Some people might argue that owning real estate is no longer a key aspect of the American dream. And while it’s true that younger Americans like millennials often eschew home ownership, I believe that real estate remains an excellent investment option, especially for long-term retirement investors.
As chief executive officer of a company that helps people make alternative investments like real estate, I’ve seen many retirement investors diversify their portfolios with income-producing properties. Some investors prefer the traditional purchasing pathway of working with a licensed real estate agent or commercial broker, but new real estate investment platforms are making it easier for investors to add real property to their portfolios.
Historically, investing in real estate could prove troublesome for novice investors, who would suddenly find themselves on the hook for physical maintenance and upkeep of a property — to say nothing of negotiating leases and interacting directly with clients.
All of that is changing, though, as crowdfunding and alternative investment startups eliminate two of the highest friction points in owning real estate: management and high financial entry. These alternative investment platforms let everyday investors buy commercial or residential real estate without suddenly becoming landlords. Investors now can realize the American dream of owning real estate without the usual pain that comes with it, such as snaking a toilet in the dead of night or trying to fire up a furnace in 20-degree weather.
The common thread here is allowing people to buy either whole or fractional ownership of professionally managed and vetted residential or commercial real estate. These types of companies provide the benefits of owning real estate without the hassle of management.
With that being said, all investments can have their share of downsides. Traditional real estate investments, as well as real estate securities, are typically less liquid than others. The tax implications can be far more significant on the sale of these investments than others (though the critical tax breaks associated with real estate can be maximized if an investor goes through the right process).
In addition, real estate investing isn’t always accessible to all. Some investments offered by commercial real estate investing platforms are limited to accredited investors only. While many other types of investments are open to all, certain private real estate securities often require investors to meet specific qualifications in order to participate.
Real estate investing may not be the best option for all, but still remains a strong contender for investors looking to diversify their portfolio with a relatively low-risk, steady-return asset.
Historically, most real estate investors — especially for multimillion-dollar commercial properties — were institutional investors. Now, anyone can own a slice of the commercial pie, though for some emerging crowdfunding platforms investors still must meet SEC accreditation standards. Investors can own a piece of multiple asset classes, from a lube shop in San Antonio to an industrial warehouse in Phoenix. They aren’t constrained by geography or high financial entry thresholds, which makes it possible for a greater range of investors to add these assets to their portfolios.
Diversity is the key to weathering downturns in the national or regional economies. These fractional pieces allow investors to broaden their portfolios with various real properties in differing locations, which provides increased protection from market downturns.
FinTech continues to disrupt traditional markets by providing everyday investors with increased opportunities for alternative assets that can broaden their portfolios and reduce risk. We truly are in an exciting time in real estate investing.
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