If the ups and downs of the stock market have you reaching for the antacids daily and more often than not, you’re looking at a sea of red whenever you check your stocks, you may be considering moving some of your money to other types of investments. Bonds are less volatile than stocks, but they have a lower rate of return. Overall, the average rate of return on bonds is less than 6%.
You may not think this is the time to add real estate investments to your portfolio. However, when managed by professionals, they can prove to be a wise choice over time — no matter what the current economic climate looks like. Private commercial real estate (CRE) investments have significant potential for growth. According to the National Council of Real Estate Investment Fiduciaries, the average return for private CRE investments over 25 years is 9.4%.
What You Need to Know Before You Put Money in CRE Investments
If you’re considering adding or redistributing investment dollars to real estate, remember that these assets won’t be liquid. You cannot pull out the money you’ve invested as you might be tempted to do when a stock takes a dive. You don’t want to invest money in real estate that you’re going to need in a couple of years for college tuition.
Your investment in real estate needs to be money you can afford not to have immediate access to with the expectation (although no guarantee) of an impressive return over time. Smart, aggressive CRE investing can provide a 20% internal rate of return (IRR) and double a person’s equity investment in three to five years.
Why Some Types of CRE Can Be a Wise Investment – Even Now
Smart real estate investing involves diversification. Private CRE investment professionals choose from a mix of asset classes. Some, like retail, have taken a big hit in recent months and even in the years prior. Others, like multifamily housing, are widely considered to be a more reliable investment, even through recessions and crashes. In the previous two recessions in this century (in 2001 and 2008-2009), multifamily properties outperformed other CRE asset classes like office and industrial.
What Percentage of Your Investment Portfolio Should You Allocate to Real Estate?
The share of your overall investment portfolio to devote to CRE is a highly individual decision. It depends in part, as we noted, on how much you’re able to keep in illiquid assets and on your investment goals. Experts typically recommend anywhere from 10% to 30%.
A survey by TIGER 21, a membership network for high-net-worth individuals found that private real estate investments comprised a third of the respondents’ portfolios. CRE investments can be perfect for the money you don’t need immediate access to that you want to put to work to build income and wealth over time.
What Can a Private Real Estate Investment Firm Do for You?
Private real estate investment firms continuously study the real estate market and the economic and demographic trends that help predict where it is headed. By pooling the investment dollars of multiple clients, they can take advantage of promising opportunities unavailable to most individual investors. They stay involved in those investments to help ensure their success.
For more information about how the investment professionals at Realty Capital Partners (RCP) can help you, call us at (469) 533-4000 or email us at RCP@rcpinvestments.com.