Menu

(866) 818-4472

Open Account Client Login

PENSCO Blog

PENSCO Blog

Fresh alternative asset insights and the latest news on real estate and private equity investing.

Off the Beaten Path: Investing in Real Estate Niches

  |  By Chris Shanahan, CISP®

Real estate investing is a popular strategy among PENSCO’s self-directed IRA clients, providing retirement savers with a means of diversifying their nest eggs and helping to insulate their portfolios against wild stock market swings. But real estate investing using IRA funds doesn’t only take place within the confines of traditional real estate niches, such as single-family homes or commercial real estate.

Instead, the list of real estate niches is continually evolving and expanding in response to shifting social and demographic trends. The world of real estate is vast, and there are plenty of opportunities for self-directed IRA owners to invest off the beaten path. The following is a look at four unique real estate niches.

Self-care sector: According to the Global Wellness Institute, the global wellness sector is a $4.7 trillion business that experienced 12.8% growth from 2015 to 2017. Everyone from millennials to aging baby boomers are showing an interest self-care, whether that means wellness, fitness and/or beauty. Given this surge in self-care, neighborhood shopping centers are reporting an increase in new leases being signed by beauty, health and fitness retailers, according to National Real Estate Investor (NREI). NREI explains that many shopping center landlords are welcoming these wellness brands because self-care establishments tend to regularly bring foot traffic to their centers and they’re relatively protected from e-commerce competition.

Glamping hotels: Demand for adventurous and unique travel experiences is helping spur the growth of glamorous camping—or “glamping.” Glamping combines the luxuries of a hotel with easy access to nature, and the projected compound annual growth rate (CAGR) for glamping hotels 14%, according to NREI. Millennials, young families and active seniors—who enjoy camping but no longer want to sleep on the ground—are contributing to glamping’s popularity. Many glamping sites are located in rural, off-the-beaten-path locations, and accommodations can range from safari tents and tree houses to yurts. According to The New York Times, glamping is becoming mainstream with the biggest American camp collectives embarking on expansion sprees.

Student housing: Investors spent a record amount of money to buy student housing properties in 2018, according to NREI, pausing only near year-end as interest rates rose. Trends in student enrollment are driving this demand. Public four-year universities in the United States are forecast to add more than 100,000 new students a year to their enrollment through 2023, according to Axiometrics. This is an expanding real estate niche that we’ve written about before, and you can learn more in our blog, Owning a Student Property Investment in Your Self-Directed IRA.

Cold storage: Cold storage locations are large, temperature-controlled spaces where companies warehouse perishable goods, and, according to JLL, cold storage demand is on the upswing. Cold storage is an increasingly important part of meeting the rising demand for fresh food, and in as few as five years, JLL estimates 70% of US consumers will be buying groceries online, fueling demand for fresh food storage. Also, the growth of the Baby Boomer population is driving the need for cold storage for medicine, like insulin, which needs to be refrigerated.

This list of real estate niche ideas is just the tip of the iceberg. The number of real estate niche ideas is continually evolving and growing—think farms, parking lots, mineral rights, garages, gyms, manufactured homes, assisted-living facilities, and green properties.

While the opportunity to invest in real estate niches is far-reaching, it is not without challenges. Every real estate niche is influenced by its own unique set of drivers—from the local market opportunity to competition to regulations to price appreciation potential—that will affect its performance. Simply because you’ve had success investing in one type of real estate does not mean that success can be replicated in another real estate niche.

In addition, real estate investing using a self-directed IRA comes with a learning curve.  Retirement investors need to ensure they understand the rules of buying real estate with a self-directed IRA before making any purchasing decisions. Failing to follow IRS rules and regulations could lead to penalties or unexpected taxes.

Given the complexities of real estate investing and the potential tax implications of using retirement funds, we always recommend that you work with a professional who has helped other clients use their self-directed IRAs to purchase real assets.

This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.

PENSCO Trust Company performs the duties of an independent custodian of assets for self-directed individual and business retirement accounts and does not provide investment advice, sell investments or offer any tax or legal advice. Clients or potential clients are advised to perform their own due diligence in choosing any investment opportunity as well as selecting any professional to assist them with an investment opportunity. Alternative investments are not FDIC insured and are subject to risk, including loss of principal. PENSCO is indirectly affiliated with a registered broker dealer and with a licensed small business investment company through Opus Bank (“Opus Affiliates”). Other than the Opus Affiliates, PENSCO is not affiliated with any financial professional, investment, investment sponsor, or investment, tax or legal advisor.