Real Estate & Your Portfolio

One recognizable allocation in the portfolios of endowments and experienced investors is that they have a percentage of their assets in real estate. Real estate investment may offer several key benefits to your portfolio, and these include:

  1.  Income – dividends, distributions, rent, etc.
  2.  Appreciation – increase in valuation
  3. Inflation Protection – assets like real estate generally move with inflation.

However, with these benefits investors need to also be aware there are also some risks, which include: market risk, illiquidity, and management risk.

Furthermore, you can gain exposure to real estate through some of these general investments:

  1. Publicly Traded REITs
  2. Non-Traded REITs
  3. Direct Real Estate Investment (purchasing a rental property)

The most accessible way to gain exposure to real estate is to invest in a publicly traded REIT listed on an exchange that can be purchased in your investment or retirement account1. Other publicly traded investment vehicles to access REITs include Exchange Traded Funds (ETFs) and mutual funds that offer investors a diversified mix of publicly traded REITs. Another way certain qualified investors may increase their real estate exposure is to invest directly in a non-traded REIT2. However, it is important to understand the offering and discuss it with your advisor before investing. That said, these programs can be specialized in regions and properties tied to health care, storage facilities, multi-family apartments or retail centers. One may also purchase real estate directly and this may require aligning yourself with a lender, real estate professional as well as an accountant to ensure you are identifying and managing the property and liabilities correctly3. Unique to non-traded REITs and direct real estate investment is they offer investors the ability to purchase an asset that is not valued daily on a stock exchange where you can see the price fluctuate. This may be beneficial in reducing portfolio volatility as well as the emotions that result from intraday volatility.

Regardless of how you invest in real estate, you should make the determination of how it fits into your long-term goals and what investment is most appropriate for your financial situation. The NAREIT Equity REIT Index had an annualized return of 10.8% from 2002 – 20164 and offered one of the best asset class returns in equities and fixed income. That said, if you haven’t considered real estate yet in your investment portfolio, it may be worth exploring. 

Plotkin Financial Advisors, LLC is an independent advisor and we seek to find unique investment instruments in the marketplace and are not restricted to one manager style or company’s products. Thus, we can provide our clients investment diversification and customization to fit their short-term needs and long-term goals. We share a similar investment philosophy as the managers of the Yale and Harvard University Endowment Funds. This investment principle combines an array of alternative investments with traditional investments, such as equities and fixed income. If you are interested in learning more, please feel free to contact us today.

1 Shares and company value are subject to regional, national and stock market influences and risk.

2 Non-traded REITs are illiquid investments. While the market price of publicly traded REIT is readily accessible, it can be difficult to determine the value of a share of a non-traded REIT. Distributions may be paid from offering proceeds and borrowings, but reduces the value of the shares and the cash available to the company to purchase additional assets. Non-traded REITs typically have an external manager instead of their own employees, and this can lead to potential conflicts of interests with shareholders.

3 Understand that risks with direct investing include facing the possibility of bad tenants and other management hassles, making a poor financial choice, losing money on the sale of the property and assuming full liability past insurance coverage.

4 JP Morgan Guide to the Markets, 12/31/16