Seasoned investors and beginning investors alike both know that diversity is crucial to a successful and high-yielding portfolio. If you have all your assets held in only one class, you're subject to the winds of fate whenever they blow through a little too hard. An excellent example of this worth considering from the past few months alone is the struggling airline industry—or the entire stock market in general. Sure, it recovered (or has it?)—but placing your trust solely in intangible or intellectual assets (or incredibly volatile asset classes) ultimately undermines your portfolio's viability.
If your entire portfolio depends on speculative assets (buy low, sell high), and you bought in slightly higher than your competition did expecting to make some serious returns, COVID-19 threw you a monster curveball. If you're like many investors who sank too much capital into good-faith, business-as-usual stock, you find yourself facing a serious issue when you can no longer unload those lemon purchases for profit in the wake of a flagging market. Not to pick too hard on the airline and travel industry, but it's a great example of this. Within a few months, airline stock has risen, fallen, risen, then fallen again, subject as it is to the demands of debt and decreasing consumer travel in the face of outright bans or disinterest. What are we getting at here?
The Three Issues of Investing
The point is that investing in real estate can be a solid, supportive addition to your portfolio. The right real estate grounds an otherwise risky portfolio with returns that come from hard assets—property. However, there are a few caveats to realizing the benefits of real estate investing that often get glossed over:
- Successful real estate investing is never 'passive real estate investing' unless you have professional support.
- Every potential property you look at won't necessarily be a well-performing 'winner' at the start.
- Not every housing market is ideal for owning profitable rental properties.
Thankfully, at The Peak Group, we've already considered this from an investor's perspective because we are seasoned investors ourselves. The conclusion we came to after years of investing experience in real estate was this: the best way to invest in real estate passively is with an UPREIT structure—and one of the best markets to invest in is Dallas and Fort Worth.
You Need the Right Market, the Right Rental Properties, and the Right Help
You found this article because you're wondering how to invest in Dallas real estate, which means you're already off to a great start when it comes to identifying and tackling issue #3. Not every market is a profitable investment for rental housing, mainly because 'speculative' behavior in housing has led to rampant housing prices that are prohibitive to renters, let alone buyers! Top 'culprit' markets are in states like Washington, California, Colorado, and Massachusetts. However, affordability to your renters isn't the only factor you have to consider when it comes to your property pick.
A key example of this is the now-struggling Florida market. Location and price are a primetime concern for your potential renters: just like you want to be where the money is, so do they. Orlando used to be an investing 'golden child' due to its pricing and strong job growth. However, just as a portfolio without enough diversity is a risk, so too is an economy that relies solely on one industry. Orlando's industry was heavily reliant on tourism and hospitality, making it one of the hardest-hit areas economically in the wake of COVID-19. This doesn't bode well for long-term investing reliability.
While every state was hit hard, Texas was hit less hard than the rest of the nation—in part because our job market here is more diversified, and a good portion of new jobs we add are higher-level positions in Dallas capable of shifting to a work-from-home environment. When you combine increased bang-for-your-buck in property values with a diversified economy, you've found a market worth investing in because you'll find renters who want homes they can afford to rent where the jobs are.
These two factors might be the most crucial for determining if a property will perform because renters are the engine for your portfolio. However, if your renters are the engine, then having the right help is like having the right mechanic. Sure, you could choose to invest in Dallas real estate and manage your properties by yourself with a hands-on approach, but you'll quickly find that if you want to pursue passive real estate investing, this is impossible if you're the one caring for every property in your portfolio.
Allocating tasks to the right help allows you to expand rather than contract your holdings—even when the going gets tough. However, finding the right help can be one of the most challenging tasks you'll have to do as an investor—and that's saying a lot.
Why an UPREIT Is the Right Move When Investing in Dallas
The above issue is another reason why choosing to invest in Dallas real estate is best done through an UPREIT structure: the help is already rolled into the investment as a packaged deal. It allows you the enjoyment of completely hands-free investing in one of the best rental markets in the nation with industry professionals that offer decades of experience.
UPREIT structures are focused only on adding properties to the REIT that are performers because they target where your audience actually is. This approach reduces the work it takes to find and retain renters, which yields reliable returns—and higher returns than you could expect to see from an individual portfolio.
There's so much more information than we can fit into this article about why choosing to invest in an UPREIT is the right move for an investor. If you're ready to learn more about what REIT investing can do for you over the work of a traditional portfolio, download our free guide, Let Freedom Ring!
Posted by The Peak Group on August 6, 2020