Authored by David Keiran, Chief Financial Officer at Senné
One of the best tools to protect your investment portfolio from daily market swings is diversification. By diversifying your exposure to certain investment risks, your portfolio will be better prepared to weather market fluctuations. Investors with a sound investment strategy should always, regardless of stock market conditions, consider passive investment in real estate as a hedge on volatility.
Investing in real estate can add stability to your investment portfolio. The real estate market is very different from the stock market. It’s resilient and doesn't just drop in value in a matter of minutes based on the latest news. Due to the long-term contractual nature of leases, real estate income streams are more predictable. They can protect you in downturns and provide a significant upside in rising markets due to its low correlation to the stock market. Selling a real estate asset also doesn’t happen in a matter of minutes. The process of selling a property can be more complex therefore forcing investors to fully consider all of the consequences of selling.
However, not all real estate investments are created equal. REITs, or real estate investment trusts, are publicly traded companies that own or finance income-producing real estate across a range of property sectors. If you are looking to diversify your portfolio you should consider alternative investments in private real estate. Unlike REIT stocks, which have a direct correlation to the stock market, a private real estate investment has a traditionally low market correlation and has the potential to lower portfolio risk, generate current cash returns, yield better overall returns, provide significant tax benefits, and offer greater portfolio diversification. Investing in syndications provides a portfolio with the ability to purchase real estate interests with more managed risks of rises and falls, while also having a simpler path to selling if cash is needed.
Often, people shy away from investing in real estate because of a lack of time or expertise in property management. Participating in a real estate syndication allows investors to buy into larger commercial and multi-family real estate assets without needing to be actively involved in the daily management of the property. Syndication investment minimums are often far less than what would be required in a traditional real estate acquisition. This low barrier to entry makes this an attractive opportunity for a number of investors. These investments are typically managed by real estate professionals who are often also invested in the deal and have incentives to give their investors the highest likelihood of meeting their targeted risk-adjusted return. In a syndication, the sponsor typically co-invests, putting their own capital into the deal equally at risk alongside the investors. They operate based on a clearly defined set of rules set forth in an operating agreement that often requires investor votes for actions taken outside of normal operating procedures.
By participating in a private real estate syndication, investors can purchase a piece of a large professionally-managed property that they may not otherwise be able to afford to buy on their own. When choosing a sponsor, you want to look for a syndicator who will do the “leg work” — source and underwrite the investment, negotiate purchase terms, secure financing, perform detailed due diligence, hire an attorney, prepare the offering and legal documents, close the transaction, and manage the investment on a daily basis providing investors with regular financial reporting and cash distributions. To further diversify your portfolio, you can invest in multiple syndications, in a variety of asset types and geographic locations.
If you are an accredited investor and are thinking about investing in a real estate syndication to diversify your investment portfolio, you should consider investing with Senné. You can rely on our core principles of hard work, sound underwriting, thorough due diligence and seasoned professional management. If you are interested in learning more about how to diversify your portfolio by investing in a private real estate transaction, please reach out to [email protected].
The recommendations or information in this article is not and should not be regarded as legal or investment advice. It is not, and should not be construed as, an offer to buy or sell, or as a solicitation of an offer to buy or sell any type of investment products. Although reasonable efforts have been made to ensure that all information made available is current, complete and accurate, neither the author nor The Senné Company, Inc. (“Senne”) warrant or represent that this information is current, complete and accurate. All information is subject to change on a regular basis, without notice. Senne assumes no responsibility for any errors in the information provided, nor assumes any liability for any damages incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this article. In no event shall the author or Senne be liable to any party for any direct, indirect, special, incidental, or consequential damages of any kind whatsoever arising out of the use of the information contained herein.
Published: August 14, 2020
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