As the impact of the pandemic continues to affect real estate investment opportunities, our team at Diversified Investment Strategies is here to offer you some insight. While some real estate sectors are hurting, others are thriving. This is a great time to consider diversifying your investments, and we are here to help you determine what your best options may be.
Commercial real estate was definitely hit hard from the pandemic, as businesses closed and brick-and-mortar companies tried to find creative ways to reach their customers. At the same time, online shops have accelerated and thrived during this time. Because of this online shift, the future of leases and rented space is unknown. Will companies continue to have a physical office space or business, or will they shift more to online sales or work-from-home options? Time will tell. As this Investopedia article states, “many businesses seem to favor a blended model where the physical office space still plays a role for gathering and sharing ideas in person.”
As the article states, while offices and retail spaces face hardships, some sub-sectors of commercial real estate are surviving and even thriving. These include warehouses related to e-commerce and selling goods online, along with self-storage spaces, and retail spaces that hold grocery stores and pharmacies. Properties serving as data centers are unlikely to be as affected by the pandemic, as there is always a need for these services.
Investopedia believes that once the pandemic is under control, commercial real estate is due for a sharp rebound. People will be wanting to get out of their houses and once again shop, travel and enjoy dining, gyms, entertainment, etc.
In the meantime, diversifying your assets is one of your best options. If you invest in numerous sub-sectors of real estate, the ones that thrive will help you stay afloat from the ones that fall. There are numerous 1031 exchange options that make diversification possible.
Our definition of diversification is this: An investment strategy of allocating proceeds across a variety of assets of products to build a portfolio of investments across unrelated markets, so a downturn in one particular market may not drastically affect the returns of the entire portfolio.
One great diversification option may be a Delaware Statutory Trust, or DST. By investing in a DST, you may spread your equity across geographic locations, leases, tenants, asset classes, property types, etc.
UP-REITS are another great way to diversify your portfolio. You can create a portfolio of properties in different geographic locations, as well as tenant, industry and sometimes asset class diversification.
Give our team at DIS a call to discuss how you may diversify your real estate investment assets during this difficult time. We can discuss 1031 exchange options and see if something like a DST or UP-REIT is right for you. And remember, difficult times don’t last forever. Once things start to improve, only then will we see what the lasting effects are on the real estate industry.
1. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment
risk.
There are material risks associated with investing in DST properties and real estate securities including liquidity, tenant vacancies, general
market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental
rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties,
financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the
entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, returns and appreciation are not
guaranteed. IRC Section 1031 is a complex tax concept; consult your legal or tax professional regarding the specifics of your particular
situation. This is not a solicitation or an offer to sell any securities. DST 1031 properties are only available to accredited investors (typically
have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last three years) and
accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and
Attorney.
A REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages.
REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.
There are risks associated with these types of investments and include but are not limited to the following: Typically no secondary market
exists for the security listed above. Potential difficulty discerning between routine interest payments and principal repayment. Redemption
price of a REIT may be worth more or less than the original price paid. Value of the shares in the trust will fluctuate with the portfolio of
underlying real estate. Involves risks such as refinancing in the real estate industry, interest rates, availability of mortgage funds, operating
expenses, cost of insurance, lease terminations, potential economic and regulatory changes. This is neither an offer to sell nor a solicitation
or an offer to buy the securities described herein. The offering is made only by the Prospectus.
Diversified 1031 does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.
Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Diversified 1031 is independent of CIS.
Bryan Hakola
Diversified Investment Strategies
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