An Informative Look at the Investment
From television shows where people “flip” houses for a profit to the world’s most-famous, real-estate pitchman—currently moonlighting at a gig in the White House—real estate is enjoying a high-profile moment. While real estate investing might be part of the current zeitgeist, it’s hardly new. Buying and selling of real estate remains one of the most enduring means of wealth generation. A quick search of Amazon.com shows +12,000 titles dedicated exclusively to real estate investing. With so much being made of, and from, investing in real estate, it begets the question: what’s so great about real estate?
Historically, most investments exist for one of three reasons: asset protection, price appreciation or recurring income. This is one of the ways real estate differentiates itself. Real estate is considered a hybrid asset, offering investors all three of those features. Real estate is a tangible asset with a deliberate, long-term horizon, thus offering investors protection from the gyrations of the market. Because there is a finite amount of real estate needed for use by a growing population worldwide, real estate prices tend to appreciate over time. Finally, many real estate holdings generate income in the form of rent.
Another popular feature of real estate is that it offers investors shelter from inflation regardless of the monetary policy put in place by the Federal Reserve. In times of high inflation, this could mean a 5% (or more) hit on unprotected assets.
Then there’s the diversification aspect. Most investors know that diversification is a risk management technique that involves holding a variety of investment types in your portfolio. For example, a well-diversified portfolio might include equities (stocks), various bonds, precious metals, cash holdings and real estate.
At Cornerstone, our real estate funds are created and managed by specialists within the firm. These funds offer clients access to a variety of real estate opportunities that most individual investors, due to minimum investment requirements, would not be able to access on their own. In addition to basic portfolio diversification, Cornerstone’s managed real estate funds are structured to provide three types of intrinsic diversification.
Diversification Across Time
As we noted before, real estate is a fairly illiquid investment. Money that gets invested tends to stay invested for long periods of time. Transactions can take months or even years to complete. As a result, real estate investments tend to be spread out across a number of years. This gives the investor the benefit of diversification across time, minimizing the impact of short term market forces such as a recession.
Diversification Across Location
Cornerstone’s real estate funds offer extensive geographic diversification. Broad US and international exposure help to decrease the risk that a single event (natural disaster, localized recession) will negatively impact the return on a client’s investment.
Diversification Across Type
Cornerstone’s approach allows for the ability to diversify across a multitude of categories within the broader real estate market. Our investments can include residential projects, commercial real estate (such as shopping centers, office space, industrial sites), mixed use developments or even agricultural. This way, the fund gives investors exposure to multiple segments of the economy, mitigating the potential damages if some sector suddenly loses value.
So, given these attributes, is real estate investing with Cornerstone right for you?
If you have at least $5MM total investable assets, investing in real estate offers a time-tested way to diversify your portfolio. Cornerstone has the knowledge, experience and tools to help you evaluate and pursue the real estate options that suit your goals and financial planning aspirations. It’s important to remember that real estate investing can be an illiquid investment and should be limited to the portion of your portfolio that can be invested for up to 10 or more years.