Private real estate can play a key role in building a successful investment portfolio and optimizing your ROI. However, the challenge of managing your own properties is time consuming and can put you at a higher risk if real estate is not in your area of expertise. By utilizing a company like Caliber, you can reap the benefits outlined below without the added stressors. Whether you’re looking to invest in single family residential, multifamily residential, hospitality or commercial real estate, we have access to a diverse collection of assets and can find the opportunities that best fit your portfolio. If you’re still not convinced, here are the top five reasons to invest in private real estate.
1. Low Volatility
Volatility refers to the range of returns on a specific investment. Investments like stocks and bonds tend to have a high volatility because their values fluctuate with the market. One of the main benefits to real estate is that it yields consistent returns, regardless of the state of the stock market. Think of it this way, people will always need a place to live, work, travel, etc. Real estate remains a constant, making it a safer investment opportunity for your portfolio.
2. Portfolio Diversification
The key to portfolio diversification is building a mix of investments that have varying levels of risk and associated returns. Traditional investment opportunities like stocks and bonds can offer quick returns to investors who continuously buy and sell. However, they are also considered high risk because value can vary greatly based on the overall health of the stock market. Real estate, on the other hand, is considered to be a stable investment with low volatility (see above). The consistency of real estate investments helps balance the risk associated with other investment types. Investors often utilize real estate investments to create a well-rounded portfolio, yielding the highest possible returns for clients.
A prime example of a well-rounded portfolio is the Yale Endowment, which recently announced an annual increase of 12.3 percent and a total value of $29.4 billion. As the largest source of revenue for Yale University, this endowment helps fund student scholarships, faculty salaries and other various expenses. As a crucial component to the financial health of the university, keeping a balanced portfolio is critical. Real estate is one of the ways they stabilize their returns, accounting for 9.5 percent of the total endowment.
3. Tangible Asset Value
Real estate is considered a tangible asset – you can physically touch and see your investment. As mentioned briefly above, this type of investment will always be needed and, in turn, have an associated value. Whether or not the economy is stable, plots of land will always have a market price and the same is true for buildings and infrastructure. It’s not to say that real estate investments are guaranteed money makers, but in correlation to other forms of investments, it’s a pretty safe bet.
4. Tax Efficiency
Working with traditional investments – like stocks and bonds – often results in reoccurring fees and taxes each time a transaction is made (i.e., buying and selling). One of the benefits when investing in real estate is the 1031 exchange which allows investors to defer their capital gains taxes by selling an appreciated property and utilizing those funds to invest directly into a new investment property.
Caliber is also helping clients take advantage of opportunity zone tax deferral opportunities. When willing to invest for a minimum of 10 years, you can receive a reduction of up to 15 percent on your original tax liability.
Another tax benefit of investment properties is the ability to deduct expenses like operating costs, insurance, travel and asset depreciation.This can have a significant impact on reducing your taxable income.
5. Cash Flow and Equity
Long-term real estate investments can generate consistent cash flow, often times almost immediately following a transaction. Commercial and multifamily properties, in particular, can generate steady income each month with tenant payments. Many properties may even come with a built-in tenant base, making this turnaround process even quicker. It is also important to remember that the property is building equity over time. The purchase price today may double in value in 10 years.
These are just some of the benefits real estate investments can have on your portfolio. If you are interested in learning more, contact us today to speak with a member of the Caliber team.