
Another option is to buy land or an existing building and develop it into something better. Real estate development costs more upfront, but can yield higher returns once the project is complete. Then, developers can earn more from tenants or sell the property outright for a profit.
Real Estate Syndication
Finally, for investors not interested in managing and renovating rental properties, there are online real estate investing platforms, like EquityMultiple. We believe this option works best for casual real estate investors, as it has the potential to generate entirely passive income, and offers low fees, as well as minimum investments as low as $5,000.
The Bottom Line
At EquityMultiple, we believe the time is right for real estate investment. Real estate offers diversification, a hedge against inflation, and consistent demand for investors looking to earn passive income from tangible assets.
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¹Past performance is no guarantee of future results. There can be no assurance that any investment will achieve its objectives or avoid substantial losses.
This document is for informational purposes only and is not an offer or solicitation to purchase or sell securities. Investing involves risks, including the potential for principal loss. There is no guarantee that the strategies and services will be successful or outperform other strategies and services. Certain assumptions may have been made in connection with the analysis presented herein, and changes to the assumptions may have a material impact on the analysis or results.
¹Past performance is no guarantee of future results. The investments discussed herein may be unsuitable for investors depending on their specific investment objectives and financial position. Investors should independently evaluate each investment discussed in the context of their own objectives, risk profile and circumstances.
All opinions expressed herein constitute EquityMultiple’s judgement as of the date of this article and are subject to change without notice. Statements made are not facts, including statements regarding trends, market conditions and the experience or expertise of EquityMultiple, are based on current expectations, estimates, opinions and/or beliefs of EquityMultiple. Such statements are not facts and involve known and unknown risks, uncertainties and other factors. Past events and trends do not predict or guarantee or indicate future events or results.