REAL ESTATE BEYOND YOUR HOME

Traditionally, investing in real estate has been synonymous with buying a home. For years, opportunities in commercial real estate, either indirectly through real estate investment trusts (REITs) or directly through private transactions, were classified as alternative opportunities that were mostly available to institutional investors.

Today, real estate investing has gained more popularity among investors around the globe. With increased access to commercial real estate through REITs, competitive historical performance, potential diversification benefits, and the increased globalization of commercial real estate, this once alternative sector now has a place in a diversified portfolio.

  • Equity REITs are companies that own, manage, and lease investment-grade, income-producing commercial real estate
  • REITs must be in the real estate business
    > At least 75% of assets must be real property
    > At least 75% of revenue must come from real estate
  • At least 90% of taxable income must be distributed annually to shareholders
  • Company receives a dividends paid deduction
  • Taxes are paid at the shareholder level

DIRECT COMMERCIAL REAL ESTATE

  • Unlike REITs, direct investment in real estate is not traded on an exchange
  • Traditionally part of the asset-allocation strategy for pension funds and large institutional investors
  • Direct control
    > Ability to select individual properties
  • Investment performance characteristics
    > Competitive risk-adjusted returns
    > Low volatility of returns
    > Low correlation with other investments

DIVERSIFICATION THROUGH GLOBAL REAL ESTATE INVESTMENTS

  • Over the past 40 years, the United States and, more recently, Hong Kong have provided investors with the majority of opportunities for investing in publicly traded equity REITs and listed property companies
  • Introduction of REITs and publicly traded real estate in Europe and Asia has created new investment opportunities abroad
  • Global real estate investments generally have low correlations to other asset classes
  • May provide additional diversification benefits

 

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the author and not necessarily those of Raymond James. Be advised that investments in real estate and in REITs have various risks, including possible lack of liquidity and devaluation based on adverse economic and regulatory changes. Additionally, investments in REIT’s will fluctuate with the value of the underlying properties, and the price at redemption may be more or less than the original price paid. Real estate investments can be subject to different and greater risks than more diversified investments. Declines in the value of real estate, economic conditions, property taxes, tax laws and interest rates all present potential risks to real estate investments. Diversification does not ensure a profit or guarantee against a loss.