Alternative investments like real estate are the best approach to wealth building. It also diversifies one’s portfolio.
This article investigates why real estate gets regarded as an attractive alternative investment. We’ll look at private equity, real estate crowdfunding, and real estate structured debt.
We’ll discuss the risks and benefits of alternative real estate investments. This will help you make informed financial decisions.
What Makes Real Estate a Good Alternative Investment?
For investors wishing to diversify their portfolios, real estate might be an appealing alternative. It has the potential for long-term capital appreciation as well as a consistent source of income through rental payments.
Furthermore, historically, real estate has had minimal correlations with traditional investments like equities and bonds, giving portfolio diversification benefits that may help lower an investor’s total risk.
In addition, real estate may give tax benefits to investors, such as maintenance tax and depreciation charges. Furthermore, unlike typical investments, real estate provides physical assets that may be leveraged as collateral or sold.
Advantages of Alternative Investments
- Real estate Alternative investments help you diversify your portfolio. It also boosts your potential earnings.
- Real estate is a physical asset that you can interact with, making it a more tangible investment.
- Furthermore, real estate often increases over time and can provide a consistent revenue source.
- Alternative assets, such as real estate, also give significant tax advantages. You can keep more earnings by utilizing municipal taxes, maintenance charges, and bifurcation of the maintenance amount from the rent amount.
Investments in Traditional Real Estate
Investing in traditional real estate does not always necessitate a large sum of money. REITs, REIGs, rental properties, and mutual funds are examples of conventional real estate investments. REITs and real estate crowdfunding are low-cost investments with high potential returns.
- REITs: REITs are formed when a firm owns and runs income-generating residential and commercial property. Debt REITs and mortgage REITs are the two most frequent forms of REITs. Because they may be found and exchanged on public exchanges, publicly traded REITs are similar to stocks. Embassy REIT, Mindspace REIT, and Brookfield Indian REIT are some Indian REITs.
- REIGs: REIGs Real estate investment groups (REIGs) are ideal for investors who wish to own a rental property but do not want to be the landlord. REIGs are tiny mutual funds that invest in rental properties. A business will buy one or more properties, like single-family homes, apartments, or commercial assets such as office buildings. Investors can then become members of an REIG and contribute funds to the group.
- Property Rentals: Investing in rental property entails acquiring a home, performing any necessary modifications and repairs, and then renting it out. You can choose whether to rent it out long-term or as a short-term holiday rental. You may manage it yourself or engage a property management firm. Rental properties may offer various potential benefits, including rental income, long-term value appreciation, and tax deductions for running expenditures, mortgage interest, and insurance.
- Real Estate Mutual Funds: A real estate mutual fund is a sort of investment instrument that combines money from several participants to invest in real estate. As a result, they may give investors access to diverse real estate portfolios that they would not have as individuals. Furthermore, because mutual funds benefit from economies of scale, they may provide cheaper costs to investors than investing directly in individual properties or other types of real estate.
Structures for Real Estate Alternative Investment
While solo ownership of real estate is a frequent option, there are various other investment structures available to fit your goals and tax obligations.
Any of these structures can be used for your property because the investment structure is generally the only thing that changes, not the property itself.
- Private equity funds: Private equity funds are investments structured as a pool of cash used to purchase shares in private corporations as well as other real estate-related assets such as distressed commercial buildings. Due to more advantageous debt financing arrangements, access to exclusive agreements, and the knowledge of experienced experts managing the portfolio, investors may benefit from the fund’s capacity to possibly create better returns than most typical investments.
- Real Estate Crowdfunding: Real estate crowdfunding is an alternative real estate investment carried out via online alternative investment platforms like Assetmonk that link investors to real estate projects they can invest in. For as little as Rs. 25 lacs, investors can gain access to projects and potentially generate higher returns than traditional investments.
- Real estate structured debts: For Indian investors, real estate-backed structured debts have emerged as an appealing alternative investment choice. These investments involve the use of debt instruments, such as mortgage-backed securities or REITs, to finance real estate developments. Investing in structured loans provides investors with exposure to the real estate market without the hassles of direct property ownership or administration. One of the key advantages of real estate-backed structured loans is the potential for constant cash flow. The underlying collateral, like residential or commercial real estate, offers security and generates monthly interest payments for investors. This consistent income stream may be especially enticing to those seeking passive income and diversifying their investment portfolios.
Alternative Real Estate Investment Risks
Real estate alternative investments might be appealing to investors because they can provide more consistent returns than traditional investments, but they also bring distinct problems and hazards.
Investors must comprehend the risks involved with alternative investing since they entail a diverse variety of asset types.
- Property Market Risks: One of the most prevalent and major hazards connected with alternative real estate investments is market change. As with any physical property investment, there is always the danger that the market may change and that events outside your control will affect the value or rental income. When contemplating this investment, it is critical to understand local markets and trends.
- Risk of Liquidity: Many alternative real estate assets are illiquid, making speedy cash conversion difficult. This may limit your capacity to capitalize on market opportunities or make timely changes to your portfolio. Although real estate investments are supposed to be long-term investments, you may choose a real estate plan that allows you to access your funds fast.
- Regulatory and Legal Concerns: Because real estate alternative investment transactions can include complicated legal frameworks and agreements, there is a higher risk of potential breaches or misunderstandings. When contemplating any alternative real estate investment, it is critical to engage with knowledgeable and recognized alternative investment platforms and specialists.
How to Reduce Risk in Real Estate Alternative Investment
- Investors may make educated judgments about their portfolios by recognizing the risks involved with alternative real estate investments. Working with skilled specialists and analyzing local markets can help to mitigate risk while capitalizing on possible gains.
- Investors should diversify their portfolios across numerous real estate classes and properties to reduce risk while investing in alternative assets. Diversification spreads out the risk associated with each asset class, minimizing the impact on the whole portfolio if one sector performs badly.
- Furthermore, before investing money, investors should properly comprehend any investment. That includes studying the asset class, comprehending how it fits into their entire investing plan, and being aware of the possible hazards.
Investors may assist guarantee that their real estate alternative investments are as low-risk as feasible by adhering to these recommended practices.
Real estate alternative investments are becoming a popular option for Indian investors in 2023. Non-traditional real estate investments are appealing to investors seeking variety and possible growth. The demand for durability in unpredictable markets, along with the low-interest-rate environment, is pushing the shift away from traditional real estate investing.
Assetmonk is one of the best alternative investment platforms in India. It also offers commercial real estate structured debts. Investors can just invest in these real estate structured debts with just Rs. 10 lacs. Assetmonk’s Apex Series A Structured Debt with a tenure of 36 months is coming soon! Invest in getting an assured IRR of 17%. This provides investors with the chance to engage in the real estate market without the hassles of ownership. Using alternative investment platforms allows investors to manage the shifting investment landscape and offer up new avenues for financial achievement.
- Types of Alternative Investments in India: Exploring Your Options.
- How to Evaluate Alternative Investment Opportunities in India.
Q1. Is real estate an alternative investment?
A. Real estate is often classified as an alternative investment.
Q2. What is alternative property investment?
A. Among investors who acquire investment assets such as business buildings, residential flats, or vacation homes, real estate is seen as an alternative investment asset.
Q3. Why do people invest in alternative investments?
A. Even during times of market instability, alternative investments in India can present an exciting opportunity for investors to diversify their portfolios, mitigate the effect of market volatility, and help them accomplish their long-term investment goals.
Q4. What are the risks of alternative investments?
A. Low liquidity is one of the primary risks of alternative investments.
Q5. Are alternative investments growing?
A. The alternative investment market is predicted to rise between 18 and 24 percent by 2025.