Exploring Alternative Real Estate Investments With Your Clients - WealthManagement.com
23 September 2016

Exploring Alternative Real Estate Investments With Your Clients - WealthManagement.com

What is it that attracts the everyday investor to real estate? Could it be today’s television program like Fixer Upper or Property Brothers that show how “easy” it is to increase equity value by 5 percent to 20 percent by giving a home a much needed facelift? Or is it the influence of a friend who’s currently profiting from their own property investments?

Maybe you’re just looking to diversify and get away from traditional investment avenues like stocks and bonds. Whatever the catalyst to consider real estate investments, the main driving force is likely financial freedom and a better life without necessarily having to run a business or work a traditional 9-5 job.

In my many years as a property investment advisor, I’ve learned a lot from property developers and landlords about what it takes to invest in real estate properties. I’ve found that while being a property investor can be a great way to make money, as you have direct control over your investment, it actually takes a lot of work and should be considered a business, not a hobby or a side project. You’ll have numerous tasks from researching the correct location and negotiating purchase price, to working out the soft costs (financial, legal, etc.), and of course, if you are renting the property, finding the right tenant who will actually pay the rent. These and countless other arduous tasks that need to be taken care of by property investors will eat into their time, and if they’re not careful, their capital.

That’s why, in my experience, for everyday investors, investing directly in multiple residential or commercial properties isn’t always the best option. In fact, if you’re advising clients on how to diversify their portfolios with alternative assets that include real estate, Real Estate Investment Trusts (REIT) and real estate funds are good alternative investment channels that will allow their portfolios to be indirectly invested in property.

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