Investor’s column: Is now a good time to be investing in real estate?

Thirty-year mortgage rates have dropped to the low 4 percent, which is a one-year low.

Rates in the fall were climbing above 5 percent and many future home buyers had to face that their buying power was eroding away.

Home price increases slowed here in our area in 2018 because of those rising rates.

Now in 2019, with rates back down in the low 4’s on a 30-year fixed mortgage and an increase in houses for sale in our area, we have a stronger housing market.

The benefits of owning real estate in your portfolio are clear — there is not a direct correlation to the movements of the market.

Rents increase and values have steadily risen after the recovery from the 2008 Great Recession. That sounds great, right?

You receive consistent income and a return on your investment. But, there are downsides … over concentration, vacancies, liquidity, repairs, revaluations, property damage, time horizon, etc.

My son’s school, Yale University, has allocated up to 22 percent of its large endowment portfolio to real estate during the past 20 years. During that time, the endowment produced an average annual return of 13 percent. Not bad at all.

The Yale endowment has the luxury of a long time horizon and large reserves. Due to those differences in time horizon and reserves, their allocations can handle the other issues unique to owning real estate.

In 2018, their allocation was closer to 10 percent, which is less than half of what it was in 2012. Most likely, the reason for the greater allocation in 2012 was because of lower valuations and lower interest rates presented a greater opportunity to own properties that were appreciating at a fast pace.

The real estate sector ranks No. 1 in investment performance, beating out the S&P Index in average annual returns over the last 20 years.

Last fall, we had a great deal of uncertainty that took place with the stock market. We went through a market correction triggered by fears of a hawkish stance by the Federal Reserve Board to raising interest rates as well as indicators that global growth had softened to the point that the U.S. economic indicators began to show that the country would also slow in 2019.

That market uncertainty did not cause real estate to reverse trend and go down in price. Appreciation slowed, but values still went higher.

Owning real estate offers great income opportunities, increased value and potential tax benefits. Investors have many ways to own real estate. Each ownership type has pluses and minuses as well as the type of property that you own.

Getting advice from the right team of professionals when investing in real estate is always your best move.

Danny Wood is an independent financial advisor with SeaCoast Financial Partners in Bradenton. To learn more, visit MySeaCoastfinancial.com.

This story was originally published March 14, 2019 at 4:25 PM.