Interactive Post: How Will Real Estate Investing Change in the Future?

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I can’t say the exact history of various types of real estate investing methods, but I am confident in saying they didn’t all show up at the same time. We have the basics: flipping houses, rental properties, and commercial real estate. Then, somewhere along the lines, we started getting into things like note investing, tax liens, REITs, syndications, and even for rental properties, turnkeys. How did these things start and then evolve over time? The biggest question, how did the invention of the internet change things?

The Future of REI

Real estate investing is interesting because every method essentially works from one of few standard principles. Those principles (such as charging interest, renting to tenants, improving values, etc.) are not going to change. Or are they? More than the fundamentals changing though is how will we work with those changes? I have no idea. In some regard there is a lot of room for change in how real estate investing works, but in other regard it seems like maybe there isn’t.

Related: 4 Ways to Stay Optimistic About the Future of Your Real Estate Investing Business

What do you think? I want to hear from you. Think of a few different questions, or make up your own, and give us your thoughts on whichever ones you come up with answers for.

  • What is different about how you invest, or how you pursue investing, now than before the internet?
  • What aspects of real estate investing need improvement enough that it may warrant a change for the future?
  • What new methods of investing can you see evolving?
  • What existing methods might go away?
  • Any new difficulties you see coming with the current progression in technology?
  • If time travel becomes a real thing, will it completely abolish real estate investing?

Comment below! I am excited to discuss…

 

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About Author

Ali Boone(G+) recently left her corporate job as an Aeronautical Engineer to work full-time in Real Estate Investing. She began as an investor only two years ago but managed to buy 5 properties in just 18 months using only creative financing methods. Her focuses have been on rental properties and overseas investing in Nicaragua.

34 Comments

  1. #1 – Tax related – Last Presidential election both parties had whispers of removing the mortgage interest tax deduction. That would be a game changer for sure if it ever happened.
    #2 – Tech related – Movement in the direction of marketing apartments with a link to a video tour of the apartment.
    #3 – How ppl pay rent – as in Jimmy Moncrief’s recent article there are many electronic ways now to send/receive money. This will only increase in the future as we go cashless.
    #4 – Entitlement reform – IF this ever happens (which it should) we will see changes to Section 8 rent assistance, Electric/ gas assistance programs, food stamps, etc. That would be a game changer for many.
    #5 – Time travel – I would go back and NOT buy 410 Spring St!! haha.
    Can’t wait to see other’s ideas. Thanks for writing this article Ali, the comments are going to be enlightening for sure.

    • Dave,

      Coming from your north, perhaps I misunderstand, but I though the mortgage interest tax deduction was targeted at owner-occupants? As a business, I can deduct interest charges, whether they be mortgage, appliance layaway, late fees on an overlooked gas bill, as a business expense.

      Regardless, people will still purchase homes if they cannot deduct the mortgage interest. What it may do is push the market away from 30-yr term mortgages to shorter terms like you see in Canada, Europe, etc.. Not being able to treat interest as a deduction is an incentive to pay down your debt at a faster rate.

      • Roy, you could be right that even if they took it away for owner occupants perhaps it would still be deductible for businesses. Keep in mind though that we are the evil business owners and need to pay our fair share, sound familiar? With that in mind, and given our countries unsustainable economic path I wouldn’t rule out future caps on deductions etc. even on second homes and rental properties. I hope not, but in my lifetime… maybe.

        • There is no talk (as far as I know) of limiting deduction of business expenses, and I don’t think there ever will be. I think there’s been some confusion on the podcast relating to the mortgage interest deduction going away, but as pointed out, that ONLY relates to owner/occupants. The effect would be to push house prices down.

        • What if our country moved to a true flat tax with no deductions? Not trying to stir up a hornets nest on this, but if we are talking about the “possible” future of real estate investing I wouldn’t rule it out just yet. Not saying in the next year, I mean in my working lifetime (next 30yrs). Truth is I have no idea what the future holds, but a bit over 30yrs ago ppl were paying 18% interest on home loans. I bet they never thought they’d be under 3% in the future. I never thought we’d have ObamaCare, yet here we are. I try to never say never. Especially when our government is highly irrational.

        • Dave,
          This county will never move to a flat tax. Not only would it be a terrible idea (IMO), it’s a political nonstarter. The no deductions thing just doesn’t make any sense. What could possibly be the argument for not allowing businesses to deduct that cost of doing business? Even less likely than a flat tax.

        • Adrian, you are way more passionate about this than I am. Don’t take it personal. Remember we are talking about “possible” future of REI. I do think tax reform is in the future. I do think it will affect REI on some level. When? Don’t know. What will it be? Don’t know. Your points are valid and logical, but our government usually isn’t. I actually agree that it’s unlikely, and hope we don’t get caps on deductions, etc. But to balance our countries books they will need to reduce spending and/or increase taxes. How do you increase tax revenue? One way (of many) could be to do away with certain deductions or put caps on them. Deductions that could affect RE investors. That’s really what I’m getting at.

        • Dave,
          Wasn’t trying to be obnoxious, hope it didn’t come across that way. It is interesting to speculate, and I’ll be the first to agree that the government is less than logical.

          There will have to be tax reform at some point, when the economy hold a gun to congress’ collective heads. I imagine rates will increase mildly, entitlement programs will be adjusted. I’d be surprised if REI sees any significant changes.

          Cheers.

    • Ali Boone

      Dave… LOL! Love the part about 410 Spring St. I definitely wouldn’t have bought 2214 Hidden Creek Dr., well but geez I love that house. Oh wait, now I’m talking from emotions. I’ve clearly lost my mind. Cute house, black cloud. What can you do.

      I think your points are very realistic and some of those especially will be interesting to watch how they unfold.

      Great comment.

      • Ali Boone

        Adrian and Dave, great discussion back and forth. I agree with the thoughts…the frustrating part is that we can only *hope* the government makes the logical moves as far as tax reform. I wouldn’t put it past them a bit though to create the flat tax system, even if it doesn’t make any sense. That’s kind of how they tend to roll- illogically. But, that can only strike up a political debate and this is a real estate blog, so I’ll keep quiet ;) Great dialogue guys, thanks for contributing.

  2. I will stick to a subject I know, the IRA and how someday it will be a major player in every aspect of real estate (today is represents an embarrassing 3% of all IRA dollars).

    I am amazed that the IRA hasn’t changed the face of real estate more rapidly but it hasn’t, a few preliminary facts if I may …

    In American today there are 45,000,000 IRAs (Individual Retirement Arrangements) that are collectively worth some six trillion dollars, yes trillion. It was nearly ten trillion until Wall Street vaporized trillions a few years back.

    Wall Street controls 95% of those six trillion dollars and has exercised such dominance for decades.

    Yet today some IRA Owners are coming our from the Wall Street ether and about 200 million IRA dollars monthly are fleeing the Wall Street one-size-fits-all IRA into the waiting arms of newly evolved Self-Directed IRA Custodians.

    Do you know what the number one investment product is for those 200 million IRA dollars monthly? It’s real estate, the very product Realtors® sell but know next to nothing about.

    And if a Realtor® might have an IRA, it is a 95% chance its investments will comprise … yep, Wall Street products.

    For over fifteen years I have painfully watched the slow evolution of the Self-Directed IRA gain popularity, a tree sloth in a frozen food locker moves faster. Today, few Americans and fewer Realtors® know anything about the incredible benefits of the Individual 401(k).

    I am state certified (Arizona and Florida) to teach a CE Credit Course about IRAs and the Individual 401(k) but more Realtors® will opt to sit in a fengh shui course than learning about the various types of IRAs and the Individual 401(k) so they can teach clients and at the same time shave years of working off their own retirement.

    • Ali Boone

      Tom, great info and insight. I agree with you completely about the evolution of the IRA. Really up until the last few years, the traditional stock-driven IRA just kept working. It was the crash that really brought up this, ‘oh snap, maybe stocks aren’t guaranteed!’ mindset.

      And definitely true about the Realtors. I’d imagine the reason being because they are no different than most of the rest of the population as far as understanding what makes an asset and what an investment even looks like. To them, they sell homes to primary buyers. That’s different than investments. They know no more about any of it than those primary homebuyers, so therefore they have no interest in an IRA course because a) they don’t realize what it all really is anyway, but b) because they have no vested interest. If they learn Feng Shui, on the other hand, they can promote that to homebuyers who care about it and it might help them sell a house.

      Great input!

  3. What’s different about how I invest now? Well I’m going to shamelessly plug BP here. Now I have a community of like-minded people with a ton of experience who can vet my deals, vendors, markets/submarkets, and teach me all sorts of new strategies that previously were unknown to me. I feel 150% more confident about investing now than I ever did when I first started, and that in large part is due to BP and folks like you, Ali, sharing all your knowledge.

    What needs to change? The barrier of scaling for REIs as it relates to conventional financing. If the housing crash taught the gvmt anything, it should have been the REIs are the backbone of real estate. Why they limit us to four to ten houses (depending on the mood they’re in) is counter-productive in my mind. As long as they employ sensible underwriting, like appropriate down payments, DSCR, reserves, etc., why wouldn’t you want to loan to an investor whose monthly mortgage payment is covered by someone else (i.e. tenants)?

    Because of this I believe the trend you will see is the continuing rise of the use of portfolio lenders and private money,and REIs getting more and more proficient at the concept of creative finance.

    In terms of time travel, I’m still laughing at Dave’s – I think we all can relate to that haha!

    • Ali Boone

      Sharon, I completely agree with everything you say (including about Dave’s comment, lol). I think your thoughts on the lending is very feasible. And you’re right, why would they cap the investors, but yet they will keep lending to loopy primary homebuyers all day long. It definitely leaves a ton of room for other types of lenders to make a huge presence in the investing world. The private lenders I know now, they lend on the qualifications of the property, not the buyer. It’s a win-win because the investor can get the loan easily with no harm done, and if they default, the lender has an amazing piece of rental property that they will continue to profit on each month because of the tenant’s payments until they resell it or maybe they even keep it. It’s profit for them in every pocket.

      Great put!

  4. Oooh, this is a fun one!

    1) Economically, I ONLY see a downward pressure on housing prices. Unless you live in an economic hotspot (San Jose, Seattle, DC, etc.), the job market, student loans, stagnant wages, tighter lending, rising interest rates means an economic trend of you HAVING to lower your prices on a house in order to sale. I see a complete buyer’s market out side of these job zones, which is seriously most of the country. I see a 20 year trend of investors picking up really good deals, and owner occupants going on a free for all

    2) The internet…what can I say, I and others leverage the internet in more and more savvy ways to find deals other’s can’t find. Be it exclusively doing For Sale By Owner sites or incorporating third party websites to get a fuller picture, this is making it the world of the little guy to get in and quickly snatch up deals no one else is looking at.

    3) Education! This use to be an era where it was hard to find a mentor, and the only one people had available were “guru’s” charging thousands of dollars. Now, you can see blogs like yours and mine going into HOURS of DETAIL, in video and other wise, explaining so many aspects of real estate investing. I can go to YOUTUBE to learn how to install premium light fixtures, or tile, or carpet. All in all, there is so much more empowerment for everyday person who is not blessed with a mentor they can trust, but now they are available with a ton of content where you can see if you like what they have to say (or sell).

    All in all, I think its going to be the future of the real estate investor, NOT the future of the owner occupant.

  5. Oooh, this is a fun one!

    1) Economically, I ONLY see a downward pressure on housing prices. Unless you live in an economic hotspot (San Jose, Seattle, DC, etc.), the job market, student loans, stagnant wages, tighter lending, rising interest rates means an economic trend of you HAVING to lower your prices on a house in order to sale. I see a complete buyer’s market out side of these job zones, which is seriously most of the country. I see a 20 year trend of investors picking up really good deals, and owner occupants going on a free for all

    2) The internet…what can I say, I and others leverage the internet in more and more savvy ways to find deals other’s can’t find. Be it exclusively doing For Sale By Owner sites or incorporating third party websites to get a fuller picture, this is making it the world of the little guy to get in and quickly snatch up deals no one else is looking at.

    3) Education! This use to be an era where it was hard to find a mentor, and the only one people had available were “guru’s” charging thousands of dollars. Now, you can see blogs like yours and mine going into HOURS of DETAIL, in video and other wise, explaining so many aspects of real estate investing. I can go to YOUTUBE to learn how to install premium light fixtures, or tile, or carpet. All in all, there is so much more empowerment for everyday person who is not blessed with a mentor they can trust, but now they are available with a ton of content where you can see if you like what they have to say (or sell).

    All in all, I think its going to be the future of the real estate investor, NOT the future of the owner occupant.

    • Ali Boone

      Great one, Lisa! I especially like your point about the education aspect. I’ve thought about this in the past- how will gurus continue to sell their expensive programs in the future when so much free information, more and more, continues to be free on the internet. Right now they still work because it’s hard to decipher internet info and know who is right and wrong, and sometimes you can’t always get the full picture from one or two videos and you would rather see a whole program, but I can see that eventually those programs will make their way to the internet at significantly lower costs and in a slightly different format (not sure what that will be exactly) and that will knock out all those DVD sets the gurus sell. I will say about the gurus, the ones I have experienced really do actually know what they are talking about. I’m in the middle of a 12-week guru course on Productivity and it’s worth every penny I paid for it and it’s amazing. Same with Kiyosaki, I learned a ton from him (albeit never did the super expensive stuff). The point is not to shut up the gurus, but I think if they don’t change how they do things, they will be given a forced exit from their methods.

  6. First, the deduction for interest on a home will not disappear unless the government wises up and eliminates all deductions. To do otherwise would result in the reduction in price of existing homes, the reduction of new homes being built and an increase in foreclosures. Many people buy homes just because of the tax advantage they offer.

    Second, the Internet will continue to grow as medium for buying and selling real estate, paying bills (including rent), and as a tool for evaluating various investments.

    Regardless whether property values increase, decrease, or stay even, the overall cost of real estate taxes will increase (in actual dollars paid). Other than minor adjustments for salary, it cost just as much to maintain roads, provide police, fire and EMS protection, schooling, etc. in a community with the average home price of $75K as it does for a community with the average home price of $300K. Maybe even more. If it takes $5K to plow the street and fix the pot holes etc. that price does not decrease because the homes go down in value.

  7. Some people have pointed out certain aspects of investing that may change, but I don’t think the fundamental ways (flipping, buy and hold, etc) will ever change.

    • Ali Boone

      I agree Adrian. I am curious though how the formats and actual workings of them will change. The fundamentals I believe will remain the same (the concept of flipping and buy and hold), but they way we do it may change. Who knows.

  8. Neat topic Ali!

    I think there will always be changes moving forward. Most who have been in the business have seen them and have had to adapt accordingly. Experience is what teaches us the most!

    As for the business aspect, some may change for others while some may not. I know folks who have been conducting business the same way for decades while there are others who have taken advantage of the tools now available via the web.

    For me personally, I continue to do business the old fashioned way. In fact, if I’m working I completely stay off the web — I rarely use email for business. It’s nice the web is there but it can become a distraction. Most of my time is spent in the field anyways.

    Though the web does provide opportunities we did not have before. It’s great to see information so readily available. If we want to take the time to learn about something new, all it takes is a trip to the computer. Beyond real estate, I’ve used the web (mostly YouTube) to learn about new interests and hobbies. Pretty cool!

    As for what the future holds, only time will tell. It would be neat if we could get to the point where money is irrelevant and focus on more intellectual endeavors such as space travel and exploring new worlds such as in the television show “Star Trek: The Next Generation” (I read about how little we spend on NASA research — it’s pretty sad).

    On the flip side, it would be unfortunate if the world were to follow the apocalyptic theory where we just keep destroying what we have built only having to start over. That would be a shame.

    In any case, just some thoughts I had about the future beyond real estate. One of the things I like about you is your philosophy on lifestyle design. There is definitely more to life than real estate and money!

    • Ali Boone

      I agree Rachel and thanks for the compliment! (at least, I take the lifestyle design philosophy as a compliment). You brought up some great points. I have to admit when you mentioned the apocalypse that my brain immediately went to The Walking Dead (obsessed with that show) and I started wondering how I could make real estate work in the zombie world. I mean, there’d have to be a way….build walker-proof housing and accept entry fee payments? Lol. Somehow, someway…

      • Al,

        Many of the Gurus are already adapting.

        I recently got solicited by Ron LeGrand for a Webinar at $199.00. In the old days Ron will charge $1,500 – $2,000 but his expenses were quite high. Now it’s about 97% pure profit and he gets 500 people to sign up.

        • Ali Boone

          That is true Tom, I hadn’t thought of that. A lot of them did used to charge in the thousands for what you can get now for a couple hundred. Will be interesting to see how much more it all changes. One thing that I think is one of the biggest benefits of the in-person seminars gurus teach is the interaction between other people there. Masterminding and meeting other folks, networking…can be a huge part of it. Will be cool to see how they figure out how to keep that aspect when they start doling everything out online. If they keep it.

  9. Well, for one thing, the internet has flattened the playing field. What I mean by that is access to full information is much easier to everybody now, not just real estate brokers.
    That being said, all real estate information is not as good as others. What this will do is put a much higher focus on service for the real estate brokers and other professionals that we use because so much can be done electronically over the internet now.
    Well, of course, how people will pay rent has already changed in many areas because people are playing electronically with electronic fund transfers now than just sending in checks. It makes it much easier to track payments and, obviously, late payments.
    And as far as tax-related, I don’t want to go there because that’s an ever-changing situation based on what’s going on in Washington on any given day.

    • Hey John, great input and I think you bring up something really interesting about it flattening the playing field. When I first read that, before reading what followed it, I immediately thought that having so much information and opportunities available now essentially to the entire world thanks to the internet, now really anyone can start investing much easier than before. Before, it took a certain level of smarts and opportunity to make things happen because you had to find everything manually. Now everyone can find the info. Now what they do with the info, or don’t do with the info, or whether they take the time to decipher between the quality of various forms of info…who knows, but everyone has access. So it’s not just going to be restricted to the superstars who go out and find the information. Everyone can be a superstar much easier now, if they handle what they find correctly.

      Not sure i worded that quite right but you probably get what I’m saying. Basically one of two things may happen with the advent of the internet (and BP, ha): 1. a huge majority of people may become very successful real estate investors, way more than in past times, or 2. a huge majority of people take a lot of REI info and run with it, into a wall. Either way, it may change the number of people in REI drastically.

  10. Here’s a new wrinkle to how the net has changed real estate for hard core real estate investors.

    The MO goes something like this, a real estate investor gets up in the morning, goes to his/her computer, logs on and selects a zip code. Next, software is employed that reveals all NEW Listings for that zip code area. The real estate investor uses additional software that write instant 50% of asking price offers to all of the listings and emails them to the respective Listing Realtors. The whole process takes less than an hour and the real estate investor can go back to bed.

    Most of the Realtors receiving the low ball offers laugh and perhaps circular file them, but others present the offers and statistics evidence some Owners will counter. Ah, and then the game of negotiating begins.

    I have seen this work and some real estate investors dispatch via the net many hundreds of such 50% offers a week and like the fisherman, simply wait

    • Then what do they do with the properties if the offer is accepted Tom? These are wholesalers I’m assuming, how do they know enough about it to pass it off to a flipper? Or how do they even know the condition of it?

      But to your point, I know the feeling of getting up and tending to “work” and going back to bed quite well myself! :) Thank you, internet.

      • The wholesaler MO is that only a small percentage will respond, perhaps 1% ergo 1 out of a 100 offers made. Now the wholesaler goes to work and looks up the MLS property with comps etc. and comes back with a “Counter Offer”.

        If the Owner actually accepted the 50% less than MLS price the wholesaler has included in the offer “Subject to”, for example, “My attorney’s approval” etc.

        It seems to work because I have seen several of these guys send out hundreds of offers a week and they are still in business a year later.

  11. Great question Ali! You always come up with the good ones. Here are a few things I have often wondered about that don’t seem to get talked about much:

    1) Technology-Right now home building has not changed much in the last 100 years. People are still buying homes that have been in existence for a very long period of time. A lot of this is due to location (we can’t build new land) but a lot of it is because things just haven’t changed much. I often wonder about this new millennial generation (or the one after it) and the expectations they have regarding technology. I can see an era where home buyers expect to control everything in the house (lighting, climate, appliances, entertainment, colors on the walls, maybe even the floor plan) with a smart phone. If the technology is developed to make your house more interactive, I can conceive a future where nobody wants an old house with archaic light switches and all the home buyers are opting for brand new developments with solar powered everything and an app that runs it all. If that happens, some of us who planned to collect rent on a property for the next 30 years may find that no one wants to rent our house unless we spend a lot of money to update it. Just a wrench in the whole thing I wonder if most of us think about. Sure would put a whole lot more importance on location.

    2) Right now we have low interest rates, low home prices, newer homes available, and an insanely strong rental demand. Even if you blow it and pay too much for a house or put too little down, you are almost guaranteed to come close to breaking even with very low vacancy rates and strong rent prices. I can see a few things messing this up in the future:

    A) The govt. sees rent continuing to increase and hears the cries of the poor (victim) tenants complaining housing is no longer affordable and they cannot live in nice areas anymore. As our country continues to adopt a more socialistic response to these issues I can see rent controls kicking in. Combine this with a possible increase in property taxes to pay for all the debt we have racked up during this quantitative easing and different tax laws, and real estate investors who planned on inflation increasing profits could be hit with a nasty curve.

    B) Super low interest rates have equaled super low yields and many people are now investing in housing that previously had no desire to be a landlord. Multi family housing will soon be springing up everywhere to meet the demand by tenants who cannot/will not enter the market as buyers again. As we all know, this is cyclical, and soon the influx of tenants will turn into an influx of buyers and we may find that there are too many rental properties chasing after too few tenants. This would put massive downward pressure on rents as well as increased vacancies. I can conceivably see a perfect storm for investors just like we just saw a perfect storm for home owners as they all went into foreclosure. It’s not crazy to think many rental properties will be foreclosed on as they no longer can produce rental income, and the home buyers are swooping up homes at a discount.

    C) Real estate has pretty much become a new asset class due to this high rental demand. As renters buy up more homes, we could see a collapse in the rental market “bubble” much like we saw in the home owners bubble. As landlords we are totally dependent on rental income. Governmental policies against the evil vulture investors that favor home buyers could be an unforeseen wrench in the machine.

    3) Hedge funds could unite, form relationships with bank asset managers and RE brokers, and squeeze us all out. Like locusts ravaging the fields leaving the rest of us scrounging for kernels of corn.

    What do you think?

    • David,
      You make some interesting points. Here are my thoughts.

      1. I don’t think this will be much of an issue. Most of the close in lots are already built, which means that these new houses will have to be built farther out. Eventually some houses will have to be retrofitted to accommodate new technology, but with so many houses already built, someone will figure out a way to do it.

      2. Rent controls are always possible, but I would bet that we won’t see them outside of a few select cities, as we do now. I don’t think the property tax issue will materialize in the way you are thinking, because the deficit is a product of the federal government, which doesn’t levy property taxes, only income taxes. If they did try to start taxing real property, it would be a political nonstarter, not to mention I’m sure it would raise constitutional issues.

      2B. All markets are cyclical, and I’m sure you’re correct that the hot markets we are seeing now will cool at some point. Those that will be left standing are those that bought the property right and can afford to weather the storm.

      3. This is possible, but there are a lot of properties available from other sources, so I don’t think the supply of houses will ever dry up completely.

      Good comments!

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