Since many of our clients and visitors have a keen interest in Self-Directed Real Estate IRAs, we thought we’d share a few thoughts on the overall real estate investment climate for the coming year and beyond.
- Technology Centers Will Drive Real Estate IRA Housing Demand. While the U.S. is struggling to remain competitive in manufacturing, technology centers are still strong employers, and will continue to drive economic growth as well as represent significant demand for housing. Places like Northern California, Portland, Seattle and the Research Triangle of North Carolina, among other areas, have been investing heavily in things like public WiFi, livability and walkability and becoming generally attractive to young and skilled workers. These workers will be demanding decent rental properties and will be pushing up rent prices wherever they go – and home values along with them.
- Small towns will lead big cities.
In generations past, young people leaving high school and college would flock to New York, Los Angeles, San Francisco, Seattle, Atlanta and Dallas to find opportunities. But we’re seeing less of that with the current crop of millennials. Many of them, burdened with truly nasty student loan debt levels but with lots of telecommuting technology at their disposal are choosing to stay in smaller cities with more reasonable costs of living, less crime, and closer to home. We believe that returns in smaller towns that are otherwise attractive to millennial workers will reflect this – plus properties are a lot easier to buy with a reasonable amount of money!
- Mortgage rates in Real Estate IRAs will increase. While Federal Reserve chief Janet Yellen announced this week that the Fed will remain relatively dovish for the time being, we already expected that from her. However, dovish policies on short-term rates from the Fed don’t always translate to lower long-term rates. If the bond markets smell inflation, they will start bidding long-term bond prices down and long-term interest rates up. That will affect home mortgages.
Freddie Mac’s analysts are projecting 30-year fixed mortgages to be about 5 percent by the end of the year. That still sounds really low to those of us who’ve been around a while, but still represents nearly a 20 percent increase over current levels!
- Consider Marketing to Senior Renters. Many retirees and near-retirees are checking out of home ownership and going back to renting. Todays’ baby boomers currently entering retirement aren’t behaving the same way as previous generations did, for whatever reasons. According to Multi-Family Executive, 200,000 boomers are dropping homeownership and migrating to rentals ever year for the last several years. Studies also show that by 2023, seniors aged 65 and up will represent half of all growth in the number of renters.
This suggests that demand for rental units near golf courses, beaches and other desirable senior attractions will remain generally strong. It also suggests that 2-3 bedroom units will do well, while younger renters will tend to go for the 1 bedroom and studio units that keep their costs down.
Older renters, however, are moving to lower cost areas, and not necessarily driven by job growth. They will be a significant source of demand in warmer areas like the Carolinas, the Gulf Coast and Arizona.
For specifics on how to use your IRA or other retirement account to fund direct real estate investments, we encourage you to visit our site, www.americanira.com, and download our exclusive Guide to Real Estate IRAs.
Feel free to call us, too, at 866-7500-IRA(472). We work with investors in all 50 states. We look forward to working with you.
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