As we fortunately emerge from the pandemic, including the recent wave of Delta variants, now is a good time to assess real estate investment opportunities if you are looking to reinvest the proceeds in a 1031 exchange transaction or looking to invest money as part of a diversified market financial portfolio strategy.
Here’s how you could create a post-pandemic real estate investment portfolio, recognizing some of the new realities the pandemic has revealed.
Let’s say you, your family, or your family office are looking to invest $ 1 million to $ 100 million, more or less. A cautious diversification strategy suggests allocating capital among different types of properties, asset classes and geographies. (Of course, diversification does not guarantee profits or protect against loss, past performance never guarantees future results, and income and appreciation are never assured with any investment, but real estate has fallen. has proven to be a winning item in many investors’ alternative asset portfolios.)
Diversify according to property types and locations
A diversified investment approach today could include a mix of industrial, multi-family and commercial properties.
The pandemic has been particularly favorable to industrial properties, namely those occupied by logistics and transportation companies, and properties that serve as distribution hubs for manufacturers, wholesalers and retailers. These assets, as a class, have performed particularly well over the past two years as the trend towards e-commerce accelerated dramatically during the pandemic – a period in which many people who had previously resisted delivery home goods and services have finally adopted the concept which was already growing year by year.
The increased demand for delivery is expected to continue to have positive long-term implications for industrial real estate, including distribution and last mile logistics, for years to come. Thus, industrial / distribution and logistics properties should be seriously considered as part of a real estate investment portfolio, whether in view of a 1031 exchange or direct investment.
Multi-family properties also performed relatively well during the pandemic, thanks to assistance to tenants in the form of direct aids and rent payment assistance, as well as homeowner forbearance. Already, the multi-family market is seeing higher rents as the pandemic recedes and the return to work continues, according to Yardi Matrix, and as units rotate and rents reset to new levels.
Retail has been mixed during the pandemic, with closed malls performing the worst, malls with big box tenants somewhere in the middle, and neighborhood malls anchored in grocery stores doing the best. Net leased assets, where tenants pay some or all of the real estate expenses, including taxes and insurance in addition to rent, have generally outperformed the market as a whole. Net assets leased include independent pharmacies, health service operations such as dialysis centers and drive-thru fast food restaurants. These types of assets should be seriously considered to be included in a diversified real estate investment portfolio when looking for 1031 stock market investments and direct cash real estate investments.
Use DST as a vehicle to hold various investments
An effective way to hold post-pandemic real estate investments could be Delaware Statutory Trusts. DSTs are a direct investment vehicle or turnkey solution in a 1031 exchange. Investors often deploy as little as $ 25,000 in DSTs and as much as $ 50,000,000 and more, so that they can work for a wide range of accredited investors (generally defined as having a net worth of over $ 1,000,000).
With DSTs, investors can hold an interest in various real estate assets without the hassles and headaches of unique ownership and management, which entails the burden of being an owner i.e. tenants, toilets and garbage.
DSTs can hold title to all kinds of real estate investments. The investment promoter is responsible for the day-to-day management of the assets, with investors passively participating in the form of potential monthly distributions (positive cash flows) by direct deposit into their checking or savings accounts. There is also the potential to generate appreciation, just as with individual ownership, although it is important to note that as with all real estate investments, positive cash flow and appreciation is never guaranteed and could be. lower than expected.
There are also the other tax benefits of direct real estate investing, including depreciation allowances, to help shelter rental income. In addition, DSTs are eligible for 1031 exchanges, unlike many other real estate investment structures, which means that any capital gain on the sale of assets can be deferred if the proceeds are reinvested in other income or investment properties.
You can build a diverse portfolio of real estate investments in different types of properties and geographies by investing in multiple DSTs. Using the hypothetical investment amount of $ 1 million shown above, a portfolio could include:
- Five investments of $ 100,000 in various multi-family apartment properties in various states of the Sunbelt;
- An investment of $ 150,000 and $ 100,000 in various networked medical facilities in Texas;
- A $ 250,000 investment in an industrial / distribution facility in the Midwest.
The bottom line
Despite all the challenges presented by the pandemic, the crisis highlights potential investment opportunities that could have stronger long-term prospects. Certainly, the pandemic has demonstrated the resilience of investment real estate as an asset class, with lessons for building a real estate portfolio that can eventually withstand changes and fluctuations in the market.
Since real estate is an integral part of our ways of living, working and playing, income and investment properties are likely to remain attractive to many investors interested in diversifying and seeking income and appreciation in the market. future. The problem, as always, is to identify the best-suited opportunities to meet your personal financial and tax goals and objectives.
Dwight Kay is the Founder and CEO of Kay Properties and Investments, LLC, which operates an online DST and 1031 Exchange real estate investment marketplace.