Marcelo Castro Alves builds the Case for Real Estate Alternative Investments

By allocating across multiple asset classes including real estate investment vehicles, investors can gain diversified exposure that should help dampen volatility at the portfolio level. Real estate can be a valuable addition to an investment portfolio – complementing the traditional mix of stocks, bonds and options. “An asset with a low correlation to other investments in your portfolio can both reduce overall portfolio risk and increase returns”. Real estate offers the potential for growth and income, plus diversification, and has reputation as a hedge against inflation.

Mass access to high-quality alternative investment products is an admittedly new phenomenon. Greater familiarity is needed before financial advisors and clients accept the fact that alternative real estate investment vehicles are not exotic, high-risk options, but may be appropriate choices for meeting passive-income and higher return expectation in a volatile, low-interest rates environment.

Public demand for alternatives is growing, but advisors familiar with alternatives remains small.

Clients are demanding cash-flow investment options beyond dividend stocks and bonds. Providing your clients with access to such investments may improve client satisfaction and retention. For example, investing in short-term real estate loans (such as fix-and-flip products) could get the desired cash flow and diversification. Understanding these alternative investment vehicles can add significant value for your clients.

  • Real estate investments have historically delivered attractive returns and income relative to traditional investments.
  • They perform differently than stocks and bonds during various market cycles, offering diversification benefits.

There are a number of ways to invest in real estate vehicles. We prefer mutual funds than REITs, because just like bonds, REITs tend to suffer price pressure in a rising interest rates environment.

I believe wealth managers risk their clients’ portfolios – and their own careers- by not pursuing solutions to new clients’ investment needs and expectations.  Regulators are focused on holding the industry to a higher fiduciary standard. To fulfill the role as a fiduciary, clients need advisors to make smart allocations that generate reliable income returns. Alternative investing may reduce trading income for brokers, but may increase their trust and credibility. In the long term, it will provide them with a competitive edge and increased assets under management.