It seems like a tale of the past, but the U.S. saw record low mortgage rates in 2020 and 2021; concurrently, real estate investment soared. But the tried-and-true adage that real estate investment is a long-term proposition has never been more true today as mortgage interest rates steadily climb. As real estate prices come down and a recession looms, the question of whether now is a good time to invest in real estate takes center stage
Savvy investors understand that real estate has been a consistent hedge against inflation. The low interest rates of a year ago made property affordable at first, but the real estate market adjusted by increasing home values. And now, as interest rates go north of 7%, many buyers are finding themselves priced out of the market.
That situation presents an opportunity for rental property investors who can increase rental rates as home inventory dwindles and buyers, priced out of the market, seek temporary housing until interest rates decline. This model can lead to consistent passive income for investors.
But it’s all still about location, and investors in rental properties need to be conscious of the economic realities of the geographic area they are buying in. “Investors need to be aware of the unemployment in the area of their investment properties,” says David Tuyo, CEO of University Credit Union in Los Angeles. “You obviously want to hedge your bets that tenants will be able to pay rent as much as possible,” told Bankrate.com.
Price is an important consideration when investing in real estate. And while lower purchase prices can generate a more significant return potential, it’s not the only factor to consider. Mortgage rates still significantly affect the profitability of an investment, and there are potentially more hikes ahead with a recession looming.
Superior returns in real estate tend to follow recessionary periods, according to the latest report from investment advisor Cohen & Steers Capital Management, Inc., which has $88 billion in assets, of which $56 billion is in real estate. The company believes the current market dislocation in the real estate market will likely generate strong returns in 2023 and 2024.
“Listed real estate tends to lead private real estate in both selloff and recovery during recessionary periods,” Cohen & Steers said in its report. “Differences in the real-time pricing of listed real estate investment trusts (REITs) and private real estate can create significant short-term dislocations. By understanding the leading and lagging behaviors of private and listed markets, real estate investors may be able to tactically allocate at different times across the two asset classes, seeking to take advantage of how markets have priced in current conditions.”
As for continued inflation, the report also says that sectors with shorter lease durations, such as self-storage and hotels, can adjust rents quickly to keep pace. These sectors demonstrate greater cyclicality and can serve as a buffer against inflation.
Cohen & Steers’ report claims the U.S. is heading into what they refer to as an “average recession,” as measured against recessions over the past 100 years. “Our base case is a decrease of 2% to 3% in real global domestic product and a duration of about 12 months.”
However, the report is especially bullish about the expectation of superior returns in real estate following these recessionary periods. “The result, emerging from this challenging period, may be some strong vintage returns across both real estate categories. However, optimizing a real estate portfolio can be enhanced by integrating both listed and private markets.”
As for alternative real estate investment opportunities, Cohen & Steers points to cell towers, healthcare facilities and data centers as emerging secular winners because of tech innovations over the past few years.
Read next: Bezos-Backed Startup Lets You Become A Landlord With $100
Photo by Rohan Reddy on Unsplash
See more from Benzinga
Insurance Costs Are Rising, But Real Estate Investors Could Lose More By Not Being Honest About Their Property
Predictions Of The Death Of Brick And Mortar Proved To Be Highly Inaccurate
Elon Musk Warns Russia Can Utterly Destroy US, Europe With Nuclear Missiles In Under 30 Minutes And Vice
Don't miss real-time alerts on your stocks – join Benzinga Pro for free! Try the tool that will help you invest smarter, faster, and better.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Zuckerberg appeared downcast in Tuesday's meeting and said he was accountable for the company's missteps and his overoptimism about growth had led to overstaffing, the report added, citing people familiar with the matter. He described broad cuts and specifically mentioned the recruiting and business teams as among those facing layoffs, the report said, adding an internal announcement of the company's layoff plans is expected around 6 a.m. Eastern time on Wednesday. Meta's head of human resources, Lori Goler, said employees who lose their jobs will be provided with at least four months of salary as severance, the WSJ reported, citing people familiar with the matter.
Home values were flat between September and October, with some markets in the west and south seeing big declines in home prices.
Tesla selling pressure just won't let up. Blame it on Twitter. Unless something changes, investors are in for more pain, according to traders.
Yahoo Finance reporter David Hollerith details the news that crypto exchange Binance has agreed to buy its rival FTX.com and how it's triggered a sell-off in the crypto space.
The $2.04 billion Powerball winner should heed these 5 common mistakes from previous lottery winners.
The market is getting all jittery again after the Fed signaled its intention to stick to its aggressive rate hike stance for now. The general downbeat mood is a familiar one in 2022 as the market has been unable to shake off the bear hug with any uptick quickly followed by another pullback. However, with so many stocks still hovering in the doldrums, Jim Cramer, the well-known host of CNBC's 'Mad Money' program, believes investors should pay special attention to the ones that are looking nicely
The devastation wrought by Hurricane Ian could be an opportunity for real estate investors because of a federal disaster rule that victims are just starting to become aware of. Homeowners along Florida’s Gulf Coast whose homes were damaged and destroyed by the storm are subject to the Federal Emergency Management Agency’s (FEMA) Substantial Damages and Substantial Improvements rule, also known as the FEMA 50% rule. The rule also applies to commercial property. According to the FEMA 50% rule, if
Meta Platforms will begin laying off employees on Wednesday morning, CEO Mark Zuckerberg told hundreds of executives.
New boss. New rules.
Shares of Carvana (NYSE: CVNA) are driving lower once again, dropping 1.7% at 11:33 a.m. ET on Tuesday as the broader market rises. While there was no specific news today to push shares lower, Carvana got hammered yesterday, as well, because the used-car market is running into a ditch. The online car retailer is being confronted with a used-car market that's been bouncing from crisis to crisis like bumper cars since the pandemic began.
Investing money can help you build wealth, but taxes can take a big bite out of your earnings. Following a buy, borrow, die strategy is one way to minimize your tax liability and preserve more of your wealth. The concept … Continue reading → The post Buy, Borrow, Die: How the Rich Avoid Taxes appeared first on SmartAsset Blog.
Worn out from 2022’s unremitting bear market? Well, good news. According to Bank of America, the scene is set for a 2023 bull run. But more intriguingly, given the current conditions, the market leaders are not invited to this party with those further down the food chain set to the lead the way. Or as BofA’s Chief Investment Strategist Michael Hartnett puts it, "Secular trends of stagflation, reshoring, localization, fiscal stimulus = small cap bull in 2023." Hartnett has history on his side. Si
Ovintiv Inc. (NYSE: OVV) (TSX: OVV) ("Ovintiv" or the "Company") today announced its third quarter 2022 financial and operating results. The Company plans to hold a conference call and webcast at 8:00 a.m. MT (10:00 a.m. ET) on November 9, 2022. Please see dial-in details within this release, as well as additional details on the Company's website at www.ovintiv.com.
Shares of Robinhood, the brokerage, plummeted by 15% as FTX was acquired to save it from collapsing.
Twilio (NYSE: TWLO) management dropped a bomb on investors by updating their long-term revenue growth outlook. The new guidance caught investors off-guard, which prompted a great deal of selling in Twilio stock.
Sam Bankman-Fried's crypto exchange, seen as a white knight when other industry players were collapsing this summer, has faced a run on its assets.
Sending money to family or making a rent payment through Zelle has many perks — it is immediate and does not come with the fees commanded by many traditional e-transfers. The instant payment service was launched in 2017 as a collaboration between Bank of America , JP Morgan Chase , and Wells Fargo . Along with being faster than a traditional transfer, Zelle was presented as a way to go directly between two people's banks rather than through an external fintech company like PayPal or Venmo.
Crypto has seen its fair share of crazy days. Tuesday may have been the craziest.
After placing restrictions on foreign participation in supplying "critical minerals" used in batteries and high-tech devices, the government of Canada has ordered three Chinese companies to divest …
Tech stocks continue to experience a bear market. Numerous growth tech stocks have fallen by more than 75% from their highs, and even some large-caps lost more than half of their value. This makes tech-oriented financial stocks such as SoFi Technologies (NASDAQ: SOFI) and Nu Holdings (NYSE: NU) all the more uncommon.
- Latest
- Trending
