Article 4 of 5: Real Estate As An Investment Option
This is the fourth in a series of five pieces to help investors understand the benefits of owning commercial real estate, then differentiate the dynamics and variety of ownership channels.
Our first blog in this series explains how commercial real estate investments enhance traditional stock and bond portfolios.
Briefly, real estate generates most of its returns from rental income, can diversify a traditional stock and bond portfolio, and typically holds value during inflationary periods.
Indirectly holding real estate through stocks and mutual funds often dilutes these benefits, as they are subject to market volatility. Real estate stocks offer attractive dividends, but as demand raises the stock price, their yield goes down. Real estate funds can reflect a broad (indexed) composite of the market, but this washes out the opportunities of manager selection.
Owning private commercial real estate means investing through a pooled investment vehicle that is not listed on a stock exchange. Non-traded real estate portfolios often pay higher yields and better retain value.
Since private real estate is not publicly traded, it is not subject to the market volatility responsible for much of the fluctuations of traded REIT or mutual fund prices. Non-traded funds typically are priced at their Net Asset Value (the value of their assets minus liabilities).
Mutual fund managers must sell their holdings at lower prices during periods of high redemptions. Non-traded funds avoid these pitfalls by limiting redemptions, so they are not appropriate for short-term investors.
Private real estate investment managers look to increase profits by focusing on opportunities.
When you buy stock in a traded REIT, you’re buying it from someone who wants to sell their shares, but the real estate portfolio itself isn’t changing. Investors in private offerings are adding new money to a portfolio, allowing managers to be strategic in putting that money to work, looking at real estate dynamics for today’s opportunities.
To see how Integras Partners incorporates real estate and other “Real Assets” click below.
If you’re interested in learning more, reach out to us about your situation.
As you learn more about avenues for investing in real property, readers can access our final installment, “Comparing Private Real Estate Solutions.”