Passive monthly income—in particular, real estate rental investments—are on the rise for investors of all levels. Let’s face it: Gen Z doesn’t even know what a CD (that is, a certificate of deposit—to them, an outdated form of storage) is, and millennials and boomers know way better than to keep their savings in a bank. So, if you don’t have the stomach for the markets, real estate may be the place to be.
Real estate has worked for the rich (read: family offices and other ultra high-net-worth people) and institutions (from college endowments to public pensions) for decades, if not centuries. Thanks to deregulation, it is now open to everyone.
Today, real estate developers and funds can raise capital directly through the public. Investors don’t even need to be accredited because they can invest in publicly-traded structures such as REITs, and now through public offerings of private shares in a structure called Reg A+—Google it, ask your lawyer, or call us for an explanation—through which anyone over 18 can buy shares in a project or fund.
What types of investments and structures are raising capital successfully and why?
Multi-family housing (apartments for us regular folks) is an easy investment choice for lots of investors, considering they don’t have to be rich and get some friends to buy and manage a building together. A whopping 91 of the top 100 housing markets have experienced rent increases in the past year.* It makes sense—who wouldn’t want income from something they can see, touch, and feel? Rent maintains the building, and what’s left over (profit) goes toward a passive stream of income—more than what anyone can earn by simply putting your money in a bank.
That being said, timing is everything. If you jumped into rental investments in 2007, you might have suffered the consequences in 2008. However, if your property remained occupied in 2008-9, your building would most likely be worth more today than at its peak in 2007—and that’s on top of the income earned over 10-12 years. A big win for everyone!
Now, let’s talk about a second (and perhaps more boring) segment of real estate: industrial properties, or warehouses. The real play here for good marketers is e-commerce. This is not a hard investment thesis to explain, especially in locales with no more land available or in places with growing affluent communities.
More people are purchasing their stuff competitively priced online. Look around your office or home. What do you own that didn’t go through a warehouse? As web sales and the Internet marketplace continue to grow, both single- and multi-tenant warehouses may remain a profitable investment, with the e-commerce giant Amazon leading the way. Indeed, plenty of family offices and institutions have made considerable profits in both of these subsectors over time.
What might we expect next? Retail growth has slowed in the last five years, while global e-commerce sales continue to accelerate, exceeding $3.5 trillion and expected to double by 2023.** Don’t think you’ve already missed out: e-commerce is experiencing unprecedented growth, which may continue—it only comprises 14.1% of global retail sales.
One of the reasons Amazon has done so well is its industrial real estate holdings—in other words, it owns or has triple net leases on many of the warehouses that fuels its day-to-day operations (as do other large web players like Wayfair and Home Depot). More and more investors are looking to capitalize on this growth by turning to real estate. Blackstone, for instance, paid $18.7 billion for a collective 180 million square feet of warehouses used by Amazon and other retailers, marking the largest private real estate transaction to date.***
These are just two of the real estate sectors E5A has supported in raising capital. Marketing to institutions, financial advisors, RIAs, qualified and accredited investors, and the ever-powerful mass affluent is always nuanced. The approach we take to reach each segment is systematic and data-driven.
Our job is easier because of the long-term low-interest-rate environment. Investors of all types are starving for yield. We know how to get to them, and we work hard to understand their motivations and requirements for liquidity, time horizon, current income, and long-term IRR projection.
The big marketing questions involve how to structure the best deal for issuers and investors alike, and which investor segment(s) you are trying to reach and why. We may have some of those answers.
Data Sources:
*Apartment List
**Shopify
***Investopedia