It is safe to say the year 2022 was not a good one for investors. Annually, the market fell by 16%, and there were multiple bear market lows. When homebuying froze due to high inflation and loan rates, the median house price swiftly dropped to its all-time low. Unfortunately, not every potential landlord has the time, energy, or money to get a rental property up and running. Landlording isn’t always as easy as it seems. One needs to keep up with things like mortgage payments, tenant management, repairs, and taxes. We understand it’s not an easy time to be a real estate investor when there is a lot of competition, as such we’ve developed this piece to help you with the best real estate investments in 2023 and all you need to know about the REIT market.
Reasons Why 2023 Can Be a Terrific Year for Real Estate Investments
For individuals who currently own investment properties, hot real estate markets are fantastic because they benefit from growing values and greater demand. However, now isn’t the best moment to buy new property. When there is a lot of competition, you must contend with numerous offers that frequently go above the price you want to pay. Additionally, it probably signifies that you are paying more for the house.
A real estate investment’s profitability is impacted by a variety of factors, not only price. Demand, cash flow, as well as borrowing costs are other significant variables that directly affect the return on investment. But a significant factor in the equation is the cost. Although prices are currently rising, many analysts and experts believe they will begin to fall in 2023.
According to Goldman Sachs, in 2023, home price growth may sputter to 0%. As long as interest rates don’t continue to rise, demand and prices could increase, according to some economists who are more upbeat.
Already, there has been a noticeable drop in demand, which has reduced market competition. Additionally, there has been a significant increase in inventory, which has slowed the rate of home price increases and is anticipated to continue in the coming year. All indications point to a slowing housing market in 2023, which may or may not be accompanied by a recession. In other words, it can be a great time to buy to acquire rental properties at a discount.
But there are a Few Things to Think About Though
In spite of possible price decreases in the upcoming year, rising interest rates will continue to be a problem. Regarding the federal funds rate’s continued increase in 2023, the Federal Reserve has adopted a hawkish position. Although it doesn’t set mortgage rates, the federal funds rate has an impact on them.
Mortgage rates for a 30-year fixed-rate mortgage for an investment property were around 7% at the beginning of December. If the Fed keeps raising interest rates to curb inflation, it might easily increase by another two to three percentage points in the upcoming year. Greater interest rates result in higher monthly mortgage payments, which reduce the property’s cash flow.
Demand for rentals is also declining. Due to the possibility that the rental rate you acquire in 2023 would be significantly lower than market rents today, investors should as a result exercise extra caution while doing their numbers on real estate investments in the upcoming year.
You shouldn’t let those issues deter you from investing nevertheless. During the Great Recession, the number of rental vacancies and the desire for house purchases both reached one of their all-time lows. However, the years that followed were some of the finest in history for buying real estate. We’re still a long way from a significant housing correction like the one we experienced from 2008 to 2012.
Regardless, the secret is to concentrate on cash flow and risk reduction when you’re purchasing. Over a 10- to the 20-year period, those who bought the property with the long term in mind have profited handsomely, and it’s probable that 2023 will present possibilities similar to those. That being said, let’s look at the 8 best real estate investments or REITS you can consider in 2023.
Best 2023 REAL ESTATE INVESTMENTS
Before listing the best real estate investments to consider in 2023, what is the forecast for real estate in 2023? Truth be told, opportunities will present themselves. However, you should proceed with extreme caution and without first conducting the most thorough research feasible.
The below investments or REITS can provide investors with real estate exposure and stable income, making them a viable alternative to dividend equities and corporate bonds. The top 8 real estate investment trusts for investments in 2023 include;
#1. America Tower Corporation (AMT)
Some of the most important pieces of infrastructure in the United States are the cell towers and data centers that generally power communications networks. These resources are necessary for telecommunications companies to offer their services. No REIT regardless does it way better than American Tower Corp when talking about owning a portion of these facilities and earning money from their lease income. The 220,000 telecom sites in this REIT’s portfolio are located all over the world. In addition, American Tower recently ventured into the 5G industry and acquired CoreSite Realty in November 2021, thereby expanding its data center portfolio.
At the moment, American Tower offers a 3% yield.
#2. King’s Castle Inc. (CCI)
Crown Castle is a rival of American Tower and conceivably a partner in the tax loss harvesting process. With approximately 40,000 cell towers and 80,000 miles of fiber optic cable currently owned, operated, or leased by this REIT across the United States, it also engages in the telecommunications industry. On October 19, the REIT released third-quarter financial 2022 results. The REIT’s yearly distribution yield climbed noticeably by 6.5% to $6.26 per share. This was substantially in line, according to CEO Jay Brown, with Crown Castle’s long-term aim of 7% to 8% annualized return per share growth. Crown Castle has boosted distribution growth at a 9% annual rate since setting this goal in 2017.
Presently, the king’s castle yields 4.7%.
#3. Prologis Inc. (ticker: PLD)
Because of a peculiarity, REITs can interact with various stock market sectors depending on the sector in which their tenants are engaged. Prologis is an illustration of a REIT having connections to the retail industry. Prologis, which has a market value of more than $100 billion, is a major player in the worldwide supply chain sector. Currently, this industry titan in logistics owns and manages 984 million square feet of transportation and delivery facilities. Prologis has had significant, consistent growth as a result of the expansion of e-commerce and shipment from customers like Amazon.com Inc. (AMZN) as well as FedEx Corp. (FDX). Investments in Prologis from January 1998 to the present would have generated an average return of 10.8% with distributions reinvested.
The yield paid by the REIT at the moment is 2.8%.
#4. Public Storage (PSA)
Do you enjoy watching “Storage Wars” on television? Then this REIT is right for you. Public Storage, which now owns, manages, or has interests in around 2,500 self-storage facilities spread across 38 states, is the source of many storage facilities in the United States. Public Storage rents out more than 171 million square feet of space overall. Given that this REIT owns 35% of the common equity of Shurgard Self Storage SA, it also has a presence in Europe on a global scale (SHUR). On December 12, Public Storage reopened a site close to the Apple Inc. (AAPL) offices in Cupertino, California, as part of its ongoing expansion. The size of this new building was expanded from 51,000 to 195,000 square feet, and solar panels were added to emphasize the facility’s greater sustainability.
At the moment, the Public Storage yield stands at 2.8%.
#5. Inc. Equinix (EQIX)
As of December 21, Equinix shares cost more than $660 a share. The REIT’s rapid expansion is the cause of its high share price. As one of the biggest owners of data center locations worldwide, Equinix gained greatly from the development and capitalization of the cloud computing sector. Internet use increased when COVID-19 forced people indoors, fueling an increase in demand for Equinix’s data services. A new data center in South Africa will get a $160 million investment from the REIT as part of its expansion into emerging countries, which has already included the purchase of Main One.
The dividend yield paid by Equinix at the moment is 1.9%.
#6. Realty Income Corp. (O)
Realty Income had already declared a round figure of 630 consecutive monthly payouts during the course of its 53-year existence, and since 1994, it has boosted its distribution 118 times. The revenue flow from more than 6,500 properties, the majority of which are rented to commercial customers, forms the basis of this steady income stream. Walgreens Boots Alliance Inc. (WBA) and, Walmart Inc. is among the most well-known and dependable customers of Realty Income (WMT). The REIT in addition to all said above has also been a long-standing member of the S&P 500 dividend aristocrats club. This, come as a result of its long history of dividend payouts and increases.
Right now, Realty Income yields 4.7%.
#7. Simon Property Group Inc. (SPG)
When the economy is doing well, consumer cyclical stocks can be very successful investments. Increased spending on kinds of stuff like dining and shopping during the many boom cycles can assist these businesses in achieving above-average growth. Simon Property Group is a portfolio of properties involved in industries like retail stores, restaurants, and malls. It generally has significant linkages to consumer cyclical equities. The COVID-19 lockdowns have had a negative impact on the REIT, but investors continue to like it because of its strong payouts and their belief in the inevitable revival of the retail sector. For contrarian investors who don’t see a recession coming, O stock might be a wise investment.
Presently, the real estate investment yields 6.2%.
#8. SBA Communications Corp. (SBAC)
SBA Communications is another top-notch telecom REIT. The United States, Canada, Brazil, Argentina, Chile, Peru, South Africa, and the Philippines are among the 16 markets where SBA now conducts business. The two parts that basically make up the REIT’s revenue streams are site development, where SBA assists other telcos and businesses in developing their own platforms, and long-term website leases for wireless antenna space on multi-tenant towers. SBA reported a 14.4% year-over-year growth in its adjusted funds from operations, or AFFO, during the third quarter of its fiscal year 2022. This metric is significant for REITs since it calculates net cash flow, a key indicator of overall operational effectiveness. SBA’s revenue increased by 14.6% as compared to the same period the previous year.
SBAC currently offers a 1% yield.
While opportunities will present themselves with the above real estate investments in 2023, you should proceed with extreme caution and not without first conducting the most thorough research feasible.
What Are the Four Types of Real Estate Investments?
The steady stream of income that can be generated from real estate investments is a major reason why this asset class is included in the portfolios of many people.
Generally, real estate investments can take four main forms:
- Private equity (direct ownership)
- Publicly traded equity (indirect ownership claim)
- Private debt (direct mortgage lending), and,
- publicly traded debt (securitized mortgages).
What Is the Most Profitable Way to Invest in Real Estate?
Individuals who are considering getting engaged should keep in mind that real estate investing is often a long-term endeavor. Even if interest rates are high right now, it might be best to start saving money for a down payment while awaiting a decrease in rates.
Regardless, here are some of the top most profitable ways to invest in real estate;
- Buy your own home.
- Buy a REIT
- Purchase a rental property and become a landlord
- Consider flipping houses
- Use an online real estate platform.
What Is the 2% Rule for an Investment Property?
In accordance with the “2% rule,” the monthly rent on an investment property should be at least 2% of the price of the property. With a purchase price of $150,000, we may apply the 2% rule and obtain a total of $3,000 in closing costs.
If you want to make money renting out a home worth $300,000, you need to ask for at least $6,000 each month. However, in most major city housing markets, that “2% rule” is simply not viable to meet.
What Is the 50% Rule in Real Estate?
The 50 percent rule isn’t always correct, but it can be a good approach to anticipate expenses for rental property, just like many other real estate investing principles. To apply it, an investor multiplies the gross rental income of the asset by 50% to get the expected monthly operational costs. That seems simple, right?
What Is the 80% Rule in Real Estate?
According to the “80% rule,” an insurer will only completely cover the cost of a home’s damage if the owner has insurance coverage totaling at least 80% of the home’s entire replacement cost.
The 80% rule was developed to assist businesses in determining whether they had unintentionally discriminated in their hiring practices.
What Is the 14-Day Rule in Real Estate?
If you occupy a dwelling unit for personal reasons more than the larger of 14 days; or 10% of the total days you rent it out to others at a reasonable rental rate during the tax year, you are deemed to utilize it as your primary place of residence.
What Is the 30% Rule in Real Estate?
It’s essentially personal finance doctrine to believe that you should set aside at least 30% of your gross monthly income, or your earnings before taxes, for housing expenses. When calculating how much house you can afford, rent calculators frequently utilize the 30% Rule as their default assumption.
What Is the 95% Rule in Real Estate?
Without regard to valuation, the 95% Rule enables investors to identify an infinite number of prospective replacement properties as long as they actually purchase 95% of the total identified value throughout the exchange time.
The overall value of the specified properties may be greater than 200% of the worth of the property that was given up, BUT you must close on 95 % of the entire buildings that have been revealed.
Conclusion
Real estate is a unique asset class that many financial gurus agree should be included in a portfolio with a wide range of investments.
As opposed to other asset classes such as equities, bonds, and commodities, real estate tends to have less correlation with these other assets. In addition to the possibility of capital gains, real estate investments can also generate income through rent or mortgage payments.
However, while opportunities will present themselves with the above real estate investments, you should proceed with extreme caution and not without first conducting the most thorough research feasible.
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