The word on the Street the past couple of days has been “Fear.”
Take a look:
“Recession fears just hit an 8-year high for the biggest investors on Wall Street.”
“Another day, another reversal in stock fortunes as recession fears grow.”
“Wall Street falls on geopolitical tensions, recession fears.”
None of this is surprising since the U.S. has been experiencing the longest economic expansion in its history. The current expansion has been going 122 months and counting. The previous record was 119 months.
Given that the historical average time between recessions has been 3.5 years, some say we’ve been long overdue for one.
Despite the fear that permeated Wall Street this week, ultra-high-net-worth individuals (“UHNWIs”) and institutional investors like university endowments that are heavily invested in alternative investments like real estate were unfazed.
That’s because the wealthy have been divesting themselves of Wall Street volatility and low bond yields for years. They’ve discovered real estate investing provides not only above-market returns but lower volatility as well.
Here’s why the wealthy flock to real estate:
- Above-Market Risk-Adjusted Returns
- Cash Flow
It’s no secret that for surviving and beating a recession, nothing beats real estate. But many investors are intimidated by real estate and may even feel it’s too late to beat the impending economic doom.
That’s because investors think the only way to invest in real estate is through direct investment and given the time, capital, and knowledge required, the barriers to entry seem too much to overcome.
As a result, many investors stick with what they know like Wall Street and avoid real estate.
Although the high barriers to entry for real estate investing may have been true in the past, recent regulatory changes to the securities rules make investing in real estate now more realistic for more qualified investors than ever before – now without significant time, capital, or knowledge commitments.
The wealthy have known the secret to beating recession through real estate for years, but there’s another secret in their arsenal. Very few of them invest directly in real estate, preferring instead the private investment route.
That’s because they are more than happy to defer to the expertise of others. Instead of spending countless hours analyzing deal metrics and then managing a property, they’re more than happy giving up a little yield on individual investments to diversify and leverage across a multitude of private deals – resulting in a higher overall return on investment.
Private real estate investments through either a syndication or fund not only provide above-market returns but also acts as a hedge against inflation and as a buffer against Wall Street volatility.
And while it used to be that these types of opportunities were only available to the wealthy or well-connected with high barriers to entry, those days are over.
With the launch of the JOBS Act in 2016, now through advertising and crowdfunding, private investment opportunities are available to qualified investors like never before, with relatively low minimum investments without sacrificing return.
With private investments, instead of weighing a hundred different factors in making a direct real estate investment decision, now it comes down to only a few: Yield, Exit Strategy, and Management Team.
The transparency of private funds allows investors unprecedented access to a fund’s management team to make measured investment decisions. Transparency allows investors to assess the most important elements of being overwhelmed with multiple elements.
For those who don’t have the time, knowledge, or significant capital for getting into real estate investing, private real estate funds bridge the gap between cash flowing real estate opportunities and those investors who once thought the barriers were too high to get started.