Know the Top 4 2020 Real Estate Investment Trends
If you’re starting to invest in commercial real estate, you need to know what’s happening in the industry to make informed decisions. Chances are, if you’ve done any research so far, you know that means digging into local markets and finding a niche that has promise for your area. That’s a solid first step to finding a profitable first transaction, but it doesn’t set you up for processes that carry you from one project to the next as your working capital grows. That kind of medium and long-term thinking requires a knowledge of the moves others are making, so you can figure out what opportunities await as you gain the ability to finance larger projects and more of them at once.
You need to figure out both national and local trends to do this well because sometimes the currents in your city economy are running counter to the national trends. When that’s the case, understanding both helps you see indicators that show when the playing field is about to change, so you can pivot more effectively. That’s how successful full-time investors like Will Obeid operate in competitive markets like New York. Here are four of the strongest trends affecting the national scene in 2020. Understanding their local impact is going to be the first step toward understanding the big shifts the industry makes in response to changing economic indicators.
1. Demand for Rental Housing Remains Strong
Despite major economic disruptions like civil disturbances and the COVID-19 pandemic, the first half of the year has shown that demand for rental housing remains strong. In fact, with a high level of employment disruption happening in many industries nationwide, many workers are finding their savings diminished. That makes rental housing the affordable choice for many who planned on buying this year, in addition to the large market of renters who will continue to rent and the new demand created by young adults.
2. Rent Increases Are Slowing or Reversing
The pandemic virtually shut down short-term housing and apartment rentals through peer to peer rental apps and other property management venues. In addition to that, the economic disruption to other industries has slowed growth for salaries this year and led to many middle-class consumers tapping into savings resources. As a result, successfully marketing multifamily housing to capacity during the second half of the year might mean positioning yourself as an affordable choice for your area, especially with many short-term rental investors pivoting to put their properties on local long-term rental markets. In some areas, the shift could outpace the strong demand for housing and cause rent deflation to a significant degree. This needs to be kept in mind when devising an income strategy for a building.
3. Affordability Is Driving Returns
Due to the difference in property values, as well as the impact that property value and cost of living have on local labor resources like construction contractors, many cities with lower costs of living and growing economies are providing the same returns as investments in more expensive places like San Francisco. It’s not hard to get the same margins in those places, but what many investors are finding is that they can reach the same profits dollar-for-dollar after expenses. It’s hardly a guarantee that you will be able to do the same, but the fact that it’s possible for the right investment to find a profit cap in Austin or Detroit that is comparable to Los Angeles or San Francisco is a major development. The fact is, though, that people are moving to affordable cities as they can, and the more people can work remotely, the more relocation based on living expenses begins to make sense for families.
4. Destination Neighborhoods Are Cooling Off
Between business shutdowns over the pandemic, increased remote work opportunities, and slowing salary increases, the hot urban neighborhoods that drove revenue growth over the last two decades are starting to cool off. Not only is a slowing wage economy leading to fewer opportunities for rent increases, but boutique businesses in walking distance are also struggling in the current economy and new ventures are postponing openings, leading to a fall-off in retail space rental income and neighborhood amenities at the same time. Simultaneously, many Millennials are aging into the phase of life where growing families are leading them to prioritize additional living space over access to nightlife and shopping.
Planning Your 2020 Investment Choices
This information might look negative at first glance, but the beautiful thing about the real estate market is that there is always demand, which means there is always a way to make money on a deal. As you assess your local property choices and income strategies, understanding how larger economic forces are impacting consumer choices and business investment pacing will be essential to making the smart choice about what to do with your money. After all, it’s not a bad thing to dodge a market where resale is difficult by embracing one where affordable housing rentals can get you a return. You’re still growing that principal either way.