When seeking opportunities to diversify one’s portfolio, real estate investing can be a great way to accomplish that goal! Along with generous tax benefits, this asset class provides good potential for passive income, and value appreciation.
Investors would be wise to recognize the illiquid nature and risks/ rewards involved with real estate investing during the volatile economic downturn that the coronavirus pandemic caused. Stay-at-home orders and health concerns led to fewer buyers looking for homes and fewer sellers listing their properties in fear of allowing strangers to enter their homes during the pandemic.
Covid-19 has created a broad spectrum of impacts across various property types. It is still too early to be certain what the long terms affects will be… But there is one thing we are aware of; the dynamics of the current crisis have caused short-term dislocation in some of the real estate asset classes that may worsen throughout the first half of 2021.1
Residential Real Estate
The housing market outlook is uncertain because of the abrupt economic recession and steep unemployment rates throughout the majority of 2020. However, according to University of Michigan2, buying conditions for houses have improved and are back to where they were pre-pandemic.
An estimated 14 million adults are living in rental houses, and nearly 1 out of 5 are not yet caught up on their rent, according to data collected in December of 2020. 3 Furthermore, it is reported that 1 in 3 U.S. adults had trouble paying for usual household expenses in the last 7 days. 4 Unfortunately, it looks like house renters will continue to struggle and rental assistance programs are needed. These effects on individual housing markets will vary widely.
Industrial Real Estate
It is believed that due to the increase in online shopping and the subsequent need for warehouse and logistics space for e-commerce has helped Industrial Real Estate hold up better than any other property types during the pandemic. Industrial property cap rates averaged 6.7% towards the end of 2020, which is in line with the pre-pandemic levels. Investors should be mindful that a slower economic recovery, or another shutdown, could weaken demand for domestic and international goods, or potentially lead to supply chain disruptions.5
Commercial Real Estate
Apartment buildings are often considered commercial, even though they are used for residences. Short term, covid-19 has resulted in lower rental rates and higher vacancy rates. According to the National Multifamily Housing Council, approximately 95% of tenants have paid rent throughout the pandemic because the federal government helped to provide relief.5
Now that we are into this pandemic, by almost a year, companies and employers can assess the operating expenses and value that come along with renting office space. While most employers feared that team productivity would plummet, in several high-profile cases, employers found the opposite!
- Google declared in March that all of its’ roughly 100,000 North American employees should work from home. Since then, the company has reopened some offices but in late July, the employer extended employees a voluntary work from home option through July 2021. 6
- Outdoor retailer REI, in a bid to control costs, just put its brand-new Seattle office headquarters up for sale before even setting foot in it. REI is choosing instead a combination of multiple smaller offices and increased employee work from home options. 7
- The pandemic has led to a near-term flight from the urban cores, resulting in companies executing fewer and shorter leases and putting their unused space on the sublease market. Dramatic declines in office leasing activity and rises in office sublease space available are now appearing in market surveys of diverse and some of the strongest pre-pandemic office markets. 8
Some companies will be forced to continue to cut costs, and office rent is a significant expense for most organizations.
Even prior to the pandemic, the retail sector of real estate has been on a downward turn, led by a shift from brick-and-mortar to e-commerce. By most estimates, the pandemic not only accelerated the e-commerce trend, reflected in the regional mall component of the Nareit (National Association of Real Estate Investment Trusts) Equity Real Estate Investment Trust (REIT) index being down around 50% year-to-date. 9 Stay-at-home restrictions and e-commerce have hit mall owners and lenders hard, especially enclosed malls. Retail property owners focusing on shoring up existing holdings rather than committing to major new projects or ambitious capital improvement plans.
Real estate is a very diverse asset class and the pandemic served to emphasize these differences. The coronavirus pandemic certainly made real estate investors consider defensive positions and has shifted the American investors perspective during these unparalleled and unpredictable times. It can be especially important in 2021 to enlist the services of professional real estate asset managers, who can help strategize defensively, preserving cash flow while positioning assets and portfolios for future market opportunities.
- “The Impact of Covid-19 on the Residential Real Estate Market”, Federal Reserve Bank of St. Louis; Charles S. Gascon, Jacob Hass, October 6, 2020
- “Surveys of Consumers”, University of Michigan, 2020
- “Tracking Covid-19 Recession’s Efforts on Food, Housing, and Employment Hardships” Center on Budget and Policies Priorities, January 8, 2021
- “Analysis of Census Bureau Pulse Survey”, CBPP, December 9-21, 2020
- “Reassessing Real Estate Investments During the Coronavirus Pandemic”, Wells Fargo Bank, October 2020
- “Google tells more than 100,000 North American employees to stay home amid coronavirus fears.” CNBC, March 20, 2020.
- “Outdoor giant REI planned a lush new headquarters complete with real campfires, but it’s going up for sale before it has a chance to open.” Business Insider, August 13, 2020.
- “Amount of Office Sublease Space Rises Rapidly in Some Markets in Response to Sputtering Economy.” CoStar, July 23, 2020.
- “FTSE Nareit U.S. Real Estate Index Series Daily Returns.” Nareit, October 22, 2020.
Even during this unprecedented time, with the pandemic and political climate burning across America… we cannot contain our enthusiasm for our next Investors Event Summit!
“If you don’t find a way to make money while you sleep, you will work until you die.”Warren Buffett
We cannot discount the possibility of a stock market crash. Investment values could hold steady this year, but we do not know how 2021 will affect the stock market. It might be a bumpy ride! The market uptrend is looking healthy at the start of 2021… But, with the current political climate and volatility, a new administration taking power, and pandemic impacts, etc… it is less likely, or even unlikely to continue. So, do not make judgements on your hope that this trend continues. It’s not just the current climate, but history proves this as well. You need to be ready for rotation in the market!
“The upshot: History shows it’s possible for the Nasdaq to register a third year of double-digit returns given its broad exposure to tech, which is highly levered to innovation,” said DataTrek co-founder Nicholas Colas. “But it’s tough to surprise markets three years in a row.”
2020 threw many obstacles in the way and here are 8 lessons to take with you in the new year:
1. Diversification Matters
Spread your investments around so that your exposure to any one type of asset is limited! This will help reduce the volatility of your portfolio over time. Instead of focusing just on funds, try pursuing alternative investments like private equity opportunities, real estate investments, and then ad commodity focused funds, and asset allocation funds. With the primary goal to maximize your returns, changing your asset allocation can tighten the swing without giving up too much in the way of long-term performance. This is a concession that a lot of investors might feel is worthwhile! While considering your asset allocation, keep in mind your time horizon and your risk tolerance. A diversified portfolio is by far, the best foundation of any smart investment strategy.
2. Big Picture – Big Returns
This means keeping a long-term perspective, not just making long-term investments. Training yourself to think of the big picture first, will give you the ability to think clearly in a market crash; processing the information and accurately strategizing the best plan of action. Avoiding poor investments is just as important as finding top stocks to buy. We know this is not always easy because most of the investment-related news is short-term in nature… The market is up one day and down the next, but make sure you remain focused on your big picture by knowing your investment history, staying invested, and developing a comprehensive investment strategy. Make every move you make in 2021 count towards your long-term goal!
3. Rebalance & Strategize
Investors should always think about how they can balance their risk comfort levels against their time horizon. Some demand for certain goods and services may not pick up until 2021. A good place to rebalance is in a 401(k) or IRA, where there are no tax consequences.
4. Age base allocation of assets
When an investor is on the brink of retirement, an overly aggressive portfolio is not the best strategy. Likewise, if you are in your 20’s, a bond-heavy portfolio is typically way too conservative. Opportunistic investors with longer time horizons may want to shift their focus. In both cases, however, diversification is still particularly important.
5. Cash on Hand
Stocks could be volatile in 2021 as our great nation continues to grapple with the pandemic and politics. So, keeping a healthy sum of cash will keep you ready and help you avoid having to liquidate other investments at a loss when you need money. Another added benefit is if stocks fall, you will have a prime opportunity to buy… considering you have enough cash on hand.
6. Patience is Paramount
Warren Buffett’s most popular quote, “The stock market is a device for transferring money from the impatient to the patient” is something to remember no matter where you are in your investment lifecycle. Even after you have assembled your portfolio, you will need to remain patient as your target stocks slowly start to compound and gain value. The lack of patience can cause even the most experienced of investors to make short-sighted decisions that can trigger long term severe impacts. So, do the best you can to see past the short-term volatility in the value of your investments and remember that patience can be your most valuable investment asset in 2021!
7. Quality Over Quantity
Another crucial quote Warren Buffett is notorious for saying, “Price is what you pay; value is what you get”. It is much better to pay a bit of a premium for a high-quality business that has some value before you invest. Choose a few good high-quality investments that are likely to help you meet your long-term goals. A high-quality investment is one that offers you a food value per dollar. Does it have staying power? Can it withstand the vagaries of the market and come out ahead? Owning a high percentage of a poor company will not bring good value. Better yet, owning fewer shares of a solid investment is much more likely to weather the times.
If you follow Investor Events, then you are obviously more creative than the typical investor that has ideas that go far beyond stocks and bonds. The one thing you do not want to do is to remain a prisoner of stocks and bonds, especially when those markets look a little brittle.
So, if you are heavily vested in public markets at the beginning of 2021, make sure to keep these lessons in mind to guide you through alternative investment opportunities that could make 2021 your best year ever no matter what the stock markets do.
May all your investments bring you happy returns.
As an investor, attending a conference is worth the money and time, but not just for the information. Underestimating the impact of such events might be a bad call for investors, and here is why:
Networking far surpasses even the best of information presented!
Networking has always been the most important aspect of attending a conference, since most of the presented information is published online after the conference ends or is live for online attendees. Some investors focus only on the conference speakers, since they may not feel socially confident in meeting new people. However, the investors who typically attend conferences are easy to speak with and open to meeting others and building strong relationships… So block the fear and doubts from your mind and try to focus on the following advantages.
1. Creating real-life relationships converts one- or two-day conferences into a life of opportunities. Make sure to exchange contacts and invite them for a quick business lunch or follow-up zoom. Always remember though, these follow-up meetings are not only about business, but forming a strong relationship with the people you meet. This builds a solid network that will not falter! Make sure you reach out within the week following the event. Try this perspective: treat a conference like you are hosting a house-warming party. Would you let any neighbors into your house without at least an introduction?
2. Connecting with other investors is imperative for new investors to get real, honest working theories from investors that have successfully developed their wealth. It is equally important for savvy investors looking to expand their portfolios in alternative investment options. For instance, through attending other investor-centric conferences, we have been able to land over 200 meetings with investors, founders, and potential partners. These events have helped us to not only build our network, but also helped us all gain lasting friendships. The mentality you need to bring to a conference is: be prepared, ask questions, introduce yourself to EVERYONE.
3. Meeting your competition creates a friendly competitiveness that can drive you to push further and higher than even you might have predicted for you and/ or your company. At conferences, you can learn from your competitors’ strengths and weaknesses, ultimately helping you attract and retain new business! You never know where the inspiration could come from, so be open to new ideas and theories that may contradict what you have assimilated to.
4. Connecting with people personally in a professional setting is near impossible because outside of conferences, you are typically prospecting everyone you encounter. Plus, you can find investors and entrepreneurs from different states or industries at these events, whom you would not be able to meet otherwise.
So, to gain the highest return on your investment of time and money spent to attend conferences, view each contact as a door of opportunity for an authentic relationship that can develop professional gains for both you and the person you connect with!
May all of your investments bring you happy returns.