Real Estate’s Long Boom — updated

Experts see rising rents, low vacancies, and decades of strong demand for apartments

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In their just published 2017 US Equity Outlook Goldman, Sachs & Co. predicts the Dow will hit 2400 by end of Q1'17 based on optimistic expectations for new pro-business legislation from the incoming administration. But then in 2H 2017 Goldman sees the Dow pulling back as inflation, reality, and fear set in — closing the year at 2300 just roughly 5% ahead of current levels. You can find a more detailed summary of the GS report here. That’s a lot of volatility. And given the new administration, I would suspect there is plenty more volatility ahead. Further would anyone really be surprised if we see events unfold in 2017 that might trigger a big drop in the markets? For me the prospects for a 5% gain are hardly worth all the downside risk.

Unfortunately, the outlook for bonds and other fixed income is worse. Analysts are actually predicting negative returns — meaning the near-zero rates on bonds will be less than 2% inflation.

So where can investors find solid returns? The good news is in real estate –specifically apartment complexes.

According to a recently published report by widely respected GaveKal Research, apartment complex investors should be excited due to several key statistics:

  1. Rents are rising at 3% YoY
  2. Vacancy rates have seen a dramatic decline
  3. New home construction continues to lag behind demand (new household formation is steadily rising)

As a result, the report concludes, “we suspect vacancy rates will remain low, keeping upward pressure on rents.

Demand for apartments will remain strong for decades

In related news, two separate reports by Joint Center for Housing Studies at Harvard University and Urban Institute found that demographics trends will continue a shift towards lower homeownership for many years ahead. Older households, many of whom own their homes, are being replaced with younger households and minority households, who are less likely to own their own homes. Financing the purchase of a home is difficult, especially for these households for a number of reasons including stricter lending standards and the burden of student debt. According to the reports, this trend will lead to strong demand for apartments for the next 10–20 years.

From 2010 to 2030, new households will choose rental housing over homeownership by a wide margin — Urban Institute

How can you take advantage of this opportunity?

Investing in stocks and bonds is easy. Real estate can be a little more tricky. The big question for many people is “How can I invest in real estate or apartment complexes without becoming a landlord?” If you have the same question, I invite you to learn a little bit about, OpenPath Investments. We have an unique, proven model and 10-year track-record delivering 20%+ IRR. You can visit us at OpenPathInvestments.com. And feel free to contact me directly at david@openpathinvestments.com.

In the meantime, I think you will find this short video super helpful.

A couple other posts that I think you will like:

My Next Google: A perspective from employee 75

The single best investment you can make for 2017

Note: OpenPath investment opportunities are for accredited investors. I am not a CPA or professional financial advisor. All opinions are my own. I encourage you to consult your accountant to fully understand your individual tax situation.

Written by

Investor, Partner, Advisor. First Google Advertising Exec (2000–07), ex-Chicagoan. Now at OpenPath Investments & FullCycle Climate Partners

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