How Does Private Placement Real Estate Compare to Other Classes of Investments?

Today’s investors have no shortage of unique paths to help them reach both short- and long-term financial goals. But, how can you tell which one is the best fit for your specific circumstances? Each investor has unique goals, differing levels of income and assets, varying degrees of risk tolerance, different tax considerations and more. For many, though, learning about different investment vehicles outside of volatile money markets can be beneficial to help maintain a balanced financial portfolio.

One such diverse investment strategy focuses on private placement real estate investing. In private placement real estate, investors partner with a firm or other investors to compile funds and enter into more substantial, potentially more lucrative, real estate deals. Below, we’ll explore how this investment vehicle differs from more commonly encountered options like stocks, bonds and mutual funds. Then we’ll discuss these differences in terms of liquidity, risk factors and potential rates of return.

1.  Asset Liquidity

One of the most significant differences between private placement real estate and money market investments lies in asset liquidity. Liquidity, in this sense, refers to an investor’s ability to sell a given asset to meet a short-term need for access to cash. Stocks, bonds and mutual funds, for example, typically have high levels of liquidity. This is due to an investor’s ability to convert these assets to cash faster than other types of investments. Private real estate projects, unlike stocks, bonds and mutual funds, are generally much longer-term investments and cannot be sold off for cash as quickly.   

2. Risk Considerations

 Another way in which private placement real estate differs from other classes of investments is the level and type of risks assumed by investors. In stocks specifically, investors assume a wide variety of risk factors including:

• Overall market volatility
• Large-scale fluctuations in price and returns
• Socio-political factors across the globe which influence markets
• Government fiscal policies
• Interest rates and more

Private real estate investing can also be affected by some of these risk factors, but, generally, risk in real estate is associated with an overall investment strategy. In this sense, risk can be low when investing in well-populated multi-family assets, high-value properties in well-developed areas or those assets which require minimal maintenance. Risk can also be higher when investing in opportunistic properties such as those in undeveloped areas, those which require extensive maintenance or a property which historically has a low occupation rate. Generally, private placement real estate properties with higher overall levels of risk can lead to higher rates of return if the investment performs well. Conversely, lower-risk projects may lead to lower overall return on an investment.

3. Rate of Return

While stocks, bonds, mutual funds and other forms of investments can, at times, produce significant returns, since 2000, real estate has outperformed these investments by a factor of two to one according to ThinkAdvisor. In fact, real estate as a whole has earned nearly 10.7% annually, while stocks averaged a return of around 5.4% for the same period. Although future rates of return could vary considerably, real estate may continue a steady appreciation over time, if this trend continues.

 Want to Learn More About Private Placement Real Estate Investing?

Regardless of your specific short- or long-term financial goals, it pays to do your homework and find the right investment vehicle for your unique needs. If you are considering enjoying some of the unique investment opportunities inherent in private placement real estate, connect with our experienced team at Realty Capital Partners (RCP) today. Our knowledgeable staff will answer your questions and can provide in-depth insight into today’s real estate market. Give us a call at (469) 533-4000 or reach out to us via email at rcp@rcpinvestments.com.