At The Peak Group, we've watched the numbers on real estate over the past few months very closely. We were, of course, observing the market before COVID-19 because there was some talk that we might be heading into the next housing recession among concerned investing circles.
However, we began giving the market even greater scrutiny once the pandemic actually broke globally. Understandably, with businesses slashing employee numbers nationwide, outright closures, and continued job loss, many who had chosen to place their financial trust in residential REIT investing began to wonder if they had boarded a sinking ship.
Then, something unforeseen happened: people wanted to stay in their rental homes.
Yes, there's a bit of sarcasm there, but it's primarily directed at the doom-and-gloom media outlets that post the direst predictions because it happens to sell subscriberships. Sensationalist media sells, but it's not the best place to gather factual information about where your investing interests lie. Hard numbers and real data are where long-term investors—not speculators—establish the foundations for their financial future.
This Is Not the Great Recession
We're in a recession now, but it's a very different picture from The Great Recession of the early 2000s. For one thing, fewer people were renting then—and the bailout we did have was not directed at keeping people in their homes. In fact, the impact on homeownership during the financial crisis in 2008 was so drastic that there was a dramatic uptick in renting as a result. This has forced demographics who would have otherwise been considering their own home to continue renting, especially young groups, like millennials and now Gen Z.
This barrier to entry for the majority of renters looking to own a home has only intensified as a result of COVID-19. While there has certainly been a rush on the market in the wake of low interest rates as restrictions lift, halt, drop, and lift again, demand is not the only factor in play when it comes to securing a home. The scars of the 2008 financial crisis have affected each of us differently. For lenders, this meant tightening up their lending requirements as they saw interest rates plummet and demand skyrocket due to COVID-19. Without a hefty down payment, the credit scores of many would-be homeowners under these new requirements have forced them to continue renting.
There has also been some difficulty for sellers who had not secured their next home before the sale. With buyer demand so hot, many who have sold their homes had found themselves needing to turn to rentals when their homes sold sooner than they could find a replacement! While rental rates have contracted in major metropolitan areas as renters shift from city apartments to single-family renting in the suburbs, residential REIT investing remains a smart and secure choice for investors.
At The Peak Group, we focus on bread-and-butter properties because we know this is where demand is already heading for older millennials who have been priced out of homeownership but are seeking space for growing families. Generation Z also prefers to put down roots, but without established credit—and considerable down payment—they have also been ousted from the market. This demand for the kind of housing we provide is just one reason why residential rental property will continue to see strong returns compared to the ill-fated commercial market.
The Floundering Commercial Market
There's a truism that bolsters the reason to invest in residential rentals that we think holds up especially well, here, "People always need a place to live." While our neighbors will always need a physical home, businesses do not.
The rise of e-commerce has been steadily chipping away at brick-and-mortar business for years, but COVID-19 has certainly doomed many more. Not only has there been a direct increase in online shopping as a result of the pandemic, but many consumers were, in a sense, forced to stay home when these businesses were deemed "non-essential." With this environment in mind, the news primarily focused on the impact this might have on our communities when it came time to make monthly rental or mortgage payments.
Much more quietly reported was the fact that major brands and chains were outright refusing to pay their rent. While you were expected to make your mortgage or rental payments on time (even with job loss), 50% of commercial rents went unpaid in May. To give you some perspective on those numbers, in May, 80.2% of residential renters made their payments while large chains like Starbucks, H&M, and Staples refused.
On top of this, businesses that could shift their employees into a work-from-home environment now have firsthand data that the model works—and can help them slash expenses and overhead when they no longer need to rent spaces to host meetings that could be done over Zoom. These are just a few of the reasons why, when we began investigating what type of REIT structure we thought would best benefit investors, we turned to residential REIT investing instead of commercial.
Residential REIT Investing Is the Sound Choice
Even with the obvious benefits, choosing the right REIT structure as an investor isn't entirely clear-cut. When we found it challenging to find the right REIT that would yield the kind of returns we were expecting with the transparency we demanded, we set out to develop our own. It's why we're proud to offer access to the Peak Housing REIT to interested investors.
The data doesn't lie: residential REIT investing is an excellent way to diversify your portfolio and tap into the kind of wealth that weathers recessions! If you're interested in discovering more, we're happy to be your guide to the kind of financial freedom that the right REIT can provide.
That's exactly why we're offering investors access to our free guide: Let Freedom Ring! You'll learn more about the benefits of UPREITs as well as what to look for in the right REIT structure, so you can make the best choice possible for your financial future!
Posted by The Peak Group on July 9, 2020