Is Investing In Real Estate A Terrible Idea Right Now?

Is investing in real estate a terrible idea right now? It’s a fair question. If you’ve been following economic news — or even shopping for groceries lately — it’s obvious the economy is in a difficult moment. Supply chain problems, inflation and a topsy-turvy stock market all have investors pretty spooked. If that wasn’t enough, the Federal Reserve has been increasing interest rates all year, a trend that looks set to continue. 

So it only makes sense that you might have some doubts about real estate investing. Well, you shouldn’t. Throughout history, real estate has been and will continue to be a strong investment option. In fact, many experienced investors will tell you that down markets are exactly the right time to invest in real estate. Why? Because a lot of property owners are looking to liquidate assets, and many are doing so out of necessity. 

Why Now Is The Perfect Time To Buy

A down economy almost always means there will be an abundance of distressed or value-priced assets on the market. That’s why there is a longstanding adage in real estate investment that says, “When there’s blood in the street, buy property.” It’s not meant to be taken literally, but it does mean wise investors are on the lookout for opportunities, and some of the best opportunities present themselves in a down economy. 

This of course begs the question: If you were going to invest in real estate right now, where would you do it. Keep reading to find out some potential areas where you might be able to make lemons into lemonade with some solid real estate investments. 

The Sun Belt

A large population shift is occuring in the United States. During the COVID crisis, there was a tremendous migration out of large cities like Los Angeles and New York into the American Sun Belt, a wide geographic area that includes the South, Southeast and Southwest that are all known for mild winters and lots of sunshine. Examples of popular Sun Belt destinations include:

• Tampa Bay, Florida
• Orlando, Florida
• Miami, Florida
• Houston, Texas
• Dallas, Texas
• Austin, Texas
• Nashville, Tennessee
• Phoenix, Arizona

Almost all of these cities experienced strong population growth in the months after the COVID crisis. In addition to the warm weather, the other thing they have in common is affordable housing. However, the influx of people into those markets has left many of these cities without enough housing. 

This combination of population growth and a housing shortage has had two significant kick-on effects. It created strong demand for both housing and commercial real estate opportunities. While it may be impractical for you as a single investor to buy an entire apartment complex or bundle of commercial properties in these markets, you can still invest in a fund that does. 

The East Coast eREIT is a non-traded real estate investment trust (REIT) that focuses on commercial and residential properties in Sun Belt markets. The fund has 12 assets in several prime Sun Belt markets, including Greenville, South Carolina; Tempe, Arizona; Atlanta; and Jacksonville, Florida. 

It originally opened to investors in 2016 with a share price of $10. Today, the share price is $15.16. That means in spite of COVID-19, interest rate hikes and record inflation, East Coast eREIT investors have posted a tidy 50%+ profit. Gains like that are nothing to sneeze at. You can still become an investor in the East Coast eREIT for a $5,000 investment. 

Although $5,000 isn’t exactly pocket change, it’s still a small price to pay for an equity share in 12 high-performing real estate assets. It’s also a perfect example of why now isn’t necessarily a terrible time to invest in real estate. It’s far from the only potential earning opportunity you can take advantage of. 

Opportunity Zones

Opportunity zone investments are another great place to consider investing — even in a down market. An opportunity zone is a specially designated area, usually in the core of large cities, that has been suffering economically from underinvestment for an extended period of time. When an area suffers from sustained underinvestment, it spirals downward economically, which only serves to discourage future investment. 

To reverse this trend and spur the investment necessary to rehabilitate these areas, cities can apply to designate them as opportunity zones. Once they have this designation, investors can put profits from any other investment into an opportunity zone offering without having to pay any capital gains tax on their original investment capital. 

Sweetening the pot further, opportunity zone investors are also free from paying capital gains tax on the profits generated by their opportunity zone investment. In many cases, they are also exempted from paying property taxes and other municipal fees in the cities where they are located. All of these tax savings go right into investors’ pockets along with the increased revenue earned by the assets after they are renovated. 

Because most of the assets in opportunity zones are distressed or have low value, opportunity zone offerings give investors tremendous upside potential. As the opportunity zones continue to attract investments, the values of all the properties inside the zone benefit from that rising tide. So, you can make money while you help underserved communities. That’s the very definition of a win-win situation. 

If this sounds like your cup of tea, consider the Opportunity Zone Fund. This fund exists specifically to acquire assets in opportunity zones around the country. It has commercial assets concentrated in Los Angeles, California and Washington, D.C., that are in the stabilization phase, which means they’re undergoing renovations. Once these renovations are completed and the assets stabilize, they will see strong increases in monthly revenue and property value. 

Created in 2017, the Opportunity Zone Fund is a long-term investment play. The minimum investment is $25,000, and investors must be able to commit for 10 years. The long hold period is intended to attract investors who are committed to the areas and the assets as opposed to ‘lippers, which is why it’s part of the eligibility requirements for opportunity zones. 

Real Estate Tokenization

Aside from the risk of loss, which exists in every investment offering, one of the main drawbacks investors cite when it comes to funds, REITs and syndication deals is the hold period. The hold period is designed to allow the assets in a given offering to stabilize and begin generating profit. Usually, the assets in a given fund or REIT are being built or renovated during the early stages of the hold period. 

As you might imagine, investors pulling their funds out during the stabilization period would pose a grave threat to any REIT or fund’s long-term viability. So, it’s a necessary evil but one that can pose problems for investors. If they should need to access the funds they pledged, they can’t — or at least not without penalty. The concept of real estate tokenization offers investors the best of both worlds when it comes to profitability and liquidity. 

In real estate tokenization, the investor equity in a given offering is expressed as a virtual token instead of a share in a limited partnership. Investors still receive all the benefits of ownership, including tax write offs, profit sharing and owner distributions, but they are able to liquidate some, or all of the value of their token’s value on a blockchain. 

That means you can get out of a given deal whenever you want, so long as there is another investor who will buy your token. In some tokenized real estate offerings, you can use the equity in your token to lend money at a profit, or borrow against it on decentralized finance platforms. 

In some offerings, investors can buy shares in tokenized real estate offerings for as little as $1,000. If you’d like to learn more about tokenized real estate investments, there are a number of different real estate investing platforms that specialize in tokenized real estate offerings. The platforms feature a solid range of offerings in a number of different real estate sectors, including commercial, residential and industrial. 

Real estate tokenization is in its infancy as a means of real estate investing, but it offers a host of benefits to investors. Chief among those benefits is flexibility and profit potential. More importantly, it’s another way to invest in real estate and make money for yourself, even in a down market. 

Yes, Now Is A Great Time To Invest In Real Estate

As you can see, real estate investing is still delivering profits in spite of the unsettled economy. The reality is that the equation for real estate investing never changes. You can lose money in a strong market, or make a tidy profit in a down market. The truth is that some of the biggest real estate fortunes are made off of investments that were conceptualized during down markets. 

The key is to consider your investment goals and make sure you understand the fundamentals of any investment you make. That means being as knowledgeable about the risks as you are about the upside. If you have doubts about a particular offering, consult with a qualified investment adviser. But throwing in your hand and writing off the entire real estate market because we’re in an economic downturn is the last thing you should do.

See more on real estate investing from Benzinga:

• This Little-Known REIT Is Producing Double-Digit Returns In A Bear Market: How?
• Bezos-Backed Startup Lets You Become A Landlord With $100
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