Economic uncertainty and the tightening of credit have contributed to a decrease in commercial real estate activity in terms of both transaction volume and value which declined about 50% compared to the first half of 2019. With stock markets progressively skittish and the details of the next stimulus bill still uncertain, many investors are looking for ways to hedge against public market instability and the potential inflationary side-effects of aggressive quantitative easing.
Given considerable volatility in stock markets lately, you may consider investing in real estate thanks to its relative low correlation with public equities. The moderate connection can provide a higher degree of diversification to an investor’s portfolio, which may be beneficial during the highly uncertain events we presently face. Among several investment options within real estate, the two of the most prominent could be arguably REITs (Real Estate Investment Trusts) and private equity real estate.
Which one is better? The short answer is, it depends on an investor’s time horizon, risk tolerance, liquidity preference, net worth, and investment strategy. The key is finding the right fit for each investor’s individual situation. If you are a non-accredited investor with a short-term to medium-term time horizon and a desire for a high degree of liquidity, then a REIT is probably the most suitable investment choice. However, this option has the potential to expose the investors to price volatility and exposes them to tax liability (i.e. taxed as ordinary income) through the REIT dividends.
Conversely, accredited investors with a long-term time horizon, higher risk tolerance, and no need for immediate liquidity may find that a private equity real estate investment is more viable. However, in making the investment they’ll do so knowing that due diligence regarding the firm is critical to ensure that they have a track record of successful outcomes.
Therefore, when attempting to choose between a REIT and a private equity real estate firm, the question shouldn’t be, which is better, it should be which option is more suitable for the individual investor’s unique situation and investment philosophy.
The small mom and pop landlords, who often manage 20 or fewer units, reported lower rent collections, with 25 percent of them having to borrow monies to cover the cost. On the other hand, we see more institutional players entering the single-family rental (SFR) market by capitalizing on prowess in operatiothe n and management of properties.
Being also bullish and optimistic about the SFR sector, Levine Capital continues to co-invest with TCS Anika Homes which is capable of acquiring, renovating, leasing, managing, and disposing of SFR homes all in-house. We are opening up another opportunity Fund focusing on distressed assets from the Covid-19 crisis and shutdowns. We will keep you updated on the status down the road. Stay well and safe!