Escape The Uncertainty And Invest In Real Assets
The economy is rife with uncertainty and at the center of the storm is inflation and Fed policy to address it. If you scan the financial news, newspapers, the Internet, and social media, you’ll see economic uncertainty on full display.
“Guggenheim’s Minerd Says Fed Won’t Stop Raising Rates Until Something ‘Breaks.’” – bnnbloomberg.com.
“IMF chief economist: ‘Worst is yet to come for the global economy.'”
Not only are investors unsure about the economy’s direction but also how policymakers plan to deal with it. There’s an index designed precisely to track this economic policy uncertainty.
Economic uncertainty typically leads to market volatility and economic loss, as the markets have borne out this year. The market has been on a downward roller coaster ride – down more than 18% since the beginning of the year.
All this uncertainty has all the talking heads and so-called experts squawking about what investors should do with their money. Some advocate sticking with stocks but investing in certain stocks and industries to hedge against inflation and recession. Others advocate turning to fixed-income assets. None are sound strategies. When the entire market crashes, very few stocks or industries are spared. And with inflation running at 8.1% (as reported for September), fixed assets are money losers. Even at the best rates on fixed-income assets some corporations are offering (Blackrock is offering 5%), investors are losing money when factoring in inflation.
In an era of uncertainty, smart investors turn to assets offering certainty for shelter from the storm. Nothing has provided more certainty over time than cash-flowing commercial real estate.
According to Barron’s, what 100 years of the real estate market has taught us is that while the broader market experiences extreme volatility in times of uncertainty, real estate is typically sheltered from the storm if investors are willing to ride out minor (compared to the broader market) corrections. Investors who understand this can ride the wave of certainty real estate provides to predictable, reliable inflation-insulated, recession-resistant cash flow and growth.
The markets are volatile because nobody can predict the market, even professionals. According to a 2020 report, over 15 years, nearly 90% of actively managed investment funds failed to beat the market.
Retail investors, of course, fare even worse. Some get lucky once in a while, but on average, the average retail investor not only fails to beat the market but also fails to beat inflation.
Smart investors gravitate towards real assets for certainty and predictability. And for another dimension of advantages, these investors invest in real assets by investing in private companies to partner with seasoned experts in their respective asset segments and geographic locations. Partnering with private companies and leveraging the expertise of others to invest in real assets offer benefits that direct investments don’t offer.
These benefits include tax advantages, relatively low capital requirements, no learning curve, and transparency.
Even in a volatile environment, commercial real estate offers above-market returns that outpace inflation in the right hands.
Trusted partners with the expertise, background, track record, infrastructure, operations, and personnel to take advantage of value-add opportunities can supercharge returns and pass them on to their limited partners. These limited partners can sit back and enjoy cash flow and long-term appreciation without the day-to-day headaches and worrying about market uncertainty.
For investment certainty, pattern your investing habits after smart investors and not the crowds.
This is why smart investors gravitate towards private investments in CRE:
CRE rewards patience. CRE offers reliable, sustainable long-term returns. CRE has long been a reliable source of cash flow derived from rents.
CRE does not always offer an immediate payoff. It takes time to stabilize and add value to assets. Investments through private companies have long lock-up periods that allow acquired assets to stabilize and mature to maximize returns. Investors are rewarded for their patience.
CRE has shown steady, reliable growth. CRE has shown to appreciate reliably over time – even outpacing inflation. CRE growth has consistently outpaced inflation over time because of its intrinsic value – which is the value derived from its productive and cash-flowing qualities. Assets with established income histories extract a premium when it’s time to sell. That’s why CRE appreciates independent of inflation and outpaces it.
CRE is insulated from volatility. CRE is illiquid and is insulated from broader market uncertainty and volatility because CRE is illiquid, is not easily transferable, and, when held through a private investment, is even more illiquid since lock-up periods typically range from 5 years+.
CRE can provide multiple streams of passive income. By investing passively in multiple private real estate companies, investors can create multiple streams of passive income – accelerating wealth and providing peace of mind during downturns.
Tax Breaks. Private investments structured as partnerships offer various tax benefits, including deductions, depreciation, avoidance of self-employment taxes, tax deferral, and long-term capital gains treatment not available with other asset classes.
Leverage. Through leverage, CRE investments can supersize returns through secured loans that require only a fractional capital commitment (20%-25%). Instead of putting 100% of investable capital into one property, that capital can be spread out over 4-5 properties, generating multiple income streams instead of just one.
Diversification. CRE investments – especially passive investments – lend themselves to true diversification across a variety of factors that can serve to mitigate risk and insulate income. Investing across various asset classes, geographic locations, lock-up periods, experts, compensation structures, etc., can provide consistently reliable income and growth insulated from downturns.
Value-Add Opportunities. Investors are powerless to force the growth of a stock’s price. In the right hands, investors can partner with experts with the ability to force the growth of CRE assets through implementing management efficiencies, property improvements, and marketing strategies to improve NOI from improved occupancies and rents.
Don’t be a victim to market uncertainty—pivot to assets that provide certainty to weather any economic storm.
Michael Foley, president and CEO of Humabilt Capital, oversees the entitlement process, funding, and operations for Humabuilt Capital. Mr. Foley has been a full-time real estate investor since 1995 during which time he has developed hundreds of single-family homes, townhomes, condominiums, and apartments. Mr. Foley started his investment ventures in Long Beach, California, and has expanded to Apex and Durham North Carolina. Mr. Foley is a graduate of the University of California at San Diego.