• Vehicles for investing in real estate include direct ownership, real estate investment trusts (REITs), REIT exchange-traded funds (EFTs), and private equity real estate (PERE).
• Within the world of PERE, investors can opt for individual assets or PERE funds.
• PERE funds are the top choice for diversification, low stock market correlation, and the highest risk-adjusted returns.
Loosely defined, a vehicle moves something from point A to point B. The vehicle is selected based on the cargo it needs to transport, whether it is a family car fully loaded with safety features, an insulated 18-wheeler for perishables, or a plane designed for international travel.
On that same note, an investment vehicle refers to any method an individual or entity can use to move their capital into an investment with the hopes of growing it. In real estate, the largest investable market just behind bonds and stocks, these vehicles come in many shapes and sizes. The ones to know are:
The Real Estate Investment Vehicles to Know
Each of these vehicles comes with its own advantageous and disadvantageous attributes, which should be carefully considered before making any investment decision, weighed against your personal preferences and ultimate financial goals. Here is a quick cheat sheet:
Making the Case for PERE Funds
Many people are unaware that they can invest in real estate outside of their personal homes and that the investment horizon extends far beyond 401(k)s. We want to change that. At Cira Capital Group, our real estate investment vehicle of choice is—by far—PERE funds.
Download our complete “PERE Fund Owner’s Manual” here or click the bottom below:
Time Commitment: Investing in a PERE fund can be a 99% hands-off endeavor. As a passive investor, your only responsibilities are finding the best-fit investing firm(s) and deciding what to do with your returns.
Liquidity: Other than REITs, real estate investing is a long game. While liquidity is low (hold periods average out around 5–7 years), investors are compensated with returns that are noticeably on the higher end of the spectrum, often called an “illiquidity premium.”
Volatility and Risk: Because there is no concentration in a single asset, the possibility that a single failure will wipe out all the invested capital is non-existent. Investors own shares of multiple assets, and thus, the risk/return that comes with them.
Diversification: A properly diversified portfolio will include real estate, but beyond that, it will be diversified within real estate. PERE funds invest in multiple operators, multiple industries, and many properties, thus providing the most diversification potential within real estate.
Stock Correlation: Unlike publicly-traded REITs, PERE funds are not beholden to stock market swings, as they are more broadly invested across assets in sectors like industrial, health care, self-storage, etc. (For more on correlation, head over here.)
Minimum Investment: The barrier to entry here is higher than other vehicles (and options are available to accredited investors only). However, by pooling capital from multiple investors, a fund can meet the high minimums of the best-in-class opportunities with top-notch operators that are otherwise out of reach.
Potential Returns: While funds typically produce slightly lower absolute returns than a well-performing individual asset, they provide stronger risk-adjusted returns. And while direct ownership may offer the greatest monetary return, there is something to be said for its low return on time.