A health and economic crisis is scaring nearly everyone right now, including investors. Stocks recovered in record time, but what about investments in real estate? Are they doomed, or is the bad news perhaps a bit overblown?
I invest in real estate through Fundrise, which allows me to spread my money across many projects nationwide. I prefer this to the concentration risk I would face in, for example, owning an apartment building in New York City, where a recent rent law change has substantially reduced the value of buildings.
But regardless of how diversified you are, the pandemic is impacting all aspects of life…and business. So I set out today to gain more understanding of how these changes would affect my real estate investments.
The national picture for apartments, which is most of what Fundrise owns, is surprisingly good. Vacancy rates in major markets including Dallas, Los Angeles and Washington DC, all areas where Fundrise has many buildings, are not all that elevated. This squares with my returns in Fundrise, which were over 7% in 2020 despite just about the worst market conditions imaginable.
Indeed, despite the strong and sustained lockdown measures in LA, its vacancy rate is comparable to that of Dallas, an area that locked down a lot less. Dallas, LA and DC all have a vacancy rate around 5%. Only LA is materially above its Q1 2019 vacancy rate, and keep in mind that LA has had a serious housing crisis for many years.
Of these three markets, LA definitely concerns me the most, with higher unemployment. But prices have held up so far.
So, what’s the upshot? National unemployment is up but still not extremely high, and the higher end apartments Fundrise tends to own are less likely to be occupied by those in leisure/hospitality, who may struggle to pay their rent right now. Add that to the fact that more vaccines are being deployed daily, bringing the beginning of the end of this health crisis.
So, I see the outlook for residential real estate investments as fairly bright, all things considered. To sell now in the face of slight weakness and a coming end to the pandemic simply wouldn’t make sense.
I intend to sit tight.
Note: If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account. I will also get a fee waiver for 90-365 days, depending on what type of account you open.
Photo: “Boarded up & masked – 10th Avenue, New York City” by Andreas Komodromos is licensed under CC BY-NC 2.0