Alternative real estate investment refers to real estate investment opportunities beyond traditional direct ownership of residential or commercial properties. It provides investors exposure to real estate returns while offering advantages such as diversification, lower volatility, steady cash flows and inflation hedging. Some common forms of alternative real estate investment include real estate investment trusts (REITs), real estate private equity, real estate debt funds, real estate crowdfunding platforms and fractional ownership models. Investors can choose different strategies based on their investment objectives, time horizon, liquidity needs and risk tolerance.
REITs provide liquid real estate exposure and steady dividends
Real estate investment trusts (REITs) are companies that own and operate income-producing real estate assets. They allow investors to access real estate returns without directly owning properties. REITs are required to pay out at least 90% of taxable income as dividends, offering steady cash flows to investors. There are different types of REITs focused on sectors like residential, healthcare, retail, office, industrial, etc. REITs trade on major stock exchanges so they are quite liquid. Investors can build a diversified real estate allocation with REIT ETFs.
Real estate private equity targets higher returns with illiquidity
Real estate private equity funds take controlling ownership stakes in real estate assets. They utilize leverage and value-added strategies to improve returns. Private equity real estate investments are illiquid as there is no public market. Investors commit capital that gets drawn down over years as investments are made. Horizon is 10+ years. Target net IRRs are 10-20%+. Given illiquidity, private real estate investing is suitable for accredited investors with long time horizon.
Real estate debt investments provide steady income
Real estate debt funds provide financing for real estate transactions. Investors earn interest income on real estate-backed loans. Debt investments such as mortgage REITs, real estate credit funds, and collateralized mortgage obligations provide steady cash flows with seniority over equity. They act as a fixed income substitute. Real estate debt investments may be suitable for conservative investors seeking income.
Crowdfunding opens up real estate investing
Real estate crowdfunding platforms allow investors to purchase shares in specific properties or real estate funds. The minimums are much lower than traditional real estate investing. Investors can choose their preferred projects. The platforms handle property selection, due diligence and management. Real estate crowdfunding provides easier access and diversification but has risks like illiquidity and platform risk.
Fractional real estate investment models
New fractional real estate ownership models are emerging, enabled by technology platforms. This allows investing even small amounts into specific properties. The platforms facilitate everything from selection, purchase, management to sale. While fractional real estate investing improves access, it comes with risks like illiquidity. Overall, alternative real estate presents various options for investors to gain exposure as per their specific needs.
Alternative real estate investment provides many options beyond direct property ownership to suit different investor requirements and profiles. Strategies like REITs, private equity real estate, real estate debt, crowdfunding and fractional ownership offer exposure to real estate returns with advantages like steady cash flows, diversification, inflation hedging and lower volatility.