Right now real estate is a more attractive investment option than stocks and bonds, says Kirk McGary, CEO of Real Property Management, a 25-year-old Utah-based corporation that specializes in residential property management for investors and homeowners in the United States and Canada.
Investor demand for single-family properties remains strong, he says.
Research data including findings from a recent Zelman & Associates study that found investor demand for residential properties recently ranked at 60.9 on a scale of 0-100 support empirical findings from market veterans like McGary.
Investing in real estate also offers tax benefits and generates cash flow that covers the mortgage, repairs and additional homeownership and tenant costs, he says.
Unlike stocks, bonds and CDs, “real estate vehicles offer the ability to finance a portion of the purchase price” and then use the initial investment to control a much higher-valued asset.
Lower interest rates enable investors to benefit from even small property value increases, which “can carry a greater return than an unleveraged investment” at approximately 12%, he adds, as shown by the same study by Zelman & Associates.
Ivy Zelman of Zelman & Associates is famously optimistic about the market.
“We're in Nirvana for housing,” she said during a CNBC interview earlier this year when she claimed to be more bullish on the residential housing market than she has in more than two decades.
In a nutshell she has argued that 30-year low inventory of homes for sale and favorable mortgage rates are setting up for a bullish real estate market, The 20-year market veteran is credited for correctly predicting both the housing price bubble in 2005 and its burst in 2012. Zelman expects housing prices will continue to increase for the next four to six years.
McGary’s assessments, however, are based on research findings as much as on his own empirical observations.
Trends like this investor demand for single-family properties and interest in the housing market have created significant demand for property management companies like ours, he says. “Investors choose to put their money” in single-family real estate even though there are many investment options available.
Among others, hybrid mortgage real estate investment trusts are investing in agency and nonagency mortgages and mortgage-backed securities. And they prefer to trade off “generally lower interest rate exposure for a bit more mortgage credit risk,” Keefe, Bruyette & Woods analysts note in a recent report, while a return to "normal" is looming.
The mortgage REIT market will continue to grow, they wrote, but economic growth and rising rates may be mutually exclusive paths that most likely will lead to “low growth and low rates for a very long time to come,” creating the perfect environment for these investors.
Mortgage REITs could benefit from “at least several more years of a steep but contained yield curve,” according to KBW.