A Guide to Diversifying Your Portfolio With Alternative Investments

Investing can be an interesting and lucrative career – or even a side hustle or hobby – for many people. There are different ways to get into investing, but some of the most common include stocks, bonds, mutual funds, and real estate. After a volatile 2020 in traditional stock and bond markets, there is increased interest in alternative investments. Because it’s always a good idea to diversify a portfolio, many investors are looking at different opportunities for growth. First, let’s take a look at alternative investments. Then, let’s look at the different types of real estate investors are often interested in acquiring.

Understanding Alternative Investments

An alternative investment is an investment that is held outside the traditional markets of stocks, fixed income, or cash. Therefore, alternative investments (or an alternative asset) include real estate, private equity, or venture capital. Private debt, a hedge fund, and commodities are also alternative investments that are growing in popularity.

Most alternative investments are held by institutional investors or accredited, high-net-worth individuals. This is because of the complex nature, lack of regulation, and degree of risk of alternative investments. Often, alternative investments have high minimum investments and fee structures (when compared to mutual funds and exchange-traded funds/EFTs). But that should never discourage someone from seeking out an alternative investment.

Key Characteristics of Alternative Investments

A few key characteristics set alternative investments apart from other types of investing:

High fees and minimum investments, compared to retail-oriented mutual funds and ETFs
Lower transaction costs
Harder to get verifiable financial data for these assets
Less liquid than conventional securities

Why are Alternative Investments Useful?

Alternative investments have lower correlations to the stock and bond market, meaning that their value is less impacted during a market downturn. After the volatile market of 2020, this can be a huge draw for many investors. Alternative investments can be a great way to diversify a portfolio with real estate property or hedge funds, as opposed to investing in marketing only.

What are the 4 Investment Alternatives?

There are many different investment alternatives to the traditional stocks, bonds, and mutual funds. Those rely heavily on the stock market to be successful, but alternatives allow for investment that is often less volatile (but still comes with its own risks). The most common types of alternative investments include:

Real estate
Collectibles
Commodities
Private equity

Pros and Cons of Alternative Investments

Like any investment, alternative investments come with pros and cons. Let’s take a closer look at some of these pros and cons, so you can make an informed decision about your investment opportunities.

Pros:

Diversification: By investing in a range of opportunities, including alternative investments and real estate, you are able to better diversify your portfolio. This gives you more opportunities to grow your portfolio in unique ways that are able to ride out market fluctuations.
Unique opportunities: When people invest only in traditional methods or focus solely on these fund strategies, they can miss out on some of the more unique opportunities that can be found in alternative investments. You may be able to be an early investor in a startup fund or own a special real estate property that other investors would not be able to do.

Cons:

Longer lock-ups: Depending on the alternative investment opportunities you choose, there could be long lock-ups of your investment money. While this isn’t always a negative for investors, it is something to consider.
Complex: Many alternative investments are very complex, requiring a lot of research and the right partner to help you with research and acquisitions.

What are the Alternative Investment Opportunities in Real Estate?

An alternative investment is an asset that does not fall into one of the conventional investment categories of stocks and bonds or cash. Real estate is a popular form of alternative investment that can offer a range of different opportunities, depending on your interests and preferred asset class. Within real estate, there is more than one asset class, including residential, commercial, and industrial real estate opportunities.

Residential Real Estate

Residential real estate is real estate that houses people. Many times, people think of single-family houses when they think of residential real estate. But this category also includes condos, townhouses, duplexes, apartments, and other multi-family residences.

Commercial Real Estate

Commercial real estate (also known as CRE) is any property used exclusively for business-related purposes or to provide a workspace. This includes stores and malls, office buildings, medical or dental offices, and some types of industrial real estate.

Industrial Real Estate

Sometimes, industrial real estate properties are combined with commercial real estate. When looking at industrial real estate, there are properties that can be used for warehouses, factories, manufacturing, or logistics management. Oftentimes, industrial real estate might be used for more than one purpose over its lifetime, depending on the needs of the tenant at any given time.

Benefits of Investing in Real Estate

Investing in any type of real estate can bring with it many investments. Here are a few of the top benefits that investors enjoy when they invest in commercial, industrial, or residential real estate.

Steady Cash Flow: Owning real estate can help to boost monthly income. When you invest in commercial, residential, or industrial real estate, you can rent out those properties. Those monthly rent payments can provide steady cash flow for you.

Great Return on Your Investment: If the real estate increases in value over time, you can sell it for a profit. However, appreciation isn’t always guaranteed. You need to make the right investment choices to see that return.

Long-Term Security: Real estate of any type is a long-term investment. Most of the time, you will hold it for several years as it appreciates. During that time, you can rent out the real estate property and earn monthly income as you wait for the value of the property to increase.

Tax Advantages: Investing in real estate comes with tax benefits. There are several deductions for expenses associated with owning an investment property, including property taxes, mortgage interest, property management fees, property insurance, ongoing maintenance costs, repair costs, and the money you pay to market your property to potential tenants. When you invest in certain areas designated as QOZs, there may be even further tax benefits for you.

Diversification: Adding real estate boosts your portfolio’s diversification, which can protect you in times of economic turmoil like the past several years. Investment properties in your portfolio might still be increasing in value, even if the stock market is struggling. This can protect you from the losses of stocks. When you have a variety of properties in your portfolio, you can diversify even further with properties that may have different benefits for challenging economic times, as some properties or businesses can be considered recession-proof.

Build Capital: The goal of investing is to increase your cash, otherwise known as building capital. When you sell a property that’s increased its value, you can boost your capital. To do this, you need to be sure to invest in the right properties that will rise in value.

Work with Experienced Brokers to Diversify with Alternative Investments

If you are considering diversifying your portfolio with alternative investments like real estate properties, you need an experienced broker team who can help you identify the right opportunities. With more than 3,000 transactions in 48 states, our team has helped investors just like you find commercial and industrial real estate investments that can diversify and grow your portfolio.

There are different types of leases in commercial real estate, and at Sands Investment Group, we are the fastest growing triple net lease company in the country. We specialize in helping investors find triple net lease properties, that can provide a relatively low-risk investment while building equity with a huge time commitment on your part. You can diversify your portfolio while spending time on other projects at the same time.

If you find a partner who specializes in commercial real estate properties, you will have the expertise to guide you through the entire CRE process. Here are the top three things you need to look for in a brokerage partner for your next real estate investment opportunity:

Demonstrated experience: With experience in the industry you are looking to acquire property, they will be able to give insight into the market, knowledge of property value and investment potential, and details on profitability of the properties you are considering investing in.
Proven track record of closed deals: With a record of successful negotiation strategies, an advisor can better negotiate different scenarios in the deals you are after. Ask to see case studies of recent similar transactions to the ones you are hoping to do.
Client-focused: You don’t want an advisor who is simply focused on closing the deal and making money. You want someone focused on you and your success. A good advisor will take the time to learn about your investment criteria and goals, so they can research the best properties for your portfolio. They should also support you with property evaluations and site visits, recommendations on your portfolio, and strategic advice or consultations as needed.

Call 844.4.SIG.NNN or contact us here to learn more about working with our team.