Given the volatility and uncertainty in the equities market, the world’s leading investors and industry analysts recommend that every investment-seeker consider introducing real estate investments to their investing portfolio. Not surprisingly, this message was echoed in a recent telephone conversation I had with an alternative investment adviser at Davenport Laroche.
According to the company’s representative, aside from owning their own homes or paying-down a mortgage, investors are enjoying several other ways to invest in real estate; including: Secondary Properties, Real Estate Income Trusts (REITs) and alternative investments such as Real Estate Limited Partnerships (RELPs).
With so many appealing investing options, it can be overwhelming for the novice investor. Thankfully the gentleman I spoke to from Davenport Laroche took the time to provide insight into my real estate investment options and investing alternatives. Here is my own interpretation of the information I received:
Although Secondary Property Investments have been seen as a profitable addition to an investing portfolio, some critics claim that personal real estate is not a very liquid alternative. According to some experts, owning a second property can provide challenges for investors who need access to their investment capital quickly. On the other hand, there are those industry veterans who are adamant that if you need to sell a piece of property, you can. But, that said, if your intention is to squeeze every last cent of profit out of a real estate investment, it might be difficult to sell “overnight” and thus it may appear illiquid.
Real Estate Income Trusts (REITs) have long been considered a safe and more liquid means for private investors to gain exposure to property markets. However, there are some experts that are concerned that, unlike RELPs; REITs are linked to the volatility of the overall stock market. Albeit REITs offer liquidity, they come with a series of potential pitfalls. For example, there are some analysts that have voiced concern over the fact that REITs can be readily affected by equity market trends, as well as by interest rates.
Real Estate Limited Partnerships (RELPs) are essentially a privately-held and more appealing version of a REITs. In markets characterized by volatility, an increasing number of investors are becoming enamored with RELP opportunities, primarily because their returns are not tied to public markets. This disassociation limits the volatility that commonly plagues REITs, while at the same time still (typically) offering an impressive investment return for investors, upwards of 10%.
The representative from Davenport Laroche cautioned that RELPs are not for people “looking to make a quick buck.” Instead, these real estate investments are ideal for investors seeking longer-term returns.
“A good piece of real estate is like a blue chip stock. It won’t make you rich overnight, but it will perform well.” – Senior Analyst at the Real Estate Investment Network
Investors can make an educated real estate investment by looking at property trends in the area or region they are buying into. But, this means much more than simply looking at current real estate values. To get deep insight into what you can expect, Davenport Laroche’s representative suggested that investors research other issues, such as job growth in the region, GDP performance and economic development. This information will determine whether those factors will positively (or adversely) affect property values in the future.