2021 Is a Fine Time To Invest in REITs

Real estate investment trusts, often abbreviated as REITs, are a wonderful way for average people to get started as investors. REITs are traded on stock exchanges. They represent part ownership in a company that’s invested in real estate holdings. This instrument was created by an act of the US Congress in 1960. One of the biggest benefits of REITs is that they real estate investments more accessible.

REITs are usually made up of a portfolio of related real estate holdings. Some, for example, are focused one medical spaces. Others are centered on hospitality or on office spaces. Many of the biggest and most desirable REITs are made up of a diversified portfolio of holdings. REITs are well known for paying dividends that often surpass those of standard stocks.

That dividend yield is one reason REITs are a solid pick for right now. During 2020, COVID-19 affected many industries. But real estate is always in demand, either for use or as an investment. In 2021, REITs are expected to be a reliable vehicle for people looking to earn more than bonds and savings accounts will yield. There are three REITs, in particular, that savvy investors should consider.

The first is Annaly Capital Management. This REIT is invested heavily in mortgage backed securities in both the residential and commercial market segments. Although 2020 was very up and down for Annaly, 2021 is off to a promising start. As of January 2021, the dividend for this REIT was slightly above 11%. Annaly Capital Management has steadily seen a yield of more than 10% annually since 2012.

City Office REIT is another great option for investors in 2021. This is a more specialized REIT, invested in high quality office buildings in southern and western cities like San Diego, Denver and Phoenix. As of January 2021, City Office REIT was paying a dividend of more than 6%.

Finally, Pasadena, CA, is home to Alexandria Real Estate Equities. This REIT is focused specifically on properties linked to biological enterprises. This includes facilities used for research related to agriculture and other life science related industries. The stock price has showed solid growth recently. In January of 2021, dividends sat at just under 2.5% but they’re projected to improve, too.

Technology and Real Estate

We’ve seen a massive amount of technological change, beginning with the computer revolution. Just about every industry in the economy is being affected greatly. Real estate is no exception. Here are some of the ways proptech is changing the industry.

Virtual property tours

Some real estate agents are now displaying virtual property tours on their listings. This practice has become more popular in the age of social distancing. They allow viewers to get a more accurate sense of the property versus regular photos. A 3d view is much better at giving a feel of the floor plan and general flow of the property. In turn, this means the people who ask for showings are more interested and better informed. This means less wasted time for both buyers and agents.

Zillow allows you to make one for free with their app and mobile phone.

Drone

Drones have many uses and some savvy individuals are deploying them for use in real estate. Prospective buyers will usually be moving to a new town. A couple of flybys by a drone can help give a good feel of the neighborhood. Also, some potential risks or maintenance problems might be spotted. Right now, drones can only be used in open areas. Research is being done to develop more compact ones that can move indoors.

Artificial intelligence

Researchers are rapidly making advances in artificial intelligence and machine learning. The number of applications is astounding. Real estate has some big ones.

Right now, property search is very time-consuming. The buyer and agent must visit each property until a satisfactory one is found. But with AI, there is the potential for some sort of recommendation service. Properties could be recommended based on the personality and values of the buyer.

Real estate prices can be volatile. Buyers always struggle with the decision of whether it’s a good time to buy. Artificial intelligence could also be used to predict prices. This could be based on macroeconomic statistics, but also local things like schools and crime.

Real estate was once thought of as a sleepy business. That’s no longer true with the rapid improvements in technology we’ve been seeing. Some of them are quite exciting and there are always fresh ones on the horizon.

Cost Basis for Real Estate Transactions

As with any investment, the cost basis of your real estate purchase is an important consideration when deciding whether or not to sell your home. Since the potential tax consequences could be critical, it is important to fully understand the implications of your cost basis.

Initial Purchase Price

A useful comparison for understanding real estate cost basis is traditional company stock. Investors who purchases shares of a particular stock or mutual fund hope to see the price per share increase over time. When the investor sells accumulated shares at some point in the future, they will recognize the profit, called earnings, from selling at a higher price than they paid. The average price per share is their cost basis.

There is no average price paid for a home, since there is only one true purchase price. The original purchase price is the cost basis and is not impacted by mortgage points, home equity loans or refinancing opportunities. Although financing aspects will not impact the cost basis, some home improvements and remodeling efforts could provide benefit to homeowners.

Renovations and Depreciation

The Internal Revenue Service (IRS) outlines a number of ways that homeowners can reduce their annual tax liability. A full list of guidelines, options, and restrictions can be found in the IRS Publication 523.

Certain renovations, such as those that reduce carbon footprint or increase energy efficiency, can increase cost basis. Solar panels, new roofing, window replacement, and additional insulation are some common improvements the IRS allows homeowners to add on to the original purchase price of their home. There are generally no tax reductions or credits for the depreciation of a home used only as a primary dwelling.

Final Cost Basis

In the company stock example, the investor seeks low cost basis, but homeowners benefit from an increased cost basis. Eligible improvements may increase original cost basis and reduce tax liability on profit value from the sale price. For example, if a homeowner purchased a home for $150,000 and sold a few years later for $200,000, they are responsible for taxes on the $50,000 profit income. Suppose the owner spent $10,000 on qualified energy efficient renovations. Those qualified investments could reduce the taxable income to $40,000.

Investment Trusts

If you’re not familiar with real estate investment trusts (REITs), this may be something to learn more about before making an investing decision. While investing in real estate one property at a time can help you develop a steady income stream, the duties that go along with property management can cut into your profits. Alternatively, investing your money with a REIT allows you to earn regular dividends from the residential, commercial, or industrial properties within the trust.

Enjoy Bigger Tax Breaks

Most people know that the government regularly amends tax laws, but many of us leave the details up to our accountants or tax attorneys. One new revision you should learn more about concerns how the IRS deals with REITs. When you invest in a REIT, the government provides a sizable deduction. If you invest in a REIT and earn less than $315,000, you can earn a 20% discount on your joint income taxes. Those filing as an individual with a reported income of $157,000 or less can also earn the same discount on their federal tax returns.

City and State Taxes Affect Real Estate Investors Differently

Another reason to consider investing in REITs over investing in real estate locally is that city and state tax laws make it more costly to own rental property. While a property owner may invest tens of thousands of dollars in the upkeep of their rental properties, most states place a limit of $10,000 on allowable deductions. This includes deductions that are claimed from paying property taxes. If you happen to own a rental property in a high-end area, most of your profits can end up going to pay taxes in this type of system.

REITs Are Convenient

All in all, investing in REITs provides a less costly way of growing your wealth. Since the funds pay out regular dividends, it can also be used as a passive type of income and, as a fund similar to a stock or mutual fund, a REIT is more liquid than owning physical real estate. In an emergency, you can cash out your REIT ownership in less time than it would take to mortgage your physical real estate.

While there are still good and bad risks involved in investing in REITs, there are many advantages that make this type of investment more alluring. As long as you do your due diligence in researching each REIT, there’s no reason REITs can’t be as lucrative as investing in real estate in your local area.

Commercial Real Estate Rising

In the second quarter of this year, commercial real estate investments leveled off at $107.3 billion, but they took a sharp swing up to $149 billion in the third quarter. While that is an impressive climb, it becomes less inspiring when you take into account the fact that it’s still 44% lower than the 2019 third quarter figures. While responses to the coronavirus pandemic, which include travel restrictions and lockdowns, account for some of this loss, there’s still hope for a more significant rebound.

Sean Coghlan serves as the global head of Capital Markets Research, JLL and predicts a more promising fourth quarter. He says the market fragmentation that has resulted from the economic downturn is working in favor of investors, offering more lucrative opportunities for those with the courage to take the risks. The biggest challenges they may face are lenders who remain wary of rising prices in the market. Globally, investment volumes dropped by 19-24%, but that drop was more significant in North America where a 63% drop negatively impacted the market. Even though economies in the U.S. and throughout the world are starting to recover, various factors, including stimulus packages and new lockdowns, will affect how quickly the markets do rebound.

These changes that affect the economy also affect the opportunities available to commercial real estate investors. While inter-regional investing was up by 8% in the last quarter, it’s expected to slow as a result of ongoing travel restrictions. Alternatively, regional investment opportunities will become available with greater frequency even after enjoying a 14% rise in the same third quarter period. That recent rise was the greatest in the past 10 years, showing potential for future volume increases.

Lockdowns that seem to be going on indefinitely are costing many people their businesses, which means a lower demand for commercial real estate. Even after we adjust to a new normal and daily life adopts a more social aspect, there will be fewer people willing to risk their livelihoods on starting their own businesses. This means fewer opportunities for commercial real estate investors. As a result, investors will have to concentrate on a smaller selection of niches. In particular, multi-family housing, warehouses and logistics, and scientific research are a few of the industries that will still rely on commercial properties. New investors will have to be more selective in choosing the types of commercial real estate properties in which they will invest.

Making Money in Real Estate Development

New technology is most often used for entertainment, but, in time, various types of commercial businesses adapt these technologies for their use. Whether they use a specific technology to reach more consumers or to improve the services they provide, commercial businesses eventually adapt new innovations to suit their needs. The same is true of the real estate industry, which is notoriously slow when it comes to making these types of changes. However, they are catching up in regards to their use of artificial intelligence.

How Does AI Help Real Estate Agents Compete?

Already, AI has helped real estate professionals reach out to home buyers and sellers by digitizing transactions. Aside from visually inspecting the property, there isn’t much that sellers and buyers can’t do over an internet connection. The use of AI-driven bots can even help people learn more about a property or the process involved in buying that property.

Artificial intelligence is used to provide virtual home tours and to help buyers and investors find the types of properties that meet their criteria. The same technology is used to help participants get through the transaction process by giving them access to the important documents they must read, sign, and return. All of this helps decrease the time it takes to process a transaction, which means investors and agents have more time to focus on the productive aspects of their careers.

What Can AI Do For Real Estate Developers?

The use of artificial intelligence can also save time for developers by helping them find future investment opportunities. An AI system can be programmed to search for properties that meet the criteria the developer outlines. This saves the developer from having to search for properties in a traditional and more time-consuming manner. When the system has properties to show the developer, they can determine if it’s an opportunity that interests them.

People in the real estate industry tend to stick with the technology and practices they have used throughout their careers. They’re reluctant to make use of a new innovation that might cause them to miss a lucrative opportunity, so they would rather trust their traditional methods. However, those developers, agents, and investors who are willing to learn more about what AI can do for them may have an edge in competing with others in their field. Using artificial intelligence can reduce the time it takes to find an opportunity and process a transaction, which means they’ll be able to pursue more opportunities in less time.

Tips for Purchasing a High-Rise Insurance

Excellent security, a variety of amenities, concierge services and beautiful views are just a few of the perks that residents enjoy when they live in a high-rise. Protecting the building and its inhabitants with a good insurance policy is essential should a disaster strike.

How High-Rise Insurance Works

High-rises are typically made up of many condominiums, each of which is owned individually. Each of these condominiums needs to be protected by the residents’ personal insurance policies. The building that houses the condominiums, the common spaces and the grounds are covered by a separate policy held by the association or building owner.

Unfortunately, both residents and high-rise association members often don’t realize what gaps exist in their insurance coverage policies. This could leave buildings vulnerable in the case of an emergency or natural disaster. Additionally, it is a good idea to make sure that all residents have up-to-date policies that cover everything in their homes. This protects both them and the board.

High-Rise Insurance Tips

Those in a high-rise board association must carefully choose the right insurance policy. When looking into different policies, it’s important to consider:

  • Overall value of the policy; some policies may save the board money by decreasing coverage
  • Property management companies that can ensure the individual residents and overall property is in good repair
  • Using an insurance agent who is well-versed in insuring high-rise properties
  • Reviewing the policy annually to determine if its still right for the building and association

Different Types of Insurance Available

There are several different types of insurance available to protect a high-rise building. These types include:

  • Building ordinance and law, which helps protect older buildings and provides help to bring things up to code
  • Directors and officers liability, which protects the building board and staff from liability in case of an accident
  • Workers’ compensation, which is designed to help injured staff members get the medical help needed and protects a business against expensive lawsuits

Don’t assume that the current high-rise policy covers everything in the building. Going over the policy regularly and discussing the policy as a board can help ensure there are no costly coverage gaps and that everyone is protected during an emergency.

Partnering with a Property Management Company

While a homeowner’s association helps improve the quality of life for the residents in that community, it can sometimes fall short of its ambitions. This rarely happens when they work alongside a property management company that has the resources and experience that makes the management of the community easier to handle. Here are a few reasons you should consider hiring a property management company to work with your homeowner’s association.

Local Managers Benefit the Community

The professionals that are employed by a national property management company will come from your own neighborhood. This is beneficial partly because local employees will understand your neighborhood and its needs, making it easier to provide services and amenities residents will appreciate. Additionally, they will be familiar with how local laws affect the management of the properties in the area. This can help you and your residents stay compliant.

Take Advantage of National Resources

A company that manages properties in multiple states will have more resources to offer to each community. When they institute a change that improves property management in one community, they will bring those positive changes to all of the properties they manage. This means the condition and operation of your property will continuously improve, giving residents a more fulfilling experience as members of the community.

Customized Software Makes Communication Easier

A property management company won’t use store bought software to manage their online presence. Instead, they will have their own unique applications that make it easier for them to manage the property more effectively. They will also have an online site with an easy to use interface, so tenants and prospective tenants can find the online resources they need. This may involve taking virtual tours, starting the application process, paying rent, or requesting a maintenance call. All of these services and many more can be a part of the web interface that simplifies the overall management of the property.

There are countless more reasons to work with a property management company. Regardless of the needs of your community, this type of service can help make life in your community more idyllic. When you consult with a national property management company, you can learn more about the advantages they will provide to your neighborhood.

10 Commercial Real Estate Trends To Watch For in 2021

While COVID has certainly left its mark on 2020, there is still much to be hopeful for in the commercial real estate field. As we prepare for a new year, we should take a moment to consider the ways in which commercial real estate is already adapting to new challenges. Here are just a few trends to look for in the new year.

1. Open Office Plans

In places like Silicon Valley, open office plans have increasingly become the norm at top companies. Expect the rest of the country to follow suit in 2021.

2. Hybrid Work Environments

The Coronavirus outbreak has shown that working from home is a feasible option for many employees. However, many employers still see value in retaining the team ethos that is central to so many office cultures. Look for a hybrid of the two styles of working to emerge in 2021.

3. Expansion of Company Locations

In places like Silicon Valley, Los Angeles, and Manhattan, rents are becoming unaffordable for even the most promising startup companies. In 2021, expect to see more great startups and established firms stake their real estate claims in cities like Austin, Texas and Provo, Utah.

4. More Onsite Perks

At many leading companies, hiring managers attract top-flight talent by offering a smorgasbord of onsite work perks. Watch for more companies to follow suit next year.

5. International Investment

Even during the recent economic downturn, real estate moguls saw big returns on their property investments. Because many foreign entrepreneurs see American commercial real estate holdings as solid investments, expect property prices to continue to climb throughout 2021.

6. Most Domestic Business Will Come From Existing Clients Until a Vaccine is Released

In the wake of COVID, conversely, few smaller American companies are venturing to rent new properties. However, many investors are seeing steady business from existing clients. Once vaccines are widely available, expect to see more businesses entering the market.

7. Offices in Cool Neighborhoods

In many cities, up-and-coming businesses want to be part of their community’s cultural scene. As social distancing restrictions are ratcheted down after vaccines are distributed next year, expect to see businesses expand their office locations to more arts districts throughout the country.

8. Market Turbulence in Mid-to-Late 2021

It’s no secret that COVID has had a big effect on the global economy. Things aren’t as dire as experts predicted they would be last spring; however, Americans might be reticent to spend money once the collective all-clear is given after a vaccine is released. Of course, another stimulus package might change that.

9. Construction Will Continue to Grow

Six months ago, experts weren’t sure how the construction industry would fare in the wake of growing concerns about the Coronavirus. Thankfully, construction in most areas hasn’t taken too big of a financial or operational hit. With luck, construction companies will continue to expand their operations throughout 2021.

10. More Independent Operators

As a growing field, it is no secret that commercial real estate is attracting a new generation of investors. Expect to see much growth over the next five years as independent operators compete for business in up-and-coming cities across the country.

Plunging Rental Rates and Where They’re Happening in the U.S.

As the COVID-19 pandemic began to wreak havoc on the American economy and millions lost jobs while businesses closed, real estate industry observers expected rental rates to plummet in key cities across the country. So far, this prediction has come true, although not everywhere. The overall rental rate picture is somewhat complex.

In general, rental prices show just a slight fallback when looking at the country as a whole. According to Zillow, the median U.S. rent rate is down 0.03%. That doesn’t seem like much, but it is the largest decrees for a specific time period in two years. The average rental rate is $1,771 per month nationwide.

However, major cities that traditionally harbor the priciest rents are showing a steep decline. The hardest hit cities for landlords have been Washington D.C., San Francisco, Boston, Seattle and Manhattan. San Francisco leads the nation with a 31% drop in median rental rates. Furthermore, four counties in the Bay Area were among the top 10 in the nation for rental rate declines.

Those who have had their eye on a studio apartment in New York City may have an opportunity to finally afford one. Rates for these types of units have dropped by 15%. Overall, rents are down 4.6% in New York. The city of Honolulu has also seen studio apartment rates drop a significant 15%

Boston is the fifth-most expensive city in which to rent among the Top 50 highest-rent cities. Rates dropped by 2.8% making the average in Bean Town now about $2,490.

Some cities have actually seen rental rates rise dramatically in the COVID climate. Tulsa, Oklahoma, had rental rates for studio apartment rise by 36% over the summer months. That’s a dramatic rise, but Tulsa rental is still way more affordable than the highest-rent cities. The average studio apartment in Tulsa can be had for just $745 a month.

Experts point out that there are two distinct rental markets in America — inner-city and “all the rest.” The fact is that rents are only plummeting in major inner-city locations. Because many have been forced to flee their expensive apartments in cities, rental rates are rising prices outside the city as more people are seeking a new place to live.

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