Real Estate & Farmland
Real estate is an incredibly popular alternative asset class. Not only does its low correlation with traditional asset classes help to reduce the overall level of risk in an investor’s portfolio, but real estate investment is also a highly liquid dividend-paying form of alternative asset investment.
By pursuing this diversification, investors have a very real chance to give their portfolios a level of protection against fluctuations in the markets, which, let’s face it, is a major driver behind considering alternative assets in the first place.
Real estate investment tends to focus on commercial property, especially when investment takes place through a fund. This investment is then divided between three main sub-classes: office, industrial and retail.
More confident private investors also invest in residential real estate, either for the predicted uplift in the value of property in the local area or for the monthly rental income return or, ideally, a combination of the two.
This concept of buying a property yourself with or without a mortgage can potentially be applied to commercial property as well although it may prove trickier to find the required funding.
This approach is known as direct investment and they can offer the highest payoffs, but they will also come with higher levels of risk.
A somewhat less risky alternative is to invest through a Real Estate Investment Trust (REIT). This approach will ensure that a REIT manager looks after the risk and profit aspect of an individual’s real estate investment and enables the individual to invest a smaller amount as desired.
While a REIT is often attractive for those who are keen to minimise risk and spread their investment, it is unlikely to offer such high returns as direct investment. Even so, returns in the range of 3.5 per cent to five or even six per cent can be expected.
Tax Breaks for Real Estate Investments
Another advantage of investing through a REIT is the special tax considerations on offer due to their dividend-paying nature.
From a practical point of view, an individual or group invests in a REIT either by purchasing shares directly or by investing in a mutual fund with real estate as a specialist area. Either option should give them access to the dividend reinvestment plans, as well as dividend payments for profits.
Farmland Real Estate Investment
One of the best long-term real estate investment options is one that is too often overlooked or assumed to be part of another asset class. But agricultural investment tends to be classed under real estate and it offers some excellent opportunities to the right investors.
Funds tend to focus their investments on high value locations, ensuring that the pockets or lands they snap up will deliver over time for their investors.
Given that farmland is so plentiful in comparison to high-density commercial real estate, such as offices in CBDs, it can be overlooked. But population growth means that this alternative asset has a strong likelihood of growing over the coming years as global population is expected to peak at over nine billion by 2050, up from seven billion in 2015.
As a result of increased demand for food and resources, analysts predict that the value of agricultural land will inevitably rise as pressure to feed and house people the world over intensifies.