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Is Real Estate Part of Your Investment Portfolio?

Posted by Ken Meyer on Wed, Feb 22, 2012

Is real estate investing a consideration in your asset allocation strategy?  Financial wisdom has proven over time that a diversified portfolio adds greater impact to your investment outcome than the selection of individual securities and/or assets within that allocation.  Real Estate Investment Portfolio

With that in mind you need to consider your investment portfolio and its asset allocation.  What are your long-term goals and what are your short-term objectives? How much income do you need your investment portfolio to create for you?

Many times for various reasons, real estate investing fails to be taken into consideration during asset allocation assessments. That is a mistake. You should be considering your total investment portfolio (both assets with and held away from your investment advisor) if you are going to produce a properly balanced investment allocation.  

Real Estate For Your Investment Portfolio

Primarily, real estate assets are important because they have a very low correlation to stocks and bonds.  This correlation is especially important in periods of high inflation when real estate investing can create the biggest gains while traditional investments may falter.  

Historically, real estate assets will offer significant diversification to an investment portfolio, primarily because of this low correlation to traditional assets.  The low correlation also offers greater risk-adjusted returns by creating opportunities in markets that are poor for stocks and bonds.  

Once you see the value and need for real estate investing, then you might want to explore the ways in which you can invest in real estate in your portfolio.  There are many options.  The simplest method, but also the method with the greatest risk, is direct investment in real estate or real property.  You can purchase investment properties (either commercial or residential rental properties) and manage them yourself.  If you invest directly, you still have options.

There is the short-term option of what has become known as "fix and flip". Fix and Flip is normally done by buying a property, doing some upgrades and improvements, and selling it quickly; or "flipping” it for a profit. Your other option of course, is the more traditional and longer-term “buy and hold” option, where you make an investment in a property that you plan to stay invested in for the long-term. 

Another real estate investment option would to invest in a real estate investment trust (REIT) in which the trust makes direct investments in real estate. This creates leverage in which your investment can be used to invest in a larger number of properties, and therefore, also potentially lowers your risk by diversification.  

First Trust Deeds For Your Investment Portfolio

Saving the best option for last, an alternative to investing directly in real estate while still taking advantage of today’s real estate market, would be to invest in first trust deeds.  

With trust deeds you have two options. You can purchase an existing deed, or you can originate the loan directly.  Trust deeds definitely have benefits that other investments don't. First, it’s the peace of mind knowing that investing in a trust deed is a secured investment.  Second, it's the high rate of return that can be generated by investing in Trust Deeds.  

At the end of the day, no matter how you decide to invest, real estate should be a part of your investment portfolio. Real estate investing is a good counter-cyclical investment that creates positive risk-adjusted returns to your portfolio.  


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