Embed Size (px)
Citation preview
Modern Real Estate Investing
Intro Series equitymultiple.com
© 2015 EquityMultiple, Inc. All rights reserved.
Whether you’re investing in real estate for the first time
or looking to expand your existing portfolio, this
introductory series will help answer some of the
fundamental questions you might have about why you
should invest in real estate, how it compares to other
investment alternatives, where it fits in with your
existing portfolio and investment goals and what you
should consider when you’re ready to invest.
Intro
Explore the Platform
Here are the articles you can look forward to over the
next two weeks. Please reach out with any questions at
any time:
How Modern Real Estate Investing Differs from REITs
The Capital Stack: How Deals Are Structured & What it Means for You
Real Estate Asset Categories & Diversifying Your Real Estate Portfolio
Underwriting & Diligence: Platform Best Practices
© 2015 EquityMultiple, Inc. All rights reserved.
The most important reason to include real estate as a
significant portion of your overall portfolio is the
diversification benefits it can bring. Modern portfolio
theory holds that diversification is a key element of
reducing portfolio risk and optimizing returns. David
Swenson, the long time Chief Investment Office of the
Yale Endowment and a Trustee of TIAA-CREF,
pioneered the famed Yale Model based on modern
portfolio theory. Swenson used the Yale Model to
guide the endowment to a staggering 13.7% annual
return from 1992-2012, with a 22% allocation to real
estate.
Diversification
“ Asset allocation plays a central role
in determining investor results…
approximately 90% of the variability
of returns stems from asset allocation,
leaving approximately 10% to be
determined by security selection and
timing...Careful investors play close
attention to the determination of
asset class targets. “1
© 2015 EquityMultiple, Inc. All rights reserved.
Part of what makes real estate such a good
complement to a portfolio that includes stocks is that
it demonstrates a low correlation with the public
markets and far lower volatility. While all asset classes
can be impacted by a significant recession, real estate
has shown a limited relationship to the boom and bust
cycles of the stock market.
The Yale Portfolio
Natural Resources
Real Estate
Private Equity
Absolute ReturnFixed Income
Domestic Equity
Foreign Equity
22 %
35 %18 %
7 %
4 %
6 %
8 %
© 2015 EquityMultiple, Inc. All rights reserved.
Real estate offers more than just diversification - its combination of current income and long term appreciation, as well
as the downside protection of a tangible asset, provide appealing risk adjusted returns. Historically, real estate returns
have exceeded those offered by stocks, bonds and savings account, while high fee alternative investments like hedge
funds and private equity funds are frequently criticized for underperforming stock market indices.
The Benefits of Real Estate
Cash/Savings Bonds Stocks Real Estate
2.99% 3.91% 4.07% 8.72%
Average Returns 2000-2014
2
© 2015 EquityMultiple, Inc. All rights reserved.
Despite these benefits most investors have little to no
real estate exposure in their portfolio. This is because
real estate investments have always been difficult to
access, with most investors given the choice between
REITs (which, as we’ll explain in more depth, do not
offer the same kind of advantages as most real estate
investments) or real estate private equity funds, which
frequently have high fees, high minimum investments
and little clarity into what real estate you’re actually
investing in. This is finally starting to change thanks in
large part to the JOBS (Jumpstart Our Business
Startups) Act, which allows real estate and other
traditionally private investments to be broadly
marketed to individual investors for the first time.
The Changing Landscape of Real Estate Investing
Securities Act
1933 2012 2015
JOBS Act
$ Invested through online platforms
Securities Act: Prohibited the marketing of real estate-backed securities to most investors
JOBS Act: Lifted the ban on “general solicitation”, allowing accredited investors to participate in large commercial real estate projects
© 2015 EquityMultiple, Inc. All rights reserved.
So, whereas a few years ago real estate investing - and all its
benefit - was available only to institutions and the very well-
connected, now any accredited investor can realize the
benefits of direct real estate investing. This sea change has
given rise to platforms like EquityMultiple, which aim to
connect investors with these opportunities the same way
companies like E*Trade - and, more recently, Betterment -
made investing in the stock market far easier for individuals.
© 2015 EquityMultiple, Inc. All rights reserved.
Explore the Platform
This introductory series aims to give you a solid
grounding in investing through online real estate
platforms - how to best capitalize on this new world of
access, and how to best protect yourself against risk.
Please stay tuned for the second installment: How
Modern Real Estate Investing Differs from REITs
Questions?
http://investments.yale.edu/images/documents/
Yale_Endowment_12.pdf
https://www.ncreif.org/property-index-returns.aspx2
1
Sources
Thank you!
equitymultiple.com
