In this podcast episode of Financial Samurai, I speak with Ben Miller, co-founder and CEO of Call for donations about his prospects for industrial residential real estate in 2025. Despite high mortgage rates, he’s positive and identifies the primary reasons for this.
Listen to my conversation with Ben by clicking the play button below or watching the episode Apple or Spotify.
Reasons to be positive about residential and industrial real estate in 2025
In my post, I outlined why I imagine industrial residential real estate represents a compelling investment opportunity in 2025. However, given the stubbornly high mortgage rates at first of the 12 months, some doubts have crept in.
Of course, I used to be excited to listen to Ben’s optimistic tackle the subject. Below is a summary of the 4 key the reason why Ben is optimistic about industrial residential real estate in 2025, as discussed within the podcast.
You’ll notice some things in my tone after I query certain points in his arguments. Since there are not any guarantees when investing in dangerous assets, it’s at all times advisable to uncover potential blind spots.
1) Valuation difference between stocks and real estate It’s too wide
The S&P 500 trades at a forward earnings ratio of roughly 22x, well above its historical average forward P/E ratio of 17x. Historically, investing in stocks at such high valuations has often resulted in paltry returns.
Meanwhile, industrial real estate prices have fallen greater than 20% within the last two years, while stocks have risen greater than 50%. This massive valuation gap appears unsustainable, especially as mortgage rates begin to say no.
Below is a chart that caught my attention since it shows how housing values ​​have fallen to levels much like those seen in the course of the global financial crisis. However, the economy and household balance sheets are much stronger today. This discrepancy makes me optimistic for industrial residential real estate as prices have risen sharply following the worldwide financial crisis.
I remember in 2010 wanting to start out a fund to purchase up all of the residential properties in Vallejo, a city 29 miles north of San Francisco that had declared bankruptcy. However, I lacked the resources and connections to make this occur. Today I can simply spend money on a residential real estate fund and take part in real estate at significant discounts.
2) The performance correlation doesn’t match
Stocks and industrial real estate have historically exhibited a powerful correlation because each reflect the general economy. From 2012 to 2022 their performances ran parallel. Both asset classes profit from a healthy economy.
However, since 2022, this relationship has broken down, creating a chance for many who imagine in mean reversion. Additionally, real estate could outperform stocks in a possible recession as investors shift to more stable assets.
3) Future undersupply of housing
Increased rates of interest since 2022 have significantly slowed recent construction, even in builder-friendly cities like Austin and Houston. Costar says housing starts in Houston are down 97%. This development pause lasting several years creates the conditions for an undersupply of housing.
Ben, who has an infinite portfolio of business residential properties, expects the oversupply from the 2021 construction boom to be absorbed by the tip of 2025, if not mid-2025, faster than many estimates. He due to this fact assumes that rents and costs for industrial residential properties will rise again by the tip of 2025 and beyond. Your portfolio is already seeing a return in rental growth.
In the interview, I also present my argument that the return to the office will strengthen the industrial real estate market in major cities corresponding to NYC, San Francisco, Boston, Seattle and LA, where constructing recent developments is significantly tougher. However, Ben stays skeptical and cites technological advances as a counterpoint.
4) Low risk of accelerated inflation
There is widespread fear that Trump’s second term could bring significant inflation. However, the economy was much stronger in 2015, 2016 and 2017 than it’s today. But despite robust growth and eventual tax cuts after Trump took office on January 20, 2017, inflation remained relatively low until the pandemic.
In addition, Trump promised in the course of the campaign to combat inflation, suggesting that he’s unlikely to pursue policies that might exacerbate inflation.
Demographic developments also point to a deflationary trend in the long run. As America’s birth rate declines, slower population growth is more likely to put downward pressure on inflation.
Invest in industrial real estate for the long run
As a worth investor, I’m at all times on the lookout for discrepancies in historical performance and valuations. Many personal finance enthusiasts probably share this sentiment, as we are likely to be more frugal and cost-conscious.
In 2025, I might fairly put more recent investment dollars into undervalued residential and industrial real estate than into expensive stocks. After the S&P 500’s strong performance in 2023 and 2024, it is difficult to assume the index delivering outsized returns again in 2025.
So far I actually have invested about $300,000 Call for donationsa trusted partner and long-time sponsor of Financial Samurai. With a low minimum investment of just $10, averaging industrial real estate has never been easier.
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