Real Assets & Real Returns
Since 2000, ownership of real estate has outperformed the stock market by nearly 2x. The National Council of Real Estate Investment Fiduciaries - NCREIF Property Index (NPI Index) - has shown a 10.7% annual return compared to the 6.14% annual return from the S&P 500.
As an asset class, real estate offers competitive, risk-adjusted returns with attractive income streams that offer diversification away from the stock market. There are four ways to make money in real estate: cash flow, loan pay down, depreciation and appreciation. Unlike stocks, real estate offers investors a hard asset that is evergreen, proven and real. There are few other assets that are as tax advantaged as real estate. Although real estate is not as liquid as stocks, there are ways to gain exposure to real estate, reduce illiquidity, and potentially put it on-par with that of traditional asset classes.
Competative, Tangible, Stable
Competitive Risk-Adjusted Returns: According to the National Council of Real Estate Investment Fiduciaries (NCREIF), in 2018, over the past 5 years private commercial real estate has shown an average return of 9.85%. In the past two decades its has also had the best risk-adjusted returns out of any asset class.
High Tangible Asset Value: When compared with stocks and bonds, real estate is back by a real brick and mortar, hard asset; which limits the risk of conflicts of interest between sponsors and investors.
Attractive and Stable Income Return: From 1977 - 2007 80% of total U.S. real estate returns were derived from cash flow and not appreciation. This means that real estate relies more on income return than on capital value return.
Diversification, Hedge Inflation
Portfolio Diversification: Real estate has a low to non-associated correlation with other major asset classes; meaning it can lower portfolio volatility and provide a higher return relative to risk.
Inflation Hedging: There is a positive relationship between increases in Gross Domestic Product and the demand for real estate. During economic expansion the demand for real estate drives rents higher; in turn, increasing the value of real estate. Dollar depreciation is limited by passing some of the inflationary pressure on to tenants and by incorporating some of the inflationary pressure in the form of capital appreciation.