Some of the mistakes that many real estate investors make are that they often underestimate the risks involved, they overestimate the financial returns that they are expecting to roll in, and they forget to take into consideration the responsibilities that are involved in making this investment lucrative.
Several studies have revealed that publicly listed Real Estate Investment Trusts (REITs) are outperforming private real estate over multi-decade time periods.
REITs get to enjoy significant economies of scale; they get management from industry experts, have massive investment capital available to them, as well as relationships with tenants.
But even with all of that said, it still doesn’t mean that all rental property investments are bad news for private investors and are still a potentially great investment in 2022.
Below you will find several reasons for investing in vacation rental properties in 2022.
The Diversification Benefits are Becoming Increasingly Valuable
As the economy continues to be volatile since the COVID-19 global pandemic ripped through the world, investors need to make sure that they are financially diversified.
Unfortunately, bonds and treasuries tend to yield next to nothing even as inflation is surging and stocks have been all over the place. Even REITs have also become increasingly volatile.
But adding rental property to your portfolio may help you mitigate risks by not having all of your money at the mercy of a potential stock market crash.
In all honesty, this doesn’t exactly mean that a rental should be viewed as a bullet-proof investment. But, by having some of your assets out of the stock market can decrease your portfolio risk during these times of massive uncertainty.
Highly Leveraged Bet on Inflation
In 2021, the United States housing market ended with home prices hitting record highs month after month and sales numbers soaring at their highest levels in 15 years.
But the Federal Reserve has stated that there will be rate hikes for 2022. Mortgage rates don’t necessarily rise right along with Federal moves; the National Association of Realtors has already made the prediction that the 30-year fixed mortgage rate in the U.S. will grow to 3.5%.
Even with that still being fairly low, upward movement will still add to the affordability issues that already appear to be slowing down sales growth. Investors should be aware that they could have fewer buyers available for their properties.
Single-Family Rentals Are Investing Sweet Spot
According to Zillow Research, for-sale home prices rose by a whopping 19.5% during the year 2021, with an increase of another 11% in 2022, even in spite of the probability of higher mortgage rates.
This is pricing many young families who are looking for single-family homes right out of the market.
The single-family rental (SFR) sector seems to be driven by large institutions that see a long-term investment opportunity with a surge of professionally-managed portfolios of homes.
Blackstone is one of the largest real estate investment firms in the United States, sponsoring a new Real Estate Investment Trust that is focused on single-family rentals.
In fact, shockingly enough, here to stay, as evidenced by the fact that 18% of the single-family homes sold in the third quarter of 2021 were sold to investors.
The National Association of Realtors has actually forecasted that the vacancy rate will tighten up even more to 4.8% in 2022 (5.1% in 2021) and rent increase to go up on average by 10% (7.8% in 2021).
One of the main reasons for this is that the rental market upswing is the work-from-home trend stemming from the global pandemic.
When workers figured out that they could work from anywhere that they could, they enjoyed the flexibility to move out of the high-cost-of-living markets to more lifestyle-friendly areas of the country.
Homebuilders Will Continue to Succeed
With the Census Bureau reporting that housing starts in November 2021 were at levels that hadn’t been witnessed since the 1970s, and permits for starting and completing houses continued to post year-over-year increases, investors may seriously consider buying the stock of major builders.
Continuing Sinking of Office Real Estate
The expectation was that 2022 would be a banner year for office real estate to make a rebound. But unfortunately, that desire has been pushed back further by reactions to the variants of the COVID-19 virus.
White lab coat space (life sciences) will continue to be in demand, but for white-collar workers and the landlords who need them as tenants, the next year looks like it could be another waiting period.
Industrial Real Estate Presents Growth Opportunities
Industrial real estate, particularly that which is dedicated to logistics, will continue to be hot as any segment of commercial real estate that is accessible to everyday investors.
What exactly is driving this surge? Virtual shopping and e-commerce and the supply chain issues push people to buy items in advance of needing them to use these warehouses, creating investment opportunities.