A recent report by David Funk, director of the Baker Program in Real Estate at Cornell University and a NAIOP Distinguished Fellow, shows that real estate has now become the fourth major asset class.
In the 1980s, real estate investments made up about 2% of institutional investor portfolios. These investors mostly focused on the three asset classes: stocks, bonds, and cash. This was due, in part, to the complex nature of the real estate market and its lack of transparency and liquidity. Since then, real estate in investment portfolios has slowly increased. Commercial real estate now makes up about 10% of institutional investor portfolios across the world.
Growth in investment real estate is not only changing the composition of portfolios; it’s also changing the way people view real estate. What once seemed like a difficult and overly complicated investment is now one of the most attractive investments in the world.
Three reasons that real estate is attractive in an investment portfolio are:
- Diversification and Reduction of Risk: While other asset classes have strong relationships and can decline concurrently, real estate values largely operate independently. That makes it a great way to reduce risk and diversify a portfolio.
- Inflation Hedge: Real estate responds well to inflation. As the value of other assets decline during inflationary periods, real estate values remain steady.
- Great Returns: Real estate delivers high returns. In 2014, for example, global equities (stocks) averaged a 5.2% return, U.S. bonds 6%, and global real estate 15%.
Experts think this is only the beginning of a larger trend, and they expect real estate to become an even more important asset class in years to come.
There are a number of ways to invest in real estate. At Graystone Investment Group, we help new and seasoned investors find, rehab and manage investment properties. Unlike other wholesaling groups, we find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years, at no extra charge.