Wealth Insights

Real Estate Opportunities For 2015

Given big gains in recent years, where can investors find value?

U.S. real estate is looking healthy again. The value of single-family homes has climbed nearly 20 percent nationally over the past couple of years.¹ Commercial and multifamily property values have also risen significantly. Given the lofty gains in real-estate prices, where can investors find value?

Analysts say investors still have plenty of opportunities — they just have to be more selective.² Here are three real-estate investments to consider:

Large, high-quality REITs.

Real-estate investment trusts (REITs) are attractive because they pay out more than 90 percent of their taxable income as dividends. If interest rates rise this year, as expected, those dividends may look less compelling compared to bonds. Large, high-quality REITs, however, are less sensitive to climbing interest rates because they borrow less — meaning they won’t get hit as hard in a rising-rate environment. Moreover, REITs focused on sectors such as storage, lodging and apartments may also fare better because those types of properties generally have shorter lease terms, allowing them to raise rents faster.

Direct investments.

With mortgage rates still hovering at low levels, investors may want to consider buying homes and investment properties outright rather than investing indirectly through REITs and other instruments. Good deals on individual properties can still be found in many U.S. markets. And unlike REITs — which tend to move in tandem with equities — individual properties have seen steadier investment returns historically.

Housing stocks.

Many investors have been gloomy about the prospects of homebuilders, given the general expectation that younger generations today are more interested in renting than buying homes. This has led to sluggish homebuilder stock prices. While that gloom may be somewhat warranted, analysts say homebuilders will likely outperform expectations in coming years. This could present an opportunity for investors seeking real-estate stocks that are undervalued.

Want to review your real-estate investing strategy for 2015? Your Regions Wealth Advisor can help you evaluate your current plan and connect you with portfolio managers and strategists at Regions who specialize in real-estate investing.