As many as 10,000 baby boomers retire daily. Members of this generation are increasingly looking to real estate to diversify their retirement portfolios and boost returns.
Many boomers have realized their retirement plans are not sufficient and have turned to alternative investments, such as real estate, to compensate. About 30% of baby boomers have no retirement savings and one-quarter have less than $50K saved, according to research by GoBankingRates.
These boomers, who were born between 1945 and 1964, survived the Great Recession and were raised by parents who survived the Great Depression. They have been employed in a world where pension funds are growing less common and employer-led 401(k) retirement accounts are increasingly more common.
Paying For Predictability
“The alternative investment world doesn’t become more popular until it’s time for people to retire,” The Entrust Group Director of Professional Development John Paul Ruiz said. Entrust provides services for self-directed individual retirement accounts (IRA), which, unlike typical IRAs, allow for alternative investments like real estate. Retirees typically want their investments to become more stable before making withdrawals.
“Many of our clients think, ‘What other types of investments can I hold in my IRA that are outside the securities world because I can’t handle another crash?,’ Ruiz said.
U.S. home prices rose 6.8 percent to a median sale price of $288,000 in May, according to national realtor Redfin. Home sales increased 7.5 percent over last year, despite a long-standing shortage in the supply of homes. The number of homes for sale fell 10.9 percent, leaving just 2.7 months of supply, the lowest supply Redfin has recorded since we began tracking the market in 2010. Six months is generally considered a market balanced between buyers and sellers.
The typical home that sold in May went under contract in 37 days, breaking the previous record of 40 days set in April. More than a quarter of homes sold above their list price, the highest percentage Redfin has recorded. The median sale-to-list price ratio set another record, hitting 95.4 percent in May.
(Read the full report here.)
“There is still a lot of momentum in home prices in many metros, not only on the coasts but also in places like Buffalo, Grand Rapids and Omaha,” said Redfin chief economist Nela Richardson. “Strong local economic growth and burgeoning demand from older millennials are accelerating home-price growth in this very competitive, low-inventory pre-summer market. The Federal Reserve’s latest announcement to raise short-term rates will have very little effect on buyer demand or on the overall housing market. If anything, it may motivate buyers to make their purchases sooner rather than later.”
Open house visits are a fun way to explore a property, but when you go for a visit, you have to imagine what it might look like with your own furniture, setup and style. You may know the space is a great fit for your needs, but the current owner’s furniture, staged furniture or empty rooms might not be conducive to really understanding what the home would look like if you moved in. Thanks to new developments in real estate tech, the days of imagining may soon be behind us.
Now technology is looking to fill this imagination gap through the use of virtual and augmented reality, giving buyers and sellers a new way to experience properties. As a real estate industry executive, I take an active interest in any technology that improves the overall customer experience in real estate. Here are some of the companies worth keeping track of as they continue to innovate with technology.
Immerse Yourself With Matterport
Property photos have been a key part of property marketing for decades, but thanks to advances in video and internet technology, there is no need to view properties in only two dimensions.
The classic financial benefits derived from small business ownership typically fall under two categories:
1. Earned income: salary and bonuses reported on a W2 each year.
2. Unearned (investment) income: distribution of profits from the operation and/or sale of the business.
But there are other small business ownership advantages that I call “stealth benefits,” because they’re not as evident as operating opportunities. Arguably the most dramatic stealth benefit, which often has the most wealth creation potential, is for the business owner to also personally own the real estate in which that business operates.
Here’s the classic scenario: Every business is a tenant of some landlord, likely under the terms of a commercial lease. There are many financial and strategic reasons for a small business to lease property from an unrelated landlord. But that arrangement offers the business tenant only tax deductions of the lease payment and associated disbursements, and essentially no financial benefits for the owner of the tenant business.
Now let’s consider the stealth benefit mentioned earlier. As long as the business you own is legally structured as a tax reporting entity, like an S Corp or LLC, you can accrue stealth benefits by personally owning the real estate your business operates in and leases from you. For example: Smith Enterprises, Inc. (SEI), a small manufacturer, has one shareholder, Tom Smith. SEI enters into a long-term, formal lease of the improved real estate it operates in, and the landlord, the individual who owns that property, is the same Tom Smith. Several of the stealth benefits these two entities accrue from this legal arrangement include, but are not limited to:
What is 'Real Property'
Real property, also referred to as real estate, realty or immovable property, is any property attached directly to land as well as the land itself. It is any subset of land that has been improved through legal human actions. Real properties include buildings, ponds, canals, roads and machinery, among other things.
BREAKING DOWN 'Real Property'
Real property is composed of any designated portion of land and anything permanently placed on or under it. The elements on or under the land include natural resources and/or human-made structures.
Owning real properties involves different types of estates, which define the rights of the owner to use, transfer and/or sell his real properties. These estates are recognized by the law. The kind of estate depends on the terms of the lease, deed, will, land grant and/or bill of sale through which the estate was received.
Fee simple ownership, also called the fee simple absolute, is the most common type of freehold ownership on a real property. This is the highest possible type of ownership interest that can be owned by a real property holder. Those who own properties under this type of ownership have the right to sell the house, leave it to their beneficiaries or make changes, even if they still owe money on their mortgage. These rights are bounded by government powers of compulsory purchase, taxation, escheat and police power.
Read more: Real Property http://www.investopedia.com/terms/r/real-property.asp#ixzz4i1Yri0WD
Americans have stashed the majority of their investment dollars in the stock market over the years. But there may be a new trend on the horizon. In 2007, nearly two-thirds of Americans were investing in the stock market; last year, just over half did. A new generation of investors may be turning to real estate instead.
RealtyShares recently teamed up with Harris Interactive to put out the Real Estate Investing Report, surveying Americans on their investment preferences. And according to the survey results, 55 percent of millennials are interested in investing in real estate, the highest percentage of all demographics questioned. Research from Fannie Mae supports these findings, reporting that 85 percent of millennials think real estate is a good investment. With such a strong preference for real estate, it is important to understand why millennials are interested and how they may invest in the future.
Why is it important? Well, last year, millennials became the largest generation of Americans. According to a recent Pew report, there are 75.4 million millennials compared with 74.9 million baby boomers. As the largest age group in America, millennials will have the greatest ability to shift the market as their net worth builds, rendering it key to take note of millennials’ views on real estate and investment opportunities overall.
Homeownership among African Americans has declined to levels not seen since before passage of the Fair Housing Act of 1968, a major concern among economists and financial planners. Chief among the long-term concerns is the impact this black homeownership trend will have on the already grim outlook for African Americans and their preparation for retirement.
Black people are moving into homeownership at a much slower rate than anything we have seen in the past,” says Laurie Goodman, co-author of the Urban Institute’s recent report, “Are Gains in Black Home Ownership History?” and co-director of the Urban Institute’s Housing Finance Policy Center.
Black Homeownership Gains Erased
In the three decades after the Fair Housing Act passed, the black homeownership rate in America rose by nearly six percentage points, the Urban Institute report said. But from 2000 to 2015, that gain was more than erased as the black homeownership rate dropped to roughly 41%. By contrast, the homeownership rate among white Americans is about 71%.
“Gains in black homeownership have been hard won, which amplifies our concern that in the last 15 years, black homeownership rates have declined to levels not seen since the 1960s, when private race-based discrimination was legal,” says the report.
The black community got hit harder by the housing crisis than other groups. In general, African Americans bought homes at the peak of the bubble at higher rates that whites and were often offered costly subprime loans, even when they qualified for prime loans with lower interest rates. Also, black families did not benefit as much as white families, overall, from the post 9/11 recovery.
The country’s largest Ivy League endowment wants to sell around $2.5B in real estate assets and private equity investment as it continues to try and redefine itself.
A person familiar with the matter said Harvard Management Co., the unit that manages Harvard University’s $35.7B endowment, hired Cogent Partners to market $1.6B of real estate and nearly $1B of venture capital and private equity investments, Bloomberg reports. The move follows the endowment’s decision earlier this year to transfer its real estate investment team from Harvard Management to an external manager.
Harvard’s endowment has been facing some headwinds as of late, having underperformed its peers last year, reporting a 2% annual investment loss for the fiscal year ending in September. This sale could represent a shift in strategy as Harvard Management’s newest CEO, N.P. Narvekar, tries to turn things around.
Governments own and lease more commercial real estate assets than any other entity around the world. The trouble is no one knows exactly how much. Two new tech companies are working to make it easier for real estate professionals to discover and work with government assets.
PublicAssets founder and CEO Skip Rudolf said the government commercial real estate market is about 15% of the total industry in the U.S. and is extremely active. San Francisco-based PublicAssets has about 5.5 million records in its database of government assets spanning the federal government, all states and the top 200 cities with a population of more than 50,000.
Sub-federal, or government entities not part of the federal government, own about 6B SF to 7B SF, or about 70% of what the federal government owns. The City of New York owns 450M SF. Among the assets of the Port Authority of New York and New Jersey is the iconic One World Trade Center.
Chicago owns 74M SF, Philadelphia has 35M SF and San Jose owns 125M SF of buildings and land, according to Rudolf. Comparatively, the federal government owns about 270,000 buildings and 2.8B SF. In the U.S., 95,000 governments, special authorities and special districts own more than 3 million buildings and 650 acres of commercial real estate, which includes offices, stadiums, warehouses, hospitals and parking lots.
Mall owners are making the best out of a bad situation. The seismic shift in consumer preferences has rocked the retail industry to its core, resulting in more than 36M SF of department store space that will be vacated this year. But department stores’ loss is mall owners’ gain. Landlords are profiting off the closures by bringing in entertainment, fast-fashion, and food and beverage tenants to fill the space — and they are getting quadruple the rental income.
In addition to finding more experiential (and thus more appealing) tenants to take the place of department stores like Sears, Kmart and Macy’s — which will close a collective 300-plus stores by the end of the year — mall owners are charging replacement tenants three to four times the amount of rent they were receiving from department stores, according to a recent JLL report. “The way it works when developers build a center is department store anchors are a must-have,” JLL director of retail research James Cook said, adding that these anchors tend to pay cheaper rents because they are in such short supply. “Rent is low compared to what a new retailer will pay.”
Cashing In Such is the case for Seritage Growth Properties. The REIT, which owns 266 properties formerly held by Sears Holdings, is monetizing vacant boxes by redeveloping and re-leasing the spaces to new tenants. On average the REIT is receiving 4.4 times the previous rental rate from these new occupiers. Where Sears Holdings was paying $4.40/SF, in-place third-party tenants are paying $12.74/SF and soon-to-occupy tenants will be paying an average of $18.55/SF, JLL reports. As of March, 57% of Seritage’s portfolio was leased by apparel, restaurant and entertainment tenants.