Diversification is key to protecting the potential downside in an investment portfolio. Traditionally, many portfolios — particularly 401(k) plans — focus heavily on equities and mutual funds and may charge steep fees for doing so. But is there an argument for a 5-10% allocation of real estate in your portfolio today? The answer is yes!
Real estate is generally non-correlated to the bond and equities markets and, furthermore, is a lagging indicator. This point helps delineate how real estate investment adds diversification (and safety) to your portfolio.
Here are three reasons why real estate should be considered in every investment portfolio:
One of the highly favorable selling points about investing in real estate is that it provides treasured income. Long-term leases provide consistent returns which are also attractive to lenders should additional future loans be required. Regular income from real estate also counterbalances any potential market stagnation in added value to the property. Being able to depend on regular positive cash flow is gratifying and (in nearly all cases) the rental income is contractually stipulated to stay the same or increase for the duration of the lease.
Global Interest Rates Falling
Times of global economic slowdown and historically low-interest rates present unique opportunities. This environment makes the purchase of real estate for investment attractive in two noteworthy ways: 1) The cost of debt financing for the investment is lower. 2) Predictive indicators for global recessions often cause equities to flatten or lose ground. Therefore, you could purchase real estate at a lower interest rate AND have it potentially outperform the equities market.
Hard assets have the advantage of having substantial and obvious intrinsic value. This is not necessarily true of all asset classes in a typical portfolio. Even if the real estate market suffers especially “stormy weather,” there is value in the building structure itself and/or the land upon which it is situated. To paraphrase the great and charismatic real estate investor Grant Cardone, “It doesn’t matter what they pay me with … everyone needs a place to live!”
Team up with Realty Capital Partners and Empower Your Portfolio!
Some investors may shy away from real estate investment because they feel they have insufficient resources or time to locate opportunities that are best in class. There is also the benefit of being able to pool your capital with a partner to afford higher-cost properties that may produce higher returns.
At Realty Capital Partners (RCP) we can help you with both. Our longstanding expertise allows you to make wise, thoroughly researched decisions geared to diversify your portfolio into profitable real estate exposure.
Our real estate professionals welcome the opportunity to share more about real estate investment opportunities that could diversify your portfolio.