Are Long-Term Real Estate Investments Still Compelling?

Specialists from Wells Fargo Private Bank discuss the benefits and risks of investing in real estate at this point of the market cycle.

row of apartment buildings

Podcast Transcript

Host: Rob Miles, Senior Vice President, Wells Fargo Private Bank

Guest: Adam Doud, Real Estate Advisory Specialist, Wells Fargo Private Bank


Hello, I'm Rob Miles, Senior Vice President for Wells Fargo Private Bank, and this is "Your Financial Journey" — a podcast series that explores common financial issues that we all face. I'm joined today by Adam Doud, Real Estate Advisory Specialist for Wells Fargo Private Bank, to discuss why long-term real estate investments still appear compelling. Welcome, Adam, and thanks for joining us today.


Thanks, Rob; glad to be here.


Glad to have you. So I think it's safe to say that real estate prices, Adam, appear to have fully recovered from the financial crisis and that, in many markets, prices may even exceed pre-recession levels. Given that we may be at the higher end of the upswing cycle, does it still make sense to consider real estate investments?


You're right, Rob, real estate prices appear to have rebounded in many markets, which may make investors hesitant to invest in real estate at this point. We think, however, that there are benefits to long-term real estate investment that can be achieved even at this point of the market cycle — assuming that the investment plan is executed thoughtfully


So Adam, what are some of the potential long-term benefits, as you mentioned, of owning privately held real estate?


Well, real estate investments may serve as a potential hedge against inflation and they offer possible tax benefits. Investors who own privately held real estate may have the ability to periodically increase rents and, consequently, property income. It is that potential ability to increase income from real estate investments that offers the potential inflation hedge. Then from a tax perspective, under current tax laws, property depreciation and the mortgage interest deduction may offer the potential to reduce the tax liability for income generated from real estate. 


So Adam, let me dig a little deeper. You emphasized long-term investment and the word thoughtful, which makes me think that you do believe investors should exercise caution at this point in the cycle. So for those investors who may be interested in considering investing in real estate, what are some points they should consider?


Rob, there are various risk considerations that investors should weigh carefully before investing in real estate. Some of these risks include: interest rate risk as rates start to move higher, the illiquid nature of privately held real estate investments, and valuation risk, particularly at this stage of the real estate cycle. These risks are very real, which is why we recommend that investors enter into transactions with a long-term mindset. 


So Adam, clearly the current real estate environment demands a patient, thoughtful approach to investing and investors need to thoroughly evaluate the assets they are considering. What advice would you give to investors who may be considering investments at this time in that privately held real estate?


Rob, privately held real estate assets have many attributes that should be evaluated. For example, investors considering privately held real estate assets may want to analyze the quality of the tenants, and review the quality, or physical condition, of a property. Also, consider the strength of a property's location and the fundamentals of the local real estate market. We recommend working with your advisors and real estate professionals to determine whether real estate investments are appropriate for your wealth plan. 


Well, thanks, Adam, for sharing these great points. For our listeners today, make sure you conduct careful due diligence and evaluation of a potential real estate investment and think long term when considering a real estate investment. You can speak with your advisor who can connect you with our Real Estate Asset Management team who will be glad to help you. 

Thank you for listening. This is "Your Financial Journey."

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