Our team has worked in real estate for the last twenty years at some of the largest Wall Street investment firms and has been involved in over $3B of transactions. Over the years, we have developed a simpler and more cost effective platform that allows accredited investors to make direct investments in PRIME real estate WITHOUT the layers of fees in the traditional private equity structure.
Beyond the ability to leverage our team’s expertise and track record to access opportunities and boost returns on your real estate portfolio, some other benefits of making direct real estate investments are listed below.
Benefits of Direct Real Estate Investment
Directly owned real estate assets offer numerous benefits with respect to generating current returns, growing capital, and preserving wealth.
- Cyclical Defense: While equity and fixed income markets typically move in tandem with economic cycles, income from real estate assets benefits from multi-year leasing contracts. As a result, properties can generate steady and predictable revenue streams apart from the relative growth of the general economy. Experienced real estate investors assess the creditworthiness and predictability of a property’s income stream and adjust their pricing, return requirements, capital structure, and underwriting criteria accordingly.
- “Inflation Protected” Investment Portfolio: Given its positive correlation with changes in the consumer prices, real estate investment can provide a partial hedge against inflation. As consumer prices rise, so do real estate cash flows and, typically, associated property values. Moreover, many commercial lease contracts are inflation-indexed, providing property owners with an additional layer of inflation protection.
- Attractive Risk/Return Profile: The positive spread between core real estate yields and the benchmark 10 year U.S. Treasury is currently between 300 to 400 basis points. This spread offers investors an attractive risk “cushion” as well as more promising returns on both a current and total return basis.
- Market Inefficiencies Create Opportunities: Market inefficiencies yield an abundance of value enhancement opportunities for private investors and their investment advisors with the information, discipline, and expertise to identify and capitalize on them.
- Capitalize on Current Interest Rate Environment: Interest rates are currently near 40-year lows, and other alternative investment products currently offer historically low returns to investors. Within the real estate marketplace, however, debt capital remains available and well-priced for sophisticated real estate market participants.
- Consistent Performance: Real estate returns have been negative only 5.0% of the time from 1934 to 2002, compared with 25.0% of the time for U.S. stocks and bonds during the same period.
- Combine Strong Returns and Low Volatility: Direct ownership of real estate has the potential not only to reduce overall portfolio risk but also to contribute to improved portfolio performance with respect to risk. Portfolio managers use a tool called the Sharpe Ratio to measure the level of excess return an investment will yield for each additional unit of risk assumed. The Sharpe Ratios for multiple investment categories illustrate that direct real estate investments can generate returns that are comparable to those of stocks but with far less risk.
Direct property investment, as opposed to ownership of publicly traded REIT shares or private equity funds, allows the investor to capitalize on benefits of real estate as part of a diversified and balanced investment portfolio. Irrespective of the particular merits of individual companies or investment vehicles, investments in REIT shares and other public real estate investments provide little in the way of true portfolio balance and diversification. Since the late 1970s, the performance of REIT shares has closely tracked overall equity market performance, resulting in correlation coefficients as high as 0.62, according to published reports. During the same period, the comparable equity market correlation for private real estate has been close to zero. This low correlation further reflects the counter-cyclicality of real estate and its demonstrated potential for performing well when equity markets are in decline. Furthermore, REITs are required to distribute 90% of their operating profits in the form of current income, which may be sub-optimal with respect to their longer term operating strategies. Direct investment in real estate allows private investors to achieve both diversification and tax efficiency.
iFunding (IF) is a real estate investment platform based in New York. Our mission is to apply the framework of disruptive innovation to real estate finance and develop the company into an online financial platform where accredited investors with a net worth of $1-5MM are able to make direct investments in real estate.