It’s a common dilemma. People want to invest but don’t know where, how, or what might yield the best result. The real estate investment platform RealtyShares
recently conducted a poll with Harris Interactive to delve a bit deeper into perceptions about investing options.
A New Asset Class for Many
Property investments may stand the test of time, but many investors don’t realize their potential
The survey finds that 40 percent of Americans aren’t sure what type of investment has performed the best since 2000 when asked to choose among stocks, real estate, commodities, bonds, cash equivalents such as oil, gold and cotton, and other.
One-quarter of Americans (25 percent) thought that stocks have been the top-performing asset class since 2000, while only 16 percent of Americans believed it has been real estate.
- Among the remaining asset classes, 9 percent believed commodities have performed the best, 6 percent chose cash equivalents, while 3 percent of those polled thought bonds have performed the best.
This perception, likely fueled by the conditions around the recent economic recession, gives stocks the edge when the results have historically been mixed.
The Historical Performance of Real Estate Investments
Since 2000, real estate has outperformed the stock market approximately 2-to-1, returning 10.71 percent annually
compared with a 5.43 percent annual total return
with the S&P 500 Index (range from Dec 31, 2000 – Dec 30, 2016).
Since 2000, real estate has outperformed the stock market approximately 2-to-1, returning 10.71 percent annually compared with 5.43 percent for the S&P 500.
The S&P has had the advantage more recently, but both markets have recovered well with the S&P posting a 12.65 percent annual return since 2010 compared to a 11.37 percent annual return for real estate (range from Dec 31, 2010 – Dec 30, 2016).
Keep in mind that historical returns may not recur or be achieved in the future. Along with past returns, investors should consider the growth taking place in the U.S. real estate investing market.
Residential real estate as an asset class is a $29 trillion market
, and the commercial sector adds another $10 trillion.
As a leading real estate crowdfunding platform, RealtyShares, has seen the number of new investors joining its platform nearly double year over year. To be sure, current growth of the market may not be a good predictor of ongoing growth.
What are the Obstacles?
Despite an apparent lack of knowledge of potential benefits, appetite for real estate investing appears strong.
While only 15 percent of Americans are currently investing in real estate other than their primary residence, 77 percent of respondents aged 35-44 believe that house flipping is a good way to make money, followed closely by millennials (18-34) at 72 percent.
Roughly two-thirds of American men and women agree that flipping a home is a good way to make money (64 percent of men and 68 percent of women).
However, a majority of Americans (two-thirds) believe investing in real estate, whether for a flip or a renovation, is just too hard, too costly and too far out of their expertise — especially compared with other types of investing.
Here are the perceived barriers stopping investors from investing in real estate:
According to the Harris/RealtyShares survey, more than two-thirds (70 percent) of Americans think investing in real estate is more difficult than investing in other asset classes.
This makes sense, as hands-on real estate investing requires seemingly endless research, inspections, bank loans and mortgages, contract negotiations and headaches that few people want to take on willingly, especially when compared with reviewing stock performance charts and making a buy or sell order.
A majority of Americans aged 18-44 claimed they would be more likely to invest in real estate if there were technology available to make the process easier.
This “too difficult” attitude suggests a general lack of knowledge about platforms, such as real estate crowdfunding, designed to make the real estate investment process easier.
To that point, only 2 percent of Americans claimed they were very familiar with the term “real estate crowdfunding”.
Conversely, a majority of Americans aged 18-44 claimed they would be more likely to invest in real estate if there were technology available to make the process easier.
In reality, resources do exist that can make real estate investing easier, but the prevailing perception is that real estate’s sheer difficulty turns potential investors elsewhere.
In addition, only about 8.25 percent
of American households qualify as accredited investors, according to Federal Reserve data, making the probability of those interested in investing actually being qualified even lower.
Nearly 70 percent of respondents stated they are less likely to invest because it requires more money than other investment options.
This coincides with actual costs; becoming a landlord usually requires 20 percent
of a property’s purchase price as a down payment.
Many Americans are unaware that real estate platforms require much less initial capital than traditional opportunities; sometimes as little as $5,000.
Likewise, when flipping a house, one can expect to pay
as much as $4,000 for initial financing costs and about $10,000 for rehab, on top of realtors’ fees and carrying costs.
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These initial costs and potential risks may stop new investors cold. But many Americans are unaware of real estate platforms that require much less initial capital than traditional opportunities. Some sites ask for as little as $5,000 to invest.
Similarly, Real Estate Investment Trusts (REITs) may also have relatively low entry costs. Many REIT options start at $500
for a share in such a trust.
As it turns out, house flipping is also perceived as a more specialized investment choice, impenetrable to those new to real estate.
In the survey, fewer than 2 in 5 (38 percent) Americans believe they would be able to complete a home flip, an understandable outlook given the fact that home flippers must have the necessary funding, skills and network needed to buy and fix up a home to resell.
However, there are now resources such as RealtyShares, among others, that pair pre-vetted professional developers with pre-vetted projects and investment opportunities, lowering the bar and making it potentially easier for investors to get into real estate investing.
Of all the age groups surveyed, millennials (those aged 18-34) gave responses that best illustrated their enthusiasm for real estate investing. More than 80% of millennials surveyed wish the process of investing in real estate were easier. Among millennial women, that percentage is even higher (85%).
More than 80% of millennials surveyed wish the process of investing in real estate were easier. Among millennial women, that percentage is even higher.
Likewise, 63 percent of this age group would be more likely to invest in real estate if there were technology available to make the process easier, with 18 percent strongly agreeing with that sentiment.
Furthermore, on the initial question of which investment surveyees thought perform best since 2000, millennials were the only age group to correctly choose real estate at a higher rate than stocks.
63% of millennials said they would be more likely to invest in real estate if there were technology available to make the process easier.
This suggests that the younger generation places more value in real estate than any other type of investing, which also coincides with the onslaught of real estate–themed cable TV shows and celebrities involved in house-flipping.
In today’s popular culture, real estate investing is often portrayed as an industry in which even non-professionals can dabble. It is possible that those aged 18-34 are consuming this content and then applying those experiences to their own perspectives on investing.
A Potentially Exciting Opportunity for Investors
Although the public generally lacks awareness regarding the potential of real estate investing, the findings of this RealtyShares/Harris poll suggest that a real estate investing resurgence may be on the horizon.
Younger generations are more interested than ever in real estate. And more and more technological advancements can allow the traditional complications of entering the market — now perceived as the highest barrier to entry — to decrease significantly.
This survey was conducted online within the United States by Harris Poll on behalf of RealtyShares from March 16-20, 2017 among 2,198 U.S. adults ages 18 and older. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables, please contact firstname.lastname@example.org
Not an offering of securities. Private investments are highly illiquid and risky and are not suitable for all investors. Past performance is not indicative of future results. Securities offered through North Capital Private Securities, member FINRA/SIPC. This message is not an offer to sell or the solicitation of an offer to buy any security, which only can be made through official offering documents that contain important information about risks, fees and expenses. Investment information contained herein has been secured from sources RealtyShares believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability. We suggest that you consult with a financial advisor, attorney, accountant, and any other professional that can help you to understand and assess the risks associated with any investment opportunity.