In 2024, many investors are hesitant to invest in multifamily and commercial real estate due to factors such as persistent inflation, high mortgage interest rates, and tight inventory in certain markets. However, there are still compelling reasons to invest in real estate, whether in commercial properties like office buildings and industrial properties, or smaller residential assets like vacation homes and single-family rentals. Many investors opt to include real estate investments in their self-directed retirement plans, which offer a diverse array of real estate options.
Despite the challenges, interest rates are expected to decline in 2024, which could make real estate investing more attractive. Rental properties continue to be in high demand, as homeownership remains out of reach for many, particularly in expensive metro markets. Rental properties are popular investments within self-directed IRAs, offering investors the potential for passive income. However, the commercial and multifamily sectors are facing challenges post-pandemic, with distressed properties and high vacancy rates affecting cash flow and loan maturity.
Commercial property values in the U.S. fell 9% in 2023, with distressed commercial real estate reaching a decade-high value of nearly $80 billion. Office properties have been hit particularly hard, representing a significant portion of buildings in bankruptcy or being liquidated. Despite these difficulties, there are deals to be found for savvy real estate investors in both the commercial and residential sectors. As interest rates decline, investors can take advantage of better rates to refinance properties and reduce mortgage expenses, potentially improving returns.
Investors looking to include real estate in their self-directed retirement accounts can do so in various ways, such as investing with a non-recourse loan, partnering with other accounts or individuals, or participating in real estate funds or private equity funding. It is crucial for individuals to thoroughly research real estate investments and understand the potential risks involved. Real estate is considered a long-term and illiquid investment, with risks including economic instability, uncertainties around interest rates and valuations, and challenges related to inflation and property management fees.
Ultimately, individuals should consult with a licensed professional before making any investment decisions regarding real estate in their retirement portfolio. It is essential to conduct due diligence and understand the risks associated with real estate investments in today’s market. While there are challenges and uncertainties in the real estate market, there are still opportunities for investors to generate returns and diversify their retirement portfolios through self-directed real estate investments.
