Real estate investments come with their fair share of risks; any investor with a self-managed portfolio understands this keenly. However, some real estate (and rental) markets are more of a drain on your resources and a financial disaster than others. Solo property owners know that research is crucial to pinpointing the right time to put money into an investment property and into which markets that property may be in.
Once you decide to bring your portfolio to an elite level and work with REIT investing, that responsibility is suddenly shifted to those 'running the show.' This makes it crucial to know without a doubt that the umbrella partnership behind your UPREIT is as dedicated to the outcome as you are.
Here at The Peak Group, we put our wealth alongside yours when making our investment moves because we believe our track record speaks to our team's effectiveness and insight. Our research and methodology are geared towards only picking the perfect value-add rental homes for the Peak Housing REIT. The decision to avoid once-popular commercial real estate as our asset focus was one of the first heavily-researched moves we made as an UPREIT structure.
With the commercial real estate market collapsing due to decreasing brick-and-mortar retail, trade and travel disruptions, and the work-from-home revolution, single-family homes (particularly, rental-based workforce housing) are coming into their own as a powerful market opportunity for investors. We jumped on this data before it became a trend, and it's why we're outperforming the sinking ship that is commercial REITs.
Multi-family-complex REITs have also taken a hit. There has been increasing flight from dense, commercialized urban centers where COVID-19's impacts have been felt strongest (think New York and Seattle) to suburbs with more room to breathe—and room to support increasingly-necessary home office space.
While commercial spaces may not entirely be down for the count, they are predicted to take a beating for the next decade or so—especially given that painful downsizing was already in progress before the pandemic.
Our foresight into this growing demand for rental workforce housing that gives renters room to grow is still dependent on the cutting-edge market analysis we use to consistently add value to the Peak Housing REIT. Beyond better dividend yields, this research also yields insight into which rental markets to avoid.
Here are some of our top red flags we watch for when deciding which neighborhoods are ideal for REIT investing.
Declining Property Values
- When property prices are plummeting, especially after growing consistently over time, this is a warning sign that the market is slipping.
- Buying rental property in such a market will be investing in a depreciating asset that will end up costing you when it comes to your return on investment. The same can apply for properties within an UPREIT structure.
- When it's a single-property issue rather than an entire neighborhood, this can be a good opportunity to move forward with a wholesale acquisition—but beware signs of a larger trend.
Extremely High Vacancy Rates
- Generally, vacancies in one or a few buildings may not be bad and could present an opportunity to spruce up the property, manage it better, and increase its value.
- However, vacancy rates that are significantly higher than the local average could indicate a bigger problem. We always keep this in mind when researching our acquisitions in the DFW area.
Vacancy rates can also be driven by crime: a housing market characterized by high crime rates will not attract renters—especially renters looking to start (or grow) a family.
A Stagnating or Declining Population
This one is definitely not an issue in DFW! Our population is only expected to keep growing over the next ten years, even as population flight continues from other major metropolitan areas.
- Population growth in any given area ensures consistent demand for homes and rental properties.
- When people are moving away from a given market or the population is aging, there's typically a drop in demand.
- This trend leads to the above issues (higher vacancies and stagnating property values).
A struggling local economy is not always a sign that an area is not great for real estate investment. However, it may be too risky to invest in the area, hoping that the economy will eventually recover. This is one issue worth considering if the investment deals you're eyeing happen to be in rural areas.
Considering the dynamics involved and the complex nature of economic trends, it's better to invest in areas with thriving economies. In this regard, some of the factors you may want to focus on are employment rate and job growth.
In addition to the employment rate, you should take time to look at the diversity of the area's job sector. Markets that depend largely on a single employer or economic activity can take a hit in case of disruptions to the employer or sector. We saw this exact issue play out in markets like Orlando, where tourism was the main economic engine.
Regulations That Don't Favor Investors
Many markets offer promises of attractive real estate investment returns. However, we have seen the chokehold caused by government policing in markets like Seattle and New York when it comes to how investors can exercise their rights over their rental property.
A bad real estate market will feature high levels of government interference with property owners, making it difficult to invest and produce excellent returns.
We Only Select the Best
Our capital is invested alongside our investors—so we only pick rental properties in real estate markets that are geared for successful REIT investing! It's one of the things we love about the DFW area: our picks in strong markets across Dallas and Fort Worth ensure investors see higher dividend yields.
If you have additional questions about why we do what we do (and how), a visit to our FAQ page is a great place to dive into the details. You can also learn more about why we chose the DFW area to grow The Peak Group when you read our story!
Posted by The Peak Group on November 12, 2020