Have you ever considered investing in real estate? As with all types of investments, there are risks and time horizons that may or may not be consistent with individual goals and objectives. Usually held as part of a larger portfolio and often considered an alternate investment, real estate fits well as part of a portfolio because it can both enhance the return of a larger portfolio, or reduce portfolio risk at the same level of return. With this in mind, here is a quick overview of some of the different types of real estate investments.
Multi-Family Housing. These homes or apartment complexes generally have two or more living units that share some common facilities (e.g., laundry, parking, storage space, etc.).
Real Estate Limited Partnership. A mechanism that allows several real estate investors to pool assets into a partnership that subsequently purchases and manages a desired investment property.
Real Estate Investment Trust (REIT). A professionally managed portfolio of real estate holdings in which investors are able to purchase shares.
Commercial and Industrial Real Estate. Office or industrial space, shopping malls, warehouses, or storage facilities are all forms of commercial real estate.
Time Share. A sharing of ownership in a particular piece of property (typically a condominium or room in a resort or vacation community) in which the shareowner is able to use the property for a specific increment during a specific time of the year.
Investing in real estate can have some benefits as well as some disadvantages that one should take into consideration before adding this in to a portfolio.
Diversification – Real estate returns have low correlations with other asset classes, adding to the diversification of a portfolio
Inflation Hedge – Income from real estate tends to increase faster in inflationary environments, allowing an investor to maintain its real returns
Yield Improvement – Adding real estate to a portfolio could maintain portfolio returns while decreasing risk
Difficult to Acquire: Finding the right house or property at the right time, the right price, and the right location can be challenging
Difficult to Get Out: Being able to sell at the right time and for the right price can also be challenging
Requires Management: Most real estate investments require ongoing management, both in the day to day and for the long term
After evaluating all the pros and cons of adding real estate in to a portfolio, one must also be sure to review the tax implications and liability issues that come along with real estate investments. Reviewing the decision with a financial services professional can be advantageous in helping an investor look at the whole picture. At Anson Analytics, we are happy to help you assess if adding real estate investments is a good choice for your portfolio. Please do not hesitate to call us at 678.216.0795 or email us here.