Although the war on inflation is having and will continue to impact property owners, the attack I am referring to has nothing to do with interest rates. I read an article last week that got me thinking about the future of real estate investing. It was a long headline, but the idea was that new regulation is being presented that will hurt the mom-and-pop landlords. The current administration has a plan to nationalize housing policy.
The idea of the Renter’s Bill of Rights is to stop unreasonable rent hikes, unfair sharing of information, discrimination, and unfair evictions. Although this clearly has a positive intent, what are the unattended consequences of more regulation on housing providers?
California Vs. Florida Housing Legislation
Some states are looking at their own legislation when it comes to housing. States like California have implemented rent control with questionable success. I don’t know anyone that would say California is affordable. Nine states are currently debating the idea of rent control while some are firmly against it. If affordability is the issue, there seems to be enough evidence that forcing landlords to make less money does not work. Florida is a great example of what I believe is basic economic reasoning. They believe that pricing, and affordability, can be addressed by helping balance supply and demand. If demand remains and you increase supply, prices will come down. Florida is taking a pro development approach to affordability. Their Live Local Act is targeting property investors in a good way. They are increasing access to cash for developers targeting low income and affordable housing and banning rent control across the state. Bravo Florida!
Colorado Housing Legislation
Roughly half of the rental units in this country are owned by mom-and-pop landlords. That’s over 20 million units! Colorado is looking at some pretty aggressive legislation which has property owners worried. I have had many calls from clients asking my opinion on what my home state is doing. Every one of those calls has been with a mom pop landlord and every one of them said they will consider selling if these laws pass. Now with the president looking to take control with more federal regulation, what will landlords across the country decide to do and what will losing rental units do to tenants that need clean, safe, and affordable housing?
Are you an investor working to grow your wealth? With high interest rates, fear in banking, and rules and restrictions on housing, is buying individual units still the way to go?
There may be a better way!
Three Ways To Make Passive Income In Real Estate
I love owning rental properties and nothing in this article will change that. I still believe that owning real estate is the best and most sure way to wealth. With that said, I also can understand why some investors are being turned off on land lording. There are other more passive approaches to real estate investing. Here are three ways to gain some exposure to real estate without the hassle.
Syndications
A syndication is where you invest in someone else’s deal. In most syndications, you will own a piece of the deal but will not have any authority over the management. This can be a great thing because you won’t have the hassle either. This type of investment can work well if you have some 1031 money to move or need a tax shelter with property depreciation. These are both possible because you own a piece of the real estate. Owning the real estate can have its problems, however. Although you participate when things are going great, you also participate when they are not. I have five syndication investments in my portfolio right now. Only one of them produces monthly income for me (three of the five were not designed to). One of them just made a capital call where I had to invest more money, and another appears to be falling apart. These can be risky investments and they are almost never liquid.
REITs
Most Real Estate Investment Trusts (REITs) trade on a public exchange. Think of a very large fund of money used to buy large real estate assets. Because a REIT is required to distribute 90% of its income, they can be a great investment for dividends. They are also extremely liquid since they are publicly traded. Returns vary and again you are part owner so there is a risk of loss. I like REITs and most of them invest in commercial assets so none of the regulations I read about will have an impact on the REIT investor.
Mortgage Fund
I am obviously biased because we manage mortgage funds, but I believe this is the best way to get some real estate exposure without the risk or effort. In a mortgage fund you are invested in the loans secured by real estate, not the real estate itself. The downside is that you cannot roll 1031 money and you will not get the tax benefits. The upside is that you are in the safest position because debt is always paid before the owners. It also brings stability to a portfolio with consistent returns. Our fund, PFG Fund V, also has a liquidity component so you are not stuck with the deal like you might be with a syndication.
The PFG Fund V Could Be The Right Option For You
If bank failures, high interest rates, high inflation, and now housing regulation has you spooked, consider alternatives to your standard real estate investments. All three alternatives that I laid out are great options to consider. If you are interested in a mortgage fund, PFG Fund V may be right for you. Here is a link to the brochure. Please let us know if you would like to see the full prospectus or schedule a time to go over your financial goals or plans. I want to help!