One of the age-old adages of real estate investing is to invest in the path of progress. Or as hockey legend Wayne Gretzky says … skate to where the puck is going.
It’s just a lot easier when you’re riding a wave of demand … especially if you can find a substantial supply and demand imbalance.
That’s why land near water is so expensive. People want it and there’s just not that much of it.
Similarly, homes inside top school districts often command higher prices and rents for the same reason. Ditto for a local market with a lot of jobs.
But sometimes it’s not just a geographic amenity that attracts people, businesses and money.
Consider the role of demographics …
There are two mega-groups of people … at least in the United States … which warrant your attention. You’ve probably heard of them … and likely belong to one.
First are the baby-boomers. The 76 million babies born in the mid-1940’s to the mid-1960’s continue to be a MAJOR economic force.
Even BIGGER than the boomers are the Millennials … those born in or after the 80’s and entered adulthood in the first decade of the 21st century.
From a real estate perspective, boomers have created opportunities in over-55 housing communities, assisted living facilities, resort areas … to name a few.
Millennials are also impacting real estate … but not because of housing demand. At least not yet, though a recent study suggests this could be changing.
Sure, there are other groups and sub-groups to watch, but these are the two main demographics to pay attention to.
Of course, economics is also a very important factor …
But stepping beyond the obvious importance of job creation, real wage growth, availability of loans, and interest rates …
… there’s another economic phenomenon occurring now which may create a unique kind of opportunity for ambitious and alert real estate investors …
Pension funds are in big trouble …
So much so, this article says …
“Institutional investors, including pension funds, are stepping outside of the box, beyond core asset types of office, industrial, retail and apartments, to consider a growing menu of alternative real estate options.”
“ … property types that were once viewed as ‘alternative’ that are now moving more into the mainstream as accepted institutional caliber assets.”
And what might those “alternative investments” be?
“…self-storage, student housing and resorts …”
“Hospitality, seniors housing and student housing are among the former outliers that are now big targets for institutional investors.”
“… investors are continuing to push the boundaries of ‘traditional’ investments to include a wide range of options, including single-family rentals, data centers, workforce housing, land, timber, golf courses and prisons …”
And not only are pension funds moving toward “alternative real estate options” … they’re planning to cut out Wall Street and invest directly.
So where’s this puck headed?
Somewhere between mom-and-pop investors and big institutional investors are small and mid-size investment businesses.
It’s what a mom-and-pop investor might eventually become if they just keep at it long enough. Like playing Monopoly.
But until you’re there, no pension fund is coming for your collection of 10 houses, small apartment building, frat-house, or single residential assisted living facility.
You’re too small for them.
BUT … someone who sees the opportunity to aggregate a portfolio big enough to bring it to a pension fund might be very interested.
Of course, if you sell, you lose all that fabulous passive income you’ve built up. That’s not good.
Or maybe YOU could raise money from investors who see the opportunity, and be the small business or mid-size business a pension fund would like to buy.
Conceptually, it’s just a value-add play.
But instead of just buying a tired house and sprucing it up to make a few thousand bucks, you’re building a much bigger portfolio (with the help of your investors’ money) and flipping it to a whale.
It’s the same game, but at a much higher level. And ironically, it’s a lot LESS crowded because most people don’t think that big.
When you’re done, you take your profits and plow them into your own, privately owned, cash-flowing portfolio. Best of all you don’t lose whatever you already have … you ADD to it.
Of course, the opportunity won’t be here forever … but it’s also not going away any time soon. The pension crisis in America has just begun.
And we’re pretty sure if history’s any indication, politicians aren’t going to solve the problem. That’s up to entrepreneurs … like you.
Until next time … good investing!
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