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How to align a rental property portfolio with stock market sectors

Real estate investing

The single-family rental (SFR) real estate sector is a relatively new asset class, rising out of the housing crisis in the late 2000s. Investing in SFR properties remotely is even newer: technology that enables the selection, purchase and management of rental properties around the country is only a few years old.

This development is a boon to those who live in expensive coastal cities and face price barriers to investing in real estate locally, with returns on investment that make it difficult to justify a purchase. 

Buying property remotely can alter that calculus.

“Why invest locally if the data points to other places and you now have the ability to invest in the best markets?” says Thomas Stepp, head of investor offerings at Mynd. “You want to invest in the market where things are going, not where things have been.”

And investors who feel strongly about a particular market sector — like tech, energy, banking, tourism and entertainment, health care, logistics or public sector spending — can choose a place that correlates to that asset class. 

These choices are naturally influenced by macroeconomic conditions. With inflation hovering above 8 percent, a 40-year high, and the Fed raising the overnight borrowing rate to cool the economy, uncertainty is the reigning sentiment.

There are only so many places for investors to look, according to Todd Franklin, a senior investment advisor at Mynd. These include:

  • Stocks
  • Commodities
  • Real property
  • Fixed income
  • High-value bonds

Stock market volatility has many looking for alternative investments.

“There has never been a bad time to buy real estate if you are smart,” said Franklin. “It’s like health care — it’s going to go higher.”

Franklin, who has worked in investment sales for more than two decades, says the housing crisis of 2009 was a “once-in-a-lifetime crash.”

The foundation of the real estate market these days is strong, he said, and banks are following better lending standards and those borrowing the money are credit worthy.

For those looking to invest in remote real estate, there are places that are havens in uncertain times.

“Health care and government spending are the two most resilient sectors in a downturn,” Stepp said.

SFR investors who are looking for resiliency would be well advised to look to San Antonio or Jacksonville.

Count on military spending in a downturn

San Antonio and Jacksonville are both cities that rely on a strong military presence, which includes both active-duty troops and a contingent of military retirees. This sector is relatively insulated from larger economic forces and is largely recession-proof.

For starters, San Antonio goes by the nickname “Military City USA.”

Joint Base San Antonio and other military facilities in the area accommodate some 300,000 active-duty personnel. 

“Having facilities like Lackland Air Force Base and Fort Sam Houston gives a lot of stability to a metro area,” said Edward Friedman, a director at Moody’s Analytics. “Along with the soldiers and the airmen comes a lot of civilian employment, since not everyone who supports them is in the military. That gives you a lot of mid-range-income employment, which supports the city nicely.”

And growth tends to be steady, he says. “It’s not going to rocket you up the way IT will in Austin.”

What’s more, the retired military population numbers about 200,000, further lending stability since their pensions aren’t going away either. Many vets retire here to take advantage of the 15 Veterans Administration hospitals located within 50 miles.

In Jacksonville, the Navy is a major employer, a trend that started gaining traction during WWII, when the massive military installations Naval Station Mayport and Naval Air Station Jacksonville were established. Naval Submarine Base Kings Bay is the third large base in the area.

When it comes to investing in Florida, said Franklin, “I like Jacksonville the most because I can understand the value of a naval base.” 

Today, the area has about 75,000 active duty, reserve and civilian personnel, accounting for 14 percent of the area's workforce. The lack of a state income tax, and a strong support system, makes Jacksonville an attractive permanent home for military retirees.

There are almost 1.5 million military retirees living in Florida, just behind California (1.6 million) and Texas (1.56 million), which rank 1 and 2 in the country for that cohort, according to the Veterans Administration.

Health care can withstand economic headwinds

Several cities have a deep bench when it comes to the health-care industry, including Nashville and Houston.

“If you think health care is the future,” said Franklin, “Houston is where you should be.”

Margo Broughton, who has spent 40 years in property management in Houston, said the shift in the city’s economy took place decades ago.

“What changed Houston was the incredible focus on the medical industry,” she said. “In the ’80s, it was known as a boom-and-bust town with its focus on oil.”

In 1925, Hermann Hospital admitted its first patient. Now, the Texas Medical Center covers more than two square miles and is home to 61 different institutions. Those include 21 world-class hospitals, along with eight academic and research institutions, which employ more than 100,000.

Aside from attracting aspiring country music stars, Nashville has been a longtime magnet for health care companies. Some 19 health care companies are based here, and on an annual basis they have a combined employment of more than 500,000 and $95 billion in global revenue in 2021, according to the Nashville Business Journal.

Led by the giant HCA Healthcare, with 275,000 global employees and $51.5 billion in annual global revenue, the industry contributes an overall economic benefit of $67 billion and more than 328,000 jobs to the Nashville economy each year.

“Nashville is a place that is really going to come on strong,” said Franklin. “If you become a conduit for California people, then you are on the right track.”

U.S. Census data shows that some 12,000 people moved from California to Nashville in 2019, and anecdotal evidence from Nashville real estate agents suggests that the trend has only accelerated. U-Haul reported that in the last two years, the top one-way itinerary for their rental trucks was from California to Nashville.

Indianapolis, a shining example of a city with steady and stable growth in home values, is another place that is insulated from recession by its collection of pharmaceuticals and life sciences companies. 

It also has a lower barrier to entry: the median sale price in June of 2022 was $245,000, up almost 14 percent year over year, according to Realtor.com. Prices have risen more or less steadily over the last five years in Indianapolis; in June of 2017, houses sold for a median price of just under $150,000.

The median price of houses sold in the U.S. so far in 2022 is $428,700. The average sales price in the same period is higher, at $507,800. The Zillow Home Value Index, which measures only the middle price tier of homes, sets the cost of a typical home in the United States at $344,141.

Realtor.com ranked the city as the 4th best housing market positioned for growth in 2022. Home sales in the metro area are expected to increase by nearly 15 percent while prices are projected to grow by 5.5 percent.

Tech, and its high-paying jobs, promise high growth

Austin and Raleigh both have strong and growing tech sectors, and their housing markets have been steady even as rates have risen and inflation went past nine percent.

Raleigh ranks second (behind Austin) in tech growth over the last decade, and the state capital is #1 in STEM job growth. Praxis Strategy Group’s stats show that over the last decade, tech-related jobs grew by more than 60 percent, to nearly 39,000; STEM jobs grew at a rate of 39 percent, to nearly 50,000.

Those research departments are drawing major companies, fast and furious. 

Apple plans to invest $1 billion in the state, including a new campus and engineering hub, its first on the East Coast, in Research Triangle Park. This will create jobs in AI, machine learning, software engineering and related fields. 

To cultivate future talent, the company is creating a $100 million fund to support the state’s schools (already second in the nation for most equitable). It will also contribute $110 million in infrastructure spending for broadband, roads and bridges and schools in the state’s neediest communities. 

Google is coming to the area as well, announcing in March that it will create a Durham hub that will create over 1,000 jobs, with engineers working on Google Cloud projects. 

Meanwhile, over in Texas Hill Country, Austin has earned the moniker “Silicon Hills.”

One notable date in the city’s tech history is 1984, when a University of Texas freshman named Michael Dell launched a company that revolutionized the personal computer business.

The Texas capital is one of the beneficiaries of a widely reported exodus from Silicon Valley. LinkedIn data indicates it has shown the third-highest growth in tech jobs among U.S. cities since 2019 (oustripping cities like Dallas–Fort Worth, Las Vegas, Tampa, and Charlotte). WalletHub recently ranked Texas’s capital number 2 in the nation for STEM jobs.

According to TechCrunch, Austin is emerging “as a city of unicorns and tech giants”:

  • VCs invested more than $5.5 billion across 400+ deals in 2021, more than double the amount of capital invested in 2020.
  • Several companies achieved $1 billion valuation in 2021, including Firefly Aerospace, Abrigo, and Iodine Software.
  • In 2020, Tesla set up a $1.1 billion “gigafactory” in Silicon Hills, and Oracle moved its headquarters from San Francisco to Austin.
  • Apple is building a $1 billion campus that will hire 15,000, making it the city’s largest private employer.

These companies join other major employers like IBM, Samsung, and AT&T that have already found a home in Austin. 

Tourism and entertainment are roaring back

Las Vegas and Orlando draw visitors from around the country, and the world. Both were hit hard during the pandemic when travel fell off dramatically; both have recovered nicely.

“A lot of people are looking for something to do,” Franklin said, now that the pandemic has passed. And they “are sitting on a lot of money and don’t know what to do with it.”

This bodes well for Las Vegas, the so-called Entertainment Capital of the World. The city has more to offer than Celine Dion and Cirque du Soleil. Sports fans are psyched to have the NFL’s Raiders (another migrant from California), the NHL’s Golden Knights, and the WNBA’s Aces. It also attracts major musical acts.

Rumors of an NBA team being created for the Las Vegas market don’t hurt, according to Franklin, and the area has the feel of an up-and-coming market.

“There is a lot of stuff going on there,” he said.

In 2019, about 42 million people visited the Las Vegas area, though that number was cut in half in 2020 because of the pandemic. Last year, the city rebounded, welcoming about 32 million visitors, and projections for 2022 are that the number will be within 10 percent of pre-pandemic figures.

The median home price in the Las Vegas valley has been rising more than the national average since 2018, and has continued to exceed that rate in most months in the last three years. Rents have risen more quickly than the national rate since 2016 as well.

These numbers point to opportunities for real estate investors in the Las Vegas metro area, at odds that are better than those in the casinos. Orlando reported a record 75 million visitors in 2019; during the pandemic, that number was cut in half.

“Honestly, our hospitality industry was hit pretty hard,” said Lisa Hill, a realtor with Keller Williams. “When you see Disney and all the attractions closing, that’s a lot of people furloughed. 

“However, they’re bouncing back at full throttle, so most of those people who were furloughed are back to work now,” she added. “For the next few years, our biggest job growth is going to be hospitality, followed by professional and business services.”

Orlando’s trajectory changed dramatically in October of 1971, when Walt Disney World opened its gates. The resort includes the Magic Kingdom (home to Cinderella’s Castle), Epcot, Disney-MGM Studios, and Animal Kingdom. 

Universal Orlando Resort, featuring Universal Studios (home to a new roller coaster themed on Jurassic World) and Islands of Adventure, threw open its doors in 1990; the park now features the Wizarding World of Harry Potter. 

Walt Disney World is so large that the entire city of San Francisco could fit inside its walls, and in 2019, the year before the pandemic hit, it saw a whopping 21 million visitors (almost three times the population of New York City). 

Logistic hubs attract jobs, and investment

Atlanta has established itself as the commercial capital of the South, and its Hartsfield-Jackson Atlanta International Airport was the busiest hub in the world for 20 years running, until it was dethroned in 2020 by an airport in China.  

“Atlanta became what it is because it is a hub of transportation, including rail and air,” said David Zanaty, chief real estate officer for Mynd. “It’s also got a lot of diversity in the economy — it’s not just oil, it’s not just tech.” 

“This makes it very resilient in a downturn,” he added. 

The area is home to 18 companies that are on the Fortune 500 list, including Home Depot, Coca-Cola, Delta Airlines, Aflac and the United Parcel Service.

A lot of the new jobs coming to Atlanta are in tech, partly driven by Microsoft’s plan to build a massive corporate campus on the west side. It will develop a 90-acre parcel in Quarry Yards over the next decade that will eventually employ thousands of workers.

Franklin calls Atlanta one of the best rental markets in the country because “people rent there as a matter of course.”

With all the corporate activity in Atlanta, salaries are competitive. The median income in 2020, according to the federal department of Housing and Urban Development, was $82,700. 

This translates into a healthy rental market. The median single-family rental home goes for almost $1,700, up almost 12 percent year-over-year, according to John Burns Real Estate Consulting.

Memphis is another logistics powerhouse, thanks to its fortuitous location, along the Mississippi River and a crossroads for several major railways. It has the fifth-busiest inland water port in the country, and FedEx has its air hub at the Memphis airport, making it the busiest cargo airport in the world. 

FedEx, which has some 30,000 workers in the area, is just one of three Fortune 500 companies based here, along with International Paper, which employs about 38,000, and AutoZone, with more than 100,000 workers nationwide. 

Other major employers include ServiceMaster, which moved to Memphis in 2017 (and specializes in disaster restoration, cleaning services, and mold remediation); First Horizon National Corporation (which owns First Tennessee Bank); Methodist Le Bonheur Healthcare; Baptist Memorial Health Care; and St. Jude’s Children’s Research Hospital, the top-ranked children’s specialty hospital in the U.S.

All those jobs drive demand for housing, and rising rents make Memphis an attractive market for real estate investors. According to Burns, median rents have increased in each of the past three years: by 8.2 percent in 2019, 5.5 percent in 2020, and 6.2 percent in 2021. As of May 2022, Burns reports that the median single family home is renting for $1,211.

“The whole [greater Memphis] area is going to continue to see growth for the foreseeable future,” Chris Gray, with Leaders Credit Union, told an ABC affiliate in May. 

Memphis is cited as a “city to watch” in the PriceWaterhouseCoopers/Urban Institute’s report “Emerging Trends in Real Estate 2022,” where it ranks #45 among the top 80 American cities in homebuilding prospects and #68 in terms of overall real estate prospects. 

The Ford Motor Company announced in September that it is planning to create a technologically advanced campus in Stanton, about 45 miles northwest of Memphis, for the next generation of electric F-Series trucks and batteries. 

The $5.6 billion mega campus, called Blue Oval City, will create approximately 6,000 new jobs.

Bottom line on geographically diverse investing  

Buying in different regions of the country can mitigate risk as well, since geographical diversification limits exposure when a particular economic sector underperforms.

Much like an investment advisor balances a 401k or stock portfolio, a seasoned advisor with a company like Mynd will offer insights on markets that are subject to various macroeconomic forces. 

“Each market does something different,” Stepp said.

And there are patterns that emerge that influence decisions on where to buy.

“We go through the same thought processes as an investment advisor,” Stepp said, “including risk tolerance, investment goals, and the highest returns.”

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