properties. However, a RELP is an entity that is formed to hold these properties for only a specific number of years. An experienced real estate property management company typically acts as the general partner. Individual inves- tors are invited to provide capital in exchange for an ownership share of the limited partnership. The partners in the venture typically receive periodic income distribution based on the rental income that the group of properties gen- erates. Depending on the terms of the partnership, the properties are sold for a profit, the partners split the proceeds, and the RELP is dissolved. This investment strategy allows inves- tors to participate in the real estate market without having any previous real estate investing or management experience. The downside is that since the properties are held for a specific period, the money you invest may be tied up for quite some time. REAL ESTATE INVESTMENT TRUSTS A real estate investment trust (REIT) is similar to a RELP, except that the properties form a holding trust. The trust is converted to certificates, similar to a stock, which is then sold off to individual investors. In a REIT, a corporation acquires a group of income-generating properties that it holds and manages. These proper- ties may include medical buildings, office buildings, malls, or other high-capacity rental properties. The money raised from the certificate sales is used to finance the purchase of additional revenue-produc- ing properties to be held by the trust. The revenue generated from mortgag- es or rents on the REIT’s properties is distributed to the certificate holders on a regular basis and is a good strategy for real estate investors that want a steady rental income without the hassles of be- ing intimately involved in the buying and management of physical properties.
eral decades. Even after factoring in the housing crisis of 2008, private commer- cial real estate investing returned 8.4 percent annually over the decade of 2000 to 2010. Real estate investing is also a great way to diversify a portfolio of stocks and bonds. Historically, real estate has low volatility compared to the stock market. While stocks can lose nearly all of their value, it is improbable the same will occur with physical real estate that you own. DIVERSIFICATION OF YOUR ASSET PORTFOLIO Most people are invested in the stock market in one way or another, be it through work retirement programs or private investment. With real estate, an investor can hedge against a market downside by owning tangible assets, with low risk of severe devaluation. Real estate has a negative correlation to the stock market. Meaning that when the stock market drops, real estate-re- lated investment products are usually
REAL ESTATE MUTUAL FUNDS Real estate mutual funds invest in RE- ITs and other real estate-related compa- nies. Investing in real estate mutual funds allows individual investors to dabble in real estate without risking much capital. Mutual funds invest in a diversified group of real estate assets, therefore reducing risk and exposure to the investor. By using this approach, they allow individuals to participate in a broader range of real es- tate investments than provided by REITs. With real estate mutual funds, novice investors can get involved in real estate after making an educated and informed decision. Mutual funds have a wealth of analytics and other data that can provide investors with all the tools they need to diversify their investment into those sectors of the industry that makes the most sense for their investment goals. WHY REAL ESTATE IS A GREAT INVESTMENT Real estate has proven to be a great wealth-generating tool over the past sev-
46 | think realty magazine :: september 2018
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