Real Estate

Mark Twain’s famous quote regarding real estate, “Buy land, they’re not making it anymore”, speaks volumes to the importance of holding real estate assets inside your diversified portfolio. A properly diversified real estate allocation can help reduce volatility within your portfolio and help enhance returns through both current income and the potential for capital appreciation. In addition, real estate returns have typically demonstrated a low correlation with the returns of common stock and fixed income instruments.

Types of Real Estate

We invest in a number of types of Real Estate. We are very fond of researching demographic trends and investing in segments and areas that reports show are expecting growth over the next 20 years. Some interesting quotes on one of our favorite demographics are below:

“Baby Boomers, who have now begun reaching age 60, control 75 percent of US financial assets. Eager to remain youthful, ‘boomers’ are spending more on preventive and elective healthcare, including cosmetic treatments. With their children reaching adulthood, empty-nest boomers are eating out more and considering moves to smaller homes, including condos and luxury apartments.”¹

“From 2010 to 2030, the population aged 65 and over is expected to grow by 75% to over 69 million.” ²

Baby Boomers are beginning to retire and are creating some traceable trends. We intend to be poised to take advantage of this huge demographic migration through investing in Real Estate that is likely to be in high demand by Baby Boomers.

This is not the only trend that we are following. With current credit and economic conditions, many prime opportunities are arising from distressed sellers. For more information on our Real Estate holdings and suggestions, please contact us today to set up a complimentary consultation.

General Structure of the Investment

The majority of our Real Estate investments come in a vehicle called a Non-Traded Real Estate Investment Trust (REIT).  A REIT is a corporation investing in real estate that reduces or eliminates corporate income taxes. In return, REITs are required to distribute 90% or their income, which may be taxable, into the hands of the investors. The REIT structure was designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks.

Why Invest with a REIT?

The purpose of investing with a REIT is that it allows an individual to share in the ownership (along with hundreds to thousands of other investors) of many high quality properties that the individual may not have been able to purchase alone. Almost all of the REITs we recommend consist of a large number of properties spread across a number of geographical areas. Depending on the size of your portfolio dedicated to Real Estate, we can often spread your allocation across a handful of REITs, giving you ownership in hundreds of properties throughout the country.

Traded vs. Non Traded REITs

The distinction between a Traded REIT and a Non-Traded REIT is quite significant. A Traded REIT experiences all of the systemic risks associated with liquid investments like stocks and bonds. A Traded REIT’s share price can move throughout the day as it responds to movements in the market, despite the fact that perhaps nothing new has happened with the physical holdings or occupancy rates of the Traded REIT.

In comparison, a Non-Traded REIT does not experience the same price volatility as a Traded REIT. A trade-off for avoiding this share-price volatility is that Non-Traded REITs typically carry a long-term holding period, limiting its liquidity.

The combination of Non-Traded REITs and liquid investments like stocks and bonds, often leads to a portfolio that is more diversified and risk-averse than the traditional “buy and hold” portfolio found at most large brokerage houses.

1. “When I’m 64: How the Boomers Will Change Health Care,” American Hospital Association, May 2007.
2. “Aging into the 21st Century,” Department of Health and Human Services, Administration on Aging, May 31, 1996.