2020 was a tough year for real estate but even in down markets, there are still opportunities for prime real estate investing. Here are the five biggest real estate investment opportunities I see for 2021.
Adaptive reuse of unwanted retail, hotel, and office space
Adaptive reuse is the process of converting and redeveloping unwanted real estate into a different type of real estate. Property that better serves current and future market demand. It will be what saves many commercial investors in the wake of the global pandemic. Hotels and entertainment venues, office buildings, and retail have been affected by Covid. Recent reopenings have helped to subside the impact on unwanted real estate. But the low demand has resulted in many businesses closing their doors or filing for bankruptcy.
Recovery is inevitable, but it will take time. Suffering property owners will need to get creative in the meantime. Affordable housing and industrial real estate are two sectors in high demand. Turning an old hotel in the heart of the city into an affordable housing project may be ideal. Converting an old retail space into an industrial distribution centre may be a better solution. While there are countless hurdles to overcome, creative investors will dominate in this sector.
Industrial real estate
Industrial real estate has been one of the top-performing sectors of commercial real estate for the past few years. This is based on documented returns and demand in this sector. In many ways, the global pandemic accelerated the demand for industrial space. Placing pressure on cold storage, warehouses and distribution centres across the USA. While this recent demand is likely a temporal surge, it is likely to continue through 2021.
Chatter about several waves of foreclosures in 2021 and 2022. This is pending no national foreclosure moratoriums enacted by the incoming Biden administration. As of October 2020, 4.57% of all residential loans are 90 days or more delinquent. That equates to about 2.258 million, according to Black Knight (NYSE: BKI). This doesn’t include the 202,000 forbearance plans that were set to expire in November 2020.
There’s tremendous pressure on lenders and servicers to maintain these debt obligations. This is why the government has been using quantitative easing, to slow the influx of cash into the financial markets to help keep them afloat. But that strategy can only last for so long.
Eventually, banks will be forced to reconcile their books. They will need to either foreclose on the delinquent loans or sell the notes at a loss. Neither scenario plays well for the banks. In most cases, the mass sale of delinquent loans is the easier route. This is because it gives them the cash they need now while reducing their burden.
During the great housing crisis in 2007-2010, millions of nonperforming mortgages were liquidated. This fire sale was on the secondary market. Investors large and small were able to buy these notes at steep discounts. Despite the financial blood bath, banks tried working to find solutions for the never-ending flow of delinquency. This included a forbearance plan, modifying loans, and a deed in lieu, or foreclosure.
Foreclosures take time, and investors were chomping at the bit to find those great deals. They were hoping for a sudden spike in foreclosure properties to hit the market in 2021 but missed the true opportunity. I got my start in real estate investing with nonperforming notes. I’m preparing myself for the wave of NPNs that are sure to hit the market.
Rental property in depressed markets from tightly-strapped landlords
While many rental markets are seeing an uptick in demand and rental rates, others aren’t so lucky. High-density urban areas are experiencing a mass exodus of residents fleeing. They are opting for spacious and budget-friendly suburbs. Eviction moratoriums have left hundreds of thousands of landlords in the dust. Unable to evict nonpaying tenants but still responsible for it. That includes maintaining the property, paying taxes, insurance, and the mortgage.
Many tightly-strapped landlords will be forced to sell their properties. Investors with patience and capital will benefit the most. They will be able to ride out the current wave and will be able to acquire distressed investments at a discount.
The fix-and-flip market has been super active in 2020. It is a strategy of buying a property, renovating it and selling at a profit. Investor concerns about another real estate bubble were placed to rest as home values increased. The demand outpaced supply in most markets. At the end of 2019 and the start of 2020, fix-and-flip activity was up, but profits were down. Things reversed in the second quarter of 2020 as some investors took a step back from the market to see how Covid played out.
The demand remains high for newly renovated homes. We predict 2021 will be another active year for investors looking to fix and flip. Investors will need to be diligent with their numbers and make savvy decisions. The hot real estate market will drive investors back into the business and increase competition as new inventory hits the market.
These five investment sectors hold the most opportunity in the coming year. It’s important to realize that everything could change in a volatile market. If things continue on their current track, 2021 could play out to be a very profitable year. So investors who are vigilant and prepared will gain the most.
To get started, we’ve assembled a comprehensive report that outlines 20 different markets to explore. We also provide the reasons behind our top investor picks by state. The great thing is that we made it available for FREE today. Simply, click here to learn more. Access your complimentary special report that culminates 35 years of experience in real estate today.