Diversifying with Online Real Estate Investments

2021 has been good to investors so far. Our main equity investment, the Vanguard Total Stock Market Index fund, already increased over 13% this year. That’s an amazing performance considering how much the stock market already went up in 2020 (18%). This is great, but there is a downside too. Now, I think the stock market is overvalued. I plan to stay invested, but I’m hesitant to buy more stocks right now. I don’t want to hold a lot of cash and bonds either. The returns are still nearly zero. That’s why I’m planning to increase my investment in real estate this year.

Real estate is a proven way to build wealth. However, I don’t want to be a landlord anymore. It’s stressful and can be a lot of work. Also, we plan to travel much more in the coming years. I can’t fix stuff when I’m out of town. That’s why we’ve moving our money into a more passive investment – real estate crowdfunding. In addition to being less stressful, it provides diversification for our investment portfolio. Real estate is a great alternative to the stock market.

Today, we have a guest post from CrowdStreet, our partner. They’ll share some locations that will be good for real estate investment in 2021. That’s another great thing about real estate crowdfunding. You can invest in many different locations for geographic diversity. Check it out!

Diversifying with Commercial Real Estate Investments

If you’re ready to diversify your portfolio beyond stocks and bonds, real estate is one of the most popular alternative investments. Real estate is now the third-largest asset class in the U.S., and the opportunities for investors are far more wide-ranging than you might think.

When people think about investing in real estate beyond their primary residence, flipping houses or buying rental homes are often the first things that come to mind. However, online commercial real estate investing platforms like CrowdStreet offer a much more hands-off approach, as well as greater opportunity for diversification and a lower barrier to entry than purchasing single-family residential assets.

Commercial real estate—or CRE—means just that: real estate intended for a commercial purpose. Your local grocery store, the apartment complex down the street, the warehouse where your Amazon packages are sorted are all examples of assets that fall under the CRE umbrella. 

CrowdStreet’s award-winning online investing platform offers accredited investors direct access to real estate investment opportunities like these across the U.S. This gives investors the ability to pick and choose deals that fit their unique investing criteria, and ultimately create and track a real estate portfolio diversified across a variety of industries, locations, risk profiles, and more.

What Cities are Good for Real Estate Investing Opportunities?

When it comes to evaluating deals for your real estate portfolio, the old adage of “location, location, location” still rings very true. A commercial asset’s location has a big influence on its potential for success in the same way as neighborhood and school district affects your home’s value. 

That being said, investors should definitely consider much more than just residential property values when evaluating a commercial real estate investment opportunity. The demand for different types of commercial properties will vary from metro to metro, and even between neighborhoods. A last-mile distribution center for e-commerce deliveries, for example, will need a very different location to be successful than a grocery store. CrowdStreet is constantly looking for properties in cities where demand for that asset outstrips supply, creating opportunities for investors.

To help investors better understand the factors influencing different locations and property types, CrowdStreet recently published their 2021 Best Places to Invest report, which outlines their top markets nationwide. The report also includes rankings broken down by asset class.

Here are four cities that made the grade for the top 20 markets list:

Phoenix

2020’s rapid shift to remote work for many professionals launched an exodus from urban California locations, and Phoenix was one of the top beneficiaries of the shift. Arizona as a whole ranked #5 for inbound moves in the Annual 2020 United Van Lines Moving Study, boosting Phoenix’s pre-existing demographic trends and underlying fundamentals to make it CrowdStreet’s top market in the West.

This influx of population to the Phoenix area put it in the top 5 markets for all three of CrowdStreet’s multifamily lists (new development, acquisition of existing properties, and the Build-to-Rent subcategory) and Arizona as a whole is listed as the #2 location for manufactured housing. Phoenix also made the cut for industrial properties and hospitality.

Create a free Crowdstreet account and get a copy of the 2021 Best Places to Invest report to see the entire list, as well as their favorite markets by asset class.

Nashville

Nashville’s 10-year growth puts it into one of CrowdStreet’s top markets, and the city government predicts the population will see a 50–75% increase by 2040. And where people want to be, opportunities generally follow. These demographic trends make Nashville a prime market for multifamily investment, with rents in the area continuing to grow 4% year-over-year. CrowdStreet ranks Nashville #2 in their list of best cities for new multifamily development and #9 for acquisition of existing multifamily properties.

As a popular tourism destination, Nashville also sits #6 on CrowdStreet’s hospitality list. Despite the COVID-19-induced damage to Nashville’s tourism sector last year, recovery is already underway. A major airport expansion is due to open in 2023, including new direct flights to and from Europe. Domestic travel is already trending in a positive direction, so Nashville’s tourism industry looks poised to recover and reach record levels of visitors as vaccination rates continue to rise at home and internationally.

Denver

Denver’s housing market is on fire, setting and breaking all-time median price records multiple times this past year. Denver’s trajectory fits in perfectly with CrowdStreet’s “18-hour city” strategy, which focuses on growing secondary markets. Denver is also benefiting from the overall pandemic-era boom in the Mountain West, driven by remote workers leaving higher cost of living areas like the Silicon Valley. This makes Denver one of CrowdStreet’s overall top choices for investment. In particular, the very tight housing market makes Denver one of their top choices for multifamily development and Build-to-Rent, a newer property type that takes the best aspects of single-family rentals and upgrades the experience by developing all homes inside a professionally managed community with high-end amenities.

Orlando

Even more so than Nashville, Orlando’s status as a tourism giant makes it a top market for investment. The city had a record 75 million visitors in 2018, making it the #1 tourist destination

in the U.S.. While COVID-19 devastated the Orlando tourism market, the post-vaccine landscape is very bright. The window of opportunity to buy low on a hotel property in the area is likely closing swiftly.

The tourism industry drives demand for more than just hotels—employees of its theme parks and attractions need affordable housing, putting Orlando at #8 on the multifamily acquisition list. It’s also home to one of the nation’s largest universities, the University of Central Florida, which makes student housing an especially attractive asset class.

Create a free Crowdstreet account and get a copy of the 2021 Best Places to Invest report to see the entire list, as well as their favorite markets by asset class.

CrowdStreet is a content partner of Retire by 40. 

This article was written by an employee of CrowdStreet, Inc. (“CrowdStreet”) and has been prepared solely for informational purposes. The information contained herein or presented herewith is not a recommendation of, or solicitation for, the subscription, purchase or sale of any security or offering, including but not limited to any offering which may invest in the geographic area(s) or asset type(s) mentioned herein, whether or not such offering is posted on the CrowdStreet Marketplace. Though CrowdStreet believes the information contained and compiled herein has been obtained from sources believed to be reliable, CrowdStreet makes no guarantee, warranty or representation about it. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the subject thereof. All projections, forecasts, and estimates of returns or future performance, and other “forward-looking” information not purely historical in nature are based on assumptions, which are unlikely to be consistent with, and may differ materially from, actual events or conditions. Such forward-looking information only illustrates hypothetical results under certain assumptions.

CrowdStreet is not a registered broker-dealer or investment adviser.  Nothing herein should be construed as an offer, recommendation, or solicitation to buy or sell any security or investment product issued by CrowdStreet or otherwise. This article is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate.

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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13 thoughts on “Diversifying with Online Real Estate Investments”

  1. I have approximately half of my funds in Trust Deeds, and the other half in mix of VTSAX and bonds. If you can find a local, trustworthy private money broker, I personally have a lot of faith in Trust Deeds. I’m super conservative when it comes to lending, and here are my three rules – 1. Always be in first position, no junior debt. 2. Keep your leverage low. Don’t over over 60% of the property value. 3. Location, location, location. 4. Look for strong, credit worthy borrowers. I personally don’t like fix-and-flip deals, and patiently wait for very low leverage stuff. When it comes to finding a company to invest with, look for someone who has been doing this for a long time. If they weathered the 90s and the great recession, they know what they’re doing. And stay away from funds – invest in a deal, not a fund.

    Reply
    • Thank you for sharing your experience.
      Your advice about investing in a deal, not a fund is gold.
      I think the key is also finding a trustworthy partner. That’s the most important and difficult step.

      Reply
  2. REIT such as VNQ has a beta value close to 1. Not sure it would be a good alternative if you want to diversity away from equity.

    I think I will stick with the tried-and-true method of rebalancing between bonds and equity. This article hasn’t convinced me otherwise.

    Reply
    • We usually rebalance into bonds as well, but the interest rate is so low right now. Real estate generates more cash flow and probably higher total returns. The risk is higher, though. We cap our alternative investment allocation at 10%. I think that’s a good percentage. We can learn and limit our losses.

      Reply
  3. I think there might be a good argument for these over VNQ which is more diversified, but I’m not sure what it is. I guess if you want to invest hyper-locally like picking specific stocks it could be a good fit.

    I would say that the real estate market is more overvalued that the stock market lately. I have a rental property that has gone up 15% in the last 6 months. That’s a lot, especially with leverage.

    Reply
    • Here are some arguments.
      – VNQ tracks equity pretty closely. It crashed at the same time and didn’t come back as strong.
      – VNQ includes mortgage REITs. I don’t like them.
      – VNQ can be pretty volatile as we saw in 2020. A good commercial real estate investment is long-term (at least 3-5 years) and it’s usually more stable.

      You’re probably right about the housing market. The housing price went up so much in the last 12 months. I’m not sure about commercial real estate, though. There were some really good deals last year.

      Reply
      • I’m very wary of commercial real estate right now. Two big reasons, first there are a lot of jobs that might switch to working from home and this will decrease office space demand. That results in a lot of empty office space and will hurt commercial real estate values and profits. Second is that hte pandemic has not been kind to many small businesses which have shut their doors which also leads to more empty commercial space. I don’t know what the end result to commercial real estate prices and profits will be. Things might crash and take years to recover.

        Reply
        • I agree about office space. That’s risky right now.
          These days, I only invest in apartment renovations and senior housings. Those projects are doing quite well.
          Rent will keep increasing to catch up with the housing market, IMO.

          Reply
      • These are all good points. I just don’t know if I have the expertise to choose the successful projects. I wonder if there’s a long-term commercial real estate bond ETF that would grab a good basket of these investments.

        Reply
  4. During times of higher inflation, RE has historically done fairly well. It’s probably a smart idea to diversify away from the stock market a little.

    That said, don’t forget about REITs! They’re an easy way to invest in real estate.

    Reply
    • We have plenty invested in Vanguard’s REIT index fund. However, it tracks the stock market too much.
      I don’t think it’s a great diversification anymore. It reflects the companies more than real estate, IMO.

      Reply

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