The Founder and CEO of Next Generation Trust Company specializes in providing custodial and administrative services for Self-Directed IRAs. Investors are hesitant to invest in multifamily and commercial real estate in 2024 due to persistent inflation, high mortgage interest rates, and tight inventory in certain markets. Despite these challenges, real estate investments remain popular among owners of self-directed retirement plans, including commercial properties and smaller residential assets like vacation homes and single-family rentals.
Interest rates are expected to decline in 2024, which could lead to better real estate investing conditions. The high cost of borrowing may still yield long-term returns through asset appreciation and potential income from investment properties. Rental properties continue to be in demand as homeownership remains out of reach for many. The competitive rental market may continue due to the high cost of buying and owning a home, offering ongoing passive income for investors.
The commercial and multifamily sectors are facing distress post-pandemic, with many properties seeking tenants to fill empty spaces. High supply and flatter rental rates are contributing to elevated vacancy rates, particularly in office buildings with an 18% vacancy rate nationwide. Over $2.2 trillion in commercial mortgages are set to mature in the coming years, presenting opportunities for investors with cash on hand to inject much-needed capital into distressed properties.
The commercial real estate market experienced a 9% decline in property values in 2023, with distressed U.S. commercial real estate reaching near $80 billion. Office properties make up 41% of buildings facing bankruptcy, foreclosure, or liquidation. Investors can find opportunities in commercial and residential real estate sectors through “fix and flip” opportunities, rental properties, and refinancing to take advantage of lower interest rates.
Investors can include real estate in their self-directed retirement accounts by making investments with non-recourse loans, partnering with other accounts or individuals, investing in real estate funds, or providing mortgages as alternative assets. However, investing in commercial or residential real estate carries risks due to economic instability, uncertainties in interest rates, inflation challenges, and increased property management fees. Conducting thorough due diligence is crucial before making real estate investments in a self-directed retirement plan.
It is essential for investors to seek advice from licensed professionals concerning their specific financial situations. The information provided in this article is not investment, tax, or financial advice and is intended for informational purposes only. The Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning, and wealth management firms, offering industry insights and expertise to its members.