I’ve just finished reading Fundrise’s excellent end of year letter to investors for 2019 that they published on Jan 16, 2020. Part of that letter refers to how they formulate their general strategy as to where to invest. They also hint at what their investment strategy will be for 2020.
I’d like to give credit to Fundrise for some of the fundamental thoughts from that letter and I would like to share and expand upon them here.
From this article, you will learn the philosophy that Fundrise uses to shape their investment strategy. You can then apply that same philosophy to help shape your investment strategy for the coming decade.
Fundrise believe that Major macro trends are the primary drivers of long-term real estate returns. And that being able to identify these fundamental drivers can help investors capture opportunities that will produce reliable, strong returns.
For example, if you had been able to see ahead of time that the major macro trends of the 1990s would be the dotcom bubble and globalization, or that the macro trends that shaped the 2000s would be the housing bubble and (radical, unregulated) free-market fundamentalism, then you would be reaping the financial rewards right now. The same can certainly be said for the long economic recovery and populism of the 2010s.
Translating Macro Trends into Actionable Strategy
So let’s say that we could identify the economic forces that will shape the 2020s, how do you translate that vision into an actionable strategy for your real estate investment?
To keep it simple let’s just use What, Where and Who. If we apply these ‘three honest serving-men’ to the 2010s for example, we get the following retrospective investment wisdom:
- Who – Millenials
- What – Multifamily Apartments
- Where – Major Metro Markets (apartments geared towards young adults in big cities and nearby suburbs)
The Fundrise letter points out that actually these macro trends that shaped the 2010s ‘should have been obvious when looking at demographics, as the millennial “echo boom” was graduating from college and wanted to live in vibrant urban environments, but could not afford to buy.’
Looking ahead at the 2020s the pattern to follow should also be obvious, if you can get a handle on the Who, What and Where of the 2020s then you can shape your investment strategy accordingly and reap the resulting financial rewards.
What Are the Macro Trends to Look Out for in the 2020s?
As for the Who, What, and Where, questions of the 2020s, in Fundrise’s letter they promise to share more insights in the future so it’s a good idea to watch that space.
Fundrise only hinted at what they will share in the future by saying that they believe that there are three drivers that will have a major impact in the coming decade:
- Aging and declining populations
- Regional and economic disparity
- Aggressive monetary reflation
It will be interesting to see how they expand upon those three drivers in the future but in the meantime, I’d like to mention a few further thoughts on the first two of these three topics.
Let’s first make some brief comments on the subject of an aging population and touch on what impact this might have on an investment strategy for the 2020s.
The following comments on this topic are based on information in the ‘Emerging Trends in Real Estate 2020’ report by Price Waterhouse Coopers and Urban Land Institute.
A commenter in the report notes that the oldest of the baby boom generation are approximately 72 years old now.
While your mind might naturally turn to the resulting ‘seniors housing’ opportunity, the fact is that people generally don’t come into that bracket until they reach 78 to 80 years old. Add to this the fact that advances are continually being made in medicine and healthy living.
The youngest of the baby boomer generation (those born in 1964) will not turn 80 until 2044. With these facts in mind, the more immediate implication for real estate investors is the impact these boomers in retirement might have on other types of housing.
The trend now is for boomers in retirement to downsize housing and that could mean a benefit for multifamily and possibly could be an opportunity for new and high quality manufactured housing in the 2020s.
Now, some brief comments based on information in the same report on the topic of ‘regional and economic disparity.’
Regional and Economic Disparity
Of course, it’s impossible to know exactly what Fundrise have in mind but according to the ‘Emerging Trends Report,’ it is a fact that in a country as large and diverse as the United States it is very misleading to talk about broad trends without understanding the need to filter that information through the structures of local economies.
This is becoming better understood especially in this age when granular data is increasingly available. This availability of data coupled with the fact that competition to find investments that meet the return criteria of a growing investor pool is becoming greater could give rise to increased specialization.
This trend could mean the end of an over-reliance on general data which encourages herd behavior.
Intimate knowledge of local markets will become more relevant and more important in the future.
Seeing The Future
So what will shape your investment strategy for the decade ahead? What macro trends will you be paying attention to? What will be your ‘Who, What and Where’?
I’m sure you would agree that it would be wonderful to see into the future and that if we rely on our gut instinct alone it can all go terribly wrong. Here’s a quote from Decca Recording Co. about The Beatles that made me smile:
“We don’t like their sound, and guitar music is on the way out.”
Hopefully your attempts to foresee the future will be more successful than Decca Recording Co’s was in this particular instance.
Although none of us can see into the future, having a clear strategy based on good data and an appropriate measure of gut instinct will help you enjoy successful investing in the years ahead.
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