The global financial crisis is still fresh in the minds of real estate investors. The days of constant appreciation and reward without risk are long gone. The question posed by many these days is: Is investing in Real Estate as Scary as Everyone Thinks It Is?
Beacon Pointe’s team feels that the risks have always been there, but there are ways to mitigate those risks and to reduce the negative surprises. Our research efforts are focused on finding proven managers who are great stewards of their clients’ capital.
Beacon Pointe recommends real estate investment managers that we believe:
- Understand the risks of the underlying investable assets through deep bottom-up due-diligence;
- Select investments with a firm knowledge of local economics and demographic trends;
- Focus on the present cash flows of the real estate asset rather than depend on forecasts of increasing revenue to execute on investment;
- Emphasize value creation over market appreciation;
- Have a core focus on a particular region and/or sub-asset class, i.e. multi-family, commercial or office complex;
- Identify opportunities to acquire assets below current market replacement costs; and
- Have a repeatable, executable plan to add value through operational expertise.
The inclusion of real estate into a traditional portfolio has many benefits including:
- A potential inflation hedge;
- The ability to generate additional current income; and
- The lack of correlation to traditionally investable asset classes.
The inclusion of real estate in a portfolio is not without risk some of which may include:
- Operation and execution risk (manager not being able to successfully execute on the strategy)
- Market risk: should the economy falter, real estate is not immune and can potentially lose value
- Illiquidity risk: monies placed into real estate are not easily accessible, leading to long term holding periods
Real estate investments – like investments in other asset classes – do carry risks. Beacon Pointe believes, however, that a prudent due-diligence process and disciplined execution can mitigate the risks of real estate investing and benefit client portfolios in the long run. So, is investing in real estate as scary as everyone thinks it is? Maybe not so much.
Important Disclosure: This content is for informational purposes only. Opinions expressed herein are subject to change without notice. Beacon Pointe has exercised all reasonable professional care in preparing this information. Some information may have been obtained from third-party sources we believe to be reliable; however, Beacon Pointe has not independently verified, or attested to, the accuracy or authenticity of the information. Nothing contained herein should be construed or relied upon as investment, legal or tax advice. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. An investor should consult with their financial professional before making any investment decisions.
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