How to Diversify Your Portfolio With Real Estate This Year
Last updated: 04.07.2022
Real estate investments are a powerful way to strengthen and stabilize your portfolio. We’ve partnered with Fundrise to highlight how to incorporate real estate holdings into your existing asset mix.
Why Real Estate Investing Matters
Real estate can be a valuable addition to almost any portfolio. This is due in large part to the stability it provides in relation to other assets. As a tangible asset with historically strong performance, real estate can offer a balance to more volatile assets such as stocks and cryptocurrencies, which over time can help drive performance for your portfolio. Whether you’re just starting to think about real estate investing or you’re already a seasoned investor, knowing the top trends—and some of the benefits of this unique asset class—can be a great way to determine which investments are right for you.
The Top 3 Real Estate Investment Trends of 2022
We are in the midst of a real estate boom, and prices have continued to ascend over the past year. In fact, the median price of single-family existing homes increased by double-digits in 78% of the 183 markets tracked by the National Association of Realtors over a few months.1
As homebuying continues to grow in popularity, opportunities for real estate investing are also increasing—and many rely on a few key trends. Below, we break down what they are and how they may shape the investment landscape in 2022.
- The Continuation of Historically Low Interest Rates
The Federal Reserve has kept short-term interest rates near zero since the onset of the pandemic but has been talking about bumping rates next year. While interest rates are expected to go higher, they are still likely to stay low by historical standards.
David Bianco, chief investment officer for the Americas at DWS Group, expects two quarter-point rate hikes next year.2 In addition, markets are not forecasting considerably higher interest rates. The 30-year Treasury bond is still yielding less than 2%, and 30-year fixed mortgage rates are just above 3%.34
While the flurry of homebuying activity is expected to cool slightly in the year ahead, the continuation of the low interest rate environment may signal that the current boom will not end anytime soon.
- The Emergence of Alternate Property Sectors
As the real estate market continues to expand, new opportunities are emerging for keen investors. Here are a couple of property sectors that could outperform in 2022:
Single-family build-to-rent residential real estate: As the population shift away from cities continues, build-to-rent properties are growing in popularity. Research shows that single-family homes built to rent increased by 30% between 2019 and 2020
“Last-mile” industrial real estate: Growth in online shopping over the past two years has paved the way for more “last-mile” facilities such as warehouses. With e-commerce expected to continue on its present trajectory, these types of properties could prove quite lucrative in the years to come.
Multi-asset real estate in the South East: Investments in multi-family communities have been steadily gaining popularity, especially as new regions of the country are providing increased opportunities, as demographic data in the 2020 Census showed.6 For those looking for broad diversification, these investments could offer the potential for solid returns.
- The Sunbelt is Positioned for Further Appreciation
The Sunbelt, which includes cities in the southern third of the United States, is experiencing strong demand for real estate—and that is unlikely to change anytime soon. Here’s what’s driving higher Sunbelt real estate prices:
Population growth: According to Census data, the Sunbelt is home to 10 of the 15 fastest-growing cities in the United States.7 The population growth in major southern cities is much higher than growth in the Northeast and Midwest.
Business-friendly local governments: Real estate prices are highly correlated to the number of well-paid jobs that are available in the area. So, states that are attractive to employers are likely to see higher real estate prices. Sunbelt states like Tennessee, North Carolina, Texas, and Georgia are business-friendly, and have attracted thousands of employers.
Milder climates: Real estate income is dependent not only on rent prices but also on maintenance expenses. All things being equal, colder climates result in higher maintenance expenses than warmer climates.
How to Make the Most of Real Estate Investment Opportunities
As highlighted by these trends, the real estate market has several opportunities for investors as we move into 2022. Yet there are very few platforms that give everyday investors access to a diversified portfolio of attractive properties.
How to Make the Most of Real Estate Investment Opportunities
As highlighted by these trends, the real estate market has several opportunities for investors as we move into 2022. Yet there are very few platforms that give everyday investors access to a diversified portfolio of attractive properties.
Fundrise, America's largest direct-to-investor real estate investment platform, is one of those platforms. With a team of expert underwriters who rigorously and thoroughly vet investments, Fundrise identifies properties with a high likelihood of experiencing strong risk-adjusted returns.
