The best words to summarize the real estate investing landscape halfway through 2024 may be “cautiously optimistic.” While home price increases have slowed since the madness of 2022, so has inflation, which should help reduce the costs of construction. The Federal Reserve’s pause on interest rate hikes also helps make mortgages more affordable for real estate investors.
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If you’re feeling cautiously optimistic about the future of real estate or just want to add some stable income to your portfolio, here are experts’ top picks for real estate investments in 2024:
— Real estate investment trusts (REITs).
— Multi-family homes.
— Green properties.
Real Estate Investment Trusts (REITs)
There are two broad ways to access the real estate market. “The first is directly, through owning your own direct rental property or some kind of private equity deal, both of which are tremendously illiquid,” says Chris Berkel, investment advisor and president of Axis Financial.
The second, more liquid — and arguably simpler — method of real estate investing is through a REIT. These are companies that own, manage or finance income-producing real estate and are required to pass 90% of their income onto investors as dividends.
REITs can be private or publicly traded. Investors can purchase shares in the public versions on the stock market exchanges.
It’s important to note that every REIT is different. “Some will use massive amounts of leverage to try and boost returns through yields to attract yield-seeking investors,” Berkel says. “This may work but could also dilute shareholder equity and create a situation where the total return ends up being negative.” So, pay attention to management’s strategy before investing.
REITs can also focus on different segments of the market. For example, some own only data centers or retail shopping malls, while others can take a broader approach by investing in a variety of real estate properties.
“For people who lack the ability to really dive into the nuances of those types of investments, it may be better to focus on macro themes that seem to be accelerating, like the move toward a more digital future — whether that be data centers and data transmission REITs or something else,” Berkel says.
Now might be a particularly good time to invest in REITs given 98.6% of stocks classified as REITs by Morningstar are trading below their fair market value, as of mid-June.
[READ: 7 Best Balanced Funds to Pick Right Now]
Multi-family Homes
Multi-family homes are among best real estate investments right now, according to Mark Charnet, founder and CEO of American Prosperity Group.
Having multiple tenants is diversification under a single roof. It reduces the risk with single-family homes that your sole tenant may not pay. You can also get a better rate of return with multi-family homes than single-family ones, Charnet says.
The downside to multi-family homes is that they require a higher financial outlay initially compared to single-family properties. This can be especially challenging given Charnet recommends putting at least 20% down so “the bank will lend the balance without hesitation.”
Just remember this is a long game and not a rapid sale opportunity, he adds. And treat the rental property as if you’re planning to live there so you can command a higher rent.
If you’re new to real estate investing, consider hiring professionals to find tenants for you, Charnet adds. The tenants would be obligated to pay the realtor fee — typically one month’s rent — for the service, not you, he says.
Green Properties
Climate change is of increasing concern for real estate investors. Properties that aren’t adequately prepared for future weather patterns face higher risks of damage and higher insurance costs. There’s also the risk that ill-equipped properties will become less desirable over time and lose market value, according to an Urban Land Institute report.
The good news is identifying green real estate investments is becoming increasingly easy to do. There are green REITs that focus on sustainable properties. Examples include Hannon Armstrong Sustainable Infrastructure Capital Inc. (ticker: HASI), Americold Realty Trust Inc. (COLD) and Prologis Inc. (PLD).
ESG real estate funds are another option. These make sure the holdings adhere to certain environmental, social and governance standards. Examples include the Nuveen Global Real Estate Securities Fund (NGJIX) and Calvert Global Real Estate Fund (CGEIX). Note that funds will differ in their screening criteria so be sure to read the prospectus before investing.
If you prefer to invest in physical properties, look for ones with certifications like LEED, BREEAM or Energy Star. These indicate the property meets high standards for energy efficiency, environmental impact and sustainability. Even if the property isn’t up to par currently, it may be worthwhile to invest in green upgrades.
Property Investing Considerations
Before you jump into an unfamiliar pond because the population growth looks promising, consider that every real estate market is unique. Other factors can affect the viability of a market area.
“Never underestimate the cost of a vacancy factor and the cost of repairs,” Charnet says. Investors oftentimes prepare to cover the cost of the property, but neglect the costs that can affect cash flow. Just like rental income, the cost of a water heater, new roof or siding can vary depending on location.
Sometimes the best option sits close to home. That way, you can independently manage your rental property and reap maximum benefits.
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Best Places to Invest in Real Estate in 2024 originally appeared on usnews.com
Update 06/20/24: This story was previously published at an earlier date and has been updated with new information.
