A recent WSJ piece entitled, If You Sell Your House, The Buyer Might Be A Pension Fund, caused some commotion. The article highlighted how competition is heating up for single family homes due to demand from institutional real estate investors.

When I read the article, I was surprised to see Fundrise, a long-time FS supporter, mentioned in the second paragraph. Usually, you hear institutional real estate investors like BlackRock in the news. The article is behind a paywall, but here’s the snippet the WSJ allows non-subscribers to read.

A bidding war broke out this winter at a new subdivision north of Houston. But the prize this time was the entire subdivision, not just a single suburban house, illustrating the rise of big investors as a potent new force in the U.S. housing market.

D.R. Horton Inc. built 124 houses in Conroe, Texas, rented them out and then put the whole community, Amber Pines at Fosters Ridge, on the block. A Who’s Who of investors and home-rental firms flocked to the December sale. The winning $32 million bid came from an online property-investing platform, Fundrise LLC, which manages more than $1 billion on behalf of about 150,000 individuals.

The country’s most prolific home builder booked roughly twice what it typically makes selling houses to the middle class—an encouraging debut in the business of selling entire neighborhoods to investors.

“We certainly wouldn’t expect every single-family community we sell to sell at a 50% gross margin,” the builder’s finance chief, Bill Wheat, said at a recent investor conference.

Well folks, I decided to take my revenge spending seriously and buy myself a beachfront dream house. I was going to wait until my family moved to Hawaii before making the splurge. But after such a rough 12+ months, I asked myself, why wait? I’m not getting any younger!

Ever since I landed my first job post-college in 1999, I’ve been diligently saving and investing most of my money. Despite a couple of downturns over the past 22 years, overall returns have been solid.

When it came to renting or owning, I always spent the least amount possible on my housing expense because I was working so much. For example, the first apartment my roommate and I rented was a studio at 45 Wall Street. For privacy, we just used a $20 paper room divider between us.

When I bought my first property in 2003, I spent half my budget on a two-bedroom condo instead of a much larger three-bedroom condo or a single family house. In retrospect, I wish I went all-in back then.

After being frugal for so long, I decided I would buy a dream house if one ever popped up. And amazingly, one did!

As we finally come out of the pandemic, let’s to take a look at the best places to invest in commercial real estate in 2021 and beyond.

Inflation has become one of the top issues for investors this year. If inflation does begin to accelerate, I believe owning real assets is one of the best ways to profit. Inflation not only whittles down the cost of debt, it also boosts the principal value of you real estate holdings.

Stocks have already had a great run. Now we are seeing strong demand for single family homes. A recovery in commercial real estate seems like a high probability.

I’ve invited CrowdStreet, my favorite real estate crowdfunding platform for accredited investors to share their thoughts on what’s going with commercial real estate today. CrowdStreet will also reveal the best places to invest in commercial real estate for the future.

One of the benefits of property ownership is that you can remodel based on your tastes. Further, you can increase the value of your property by expanding its livable space. When the time comes to remodel, you will face a dilemma of whether to remodel with permits or without permits.

In this post, we’ll go over:

• My history remodeling with permits
• How long it takes to get a permit
• Additional costs of remodeling due to permits
• The different types of permits
• Trying to pass final inspection
• Why you should remodel with permits
• Why you may want to skip remodeling with permits
• How remodeling with or without permits might affect the value of your home

Bad pricing estimates by Zillow and Redfin are commonplace. Despite starting in 2004, Zillow’s estimates are especially unreliable for some reason. However, you can use bad pricing estimates to your advantage when buying or selling property today.

Over years of comparing the two, I’ve noticed Redfin’s pricing estimates are more accurate. Further, Redfin is much quicker to update the final sales price of a home after it goes pending. But even Redfin has some pricing issues as well.

After the unforeseen volatility of 2020, CrowdStreet wanted to know how individual investors were thinking about real estate investing in 2021. CrowdStreet was able to conduct a survey with 1,200 respondents, one of the largest of its kind. The survey results provide an insightful commercial real estate outlook for 2021 and beyond.

I’m particularly interested in their commercial real estate outlook given my existing 14 CRE investments worth roughly $500,000. Further, my main focus for 2021 is investing in private real estate investments given I dislike stock market volatility.

As an income-seeking investor who already has enough growth stocks, real estate provides the diversification I want in this economic recovery. At this stage, I’m much more comfortable investing in emerging real asset opportunities rather than expensive stocks that have already run.

CrowdStreet is one of the premier real estate crowdfunding platforms today. Their focus is on individual commercial real estate investments in 18-hour cities. Given the demographic shift towards lower-cost areas of the country, CrowdStreet is in the right space at the right time.

Let’s find out the level of interest survey respondents have for real estate, their asset class and regional preferences and more.

Commercial Real Estate Outlook For 2021 And Beyond

A whopping 96% of respondents said they planned to make at least one commercial real estate (CRE) investment this year. Almost 30% are aiming to make four or more new investments.

Compared to 2020, investors told CrowdStreet they’re planning to temper their exposure to the stock market. Only 31% plan to invest more in stocks. While 48% will actually invest less in bonds (only 7% plan to invest more). That’s in comparison to the 55% who expect to invest more in CRE this year.

The American Association of Individual Investors tracks investor sentiment week over week. While pessimism fell to a 6-week low in February, it’s worth noting that investor sentiment and volatility often go hand-in-hand.

Given the roller coaster that was 2020, it’s not surprising some investors are looking to minimize their exposure to the stock market. Many are looking to real estate as a way to diversify their portfolios.

When CrowdStreet asked investors why they were interested in CRE, diversification edged out a win as their number one reason.

What kinds of commercial real estate are investors looking to invest in?

According to the Allen Matkins/ UCLA Anderson Forecast biannual commercial real estate survey, “investors are optimistic on multifamily and industrial product, but for retail and office, the outlook is dreary.”

CrowdStreet’s investor survey echoed this finding. Multifamily and industrial topping the most-favored list. Meanwhile, a whopping 75% of respondents showed no interest in retail.

Why are investors so bullish on multifamily?

Why are investors seemingly so confident in multifamily? With job losses mounting at the outset of the pandemic, there was immediate concern we’d see significant spikes in vacancy rates and lease defaults.

However, as the pandemic unfolded, we witnessed a noticeable shift in renter behavior. People migrated from highly populated urban centers to the suburbs in search of larger units and less densely populated multifamily communities.

Overall vacancy rates for suburban multifamily declined, with a 6% national vacancy in Q3 2020. While downtown multifamily occupancy increased to around 9%.

However, government intervention helped protect this sector with both a monetary stimulus, as well as by implementing an eviction moratorium. Consequently, rent collections never dropped below 93% in 2020, as reported by the National Multifamily Housing Council. Final collection rates were, but still close, to 2019 rates. 

Renters may be on the move, but everyone has to live somewhere.

What is the bull case on industrial property?

When it comes to industrial, investors have reason to believe in the long-term success of this asset class. Industrial property values steadily increased over the course of 2020 thanks, in large part, to the dramatic spike in online shopping driven by the pandemic.

While the stratospheric growth rate of 2020 will almost certainly temper in the years ahead, a report published by Green Street Advisors in October 2020 anticipated that 30% of all retail sales will occur online by 2030.

Translating that growth rate to demand for industrial real estate, JLL projects that the U.S. will require an additional one billion square feet of industrial real estate by 2025.

Asking rents are expected to continue to increase year-over-year, according to Cushman & Wakefield. While Green Street Advisors projects the industrial sector to be one of only two asset types (along with manufactured housing) to see strong net-operating-income (NOI) growth in 2021.

Why the worry in retail real estate?

On the flipside, it’s not hard to see why investors are wary of retail. As the second hardest hit asset type after hotels, the retail sector entered 2021 in a weakened state.

Aside from grocery stores, most retail locations still remain severely limited in their operations. Until the wide-spread distribution of a vaccine, they will likely be allowed to open only under strict safety guidelines. 

In addition to what, CrowdStreet found that investors also had a preference for regional location. The Southeast was the clear region winner, beating the Midwest and Mountain Region by 13 percentage points. 

Institutional investors agree. Invitation Homes and Rockpoint Group formed a joint venture to acquire and operate single-family rentals in the Western US, Southeast US, Florida, and Texas.

Meanwhile, multifamily firm RangeWater launched an $800 million platform to build and operate single-family rental communities. This is what CrowdStreet calls Build-to-Rent, in the Sunbelt region. 

Last but not least, CrowdStreet wanted to know if there were any deal specifics that investors valued. 

What type of deal specifics do investors value?

Overall, investors focused on reliability when evaluating an investment opportunity. Well over half marked Sponsor Experience and the Overall Business Plan as very important to their evaluation process.

The next most important factors for investors when evaluating a CRE investment opportunity are Targeted IRR, Potential Cash Flow, Risk Profile, Asset Class, Geography, and ESG (Environmental, Social, Governance) factors.

After the 2020 roller coaster, it seems like investors are valuing sponsors who have experienced several economic cycles and successfully weathered the ups and downs more than other factors. 

And it makes sense. When you bought your house, think about how much due diligence the bank did on you versus the property. Maybe there was a two-page report that valued the house and land. But underwriters probably had 50+ pages on you and your financial history. That’s because the bank knows that you are the risk factor, not the house. 

When it comes to CRE, the firm behind the deal (sponsor) is the one responsible for shepherding an investor’s capital through the ups and downs. Investors want to know they can trust the folks they’re giving their investment to.

As one investor told CrowdStreet, “I like value-add with the right business plan and the team to see it through.”

Investing In CRE In 2021 And Beyond

Across the board, CrowdStreet found that investors value real estate’s multifaceted benefits. Investors are particularly using CRE to spread out the risk in their portfolios and to protect their capital.

Investors are looking to invest in regions and asset classes that were on the rise before March 2020 and, ergo, will likely recover first. The commercial real estate outlook looks promising as the vaccine rollout continues.

When evaluating a deal, I agree with survey respondents that selected Sponsor Experience as the most important factor. I want to invest with a sponsor who has been through the good and the bad. Investing with a sponsor who has only seen a bull market is not ideal.

In a low interest rate environment, real estate is my favored asset class to generate higher yields and capital returns. As an accredited investor, you can join CrowdStreet here and follow the latest investment offerings. I prefer investing in private real estate investments versus expensive stocks at this juncture.

Thanks to CrowdStreet for providing their survey insights with all of us and being a continued supporter of Financial Samurai.

United States property is dirt cheap compared to other international real estate markets. As a result, I believe once COVID gets under control, foreign money will pour back into the U.S.

One of the biggest conundrums today is trying to understand why the mass media and housing activists keep droning on about how expensive the United Stats property market is. When in reality, U.S. property prices are amongst the CHEAPEST in the developed world. Cheap US property is why I’m actively investing in real estate crowdfunding deals all across the country.

Anybody who has actually spent time house hunting in Hong Kong, Singapore, Tokyo, Mumbai, Paris, London, Zurich, Stockholm, Sydney etc. realize how cheap the U.S. is. Do you think I’m just going to London to eat strawberries and cream at Wimbledon? Of course not! As a personal finance blogger who writes from first-hand experience, I’m diligently pounding the pavement to research the truth to share with all of you.