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INVESTING IN REAL ESTATE

Many of our clients either hold real estate investments when they come to us or opt to invest in real estate as part of their financial management plan. Many of these holdings produce income, while others yield significant tax benefits.

There are numerous benefits to including real estate holdings in your financial plan, along with a number of risks. Here are some quick pros and cons to consider.

Advantages of Real Estate Holdings

  • Diversification – Because real estate investments have a relatively low performance correlation with common asset classes such as stocks and bonds, they present an attractive means to achieve diversification without sacrificing the potential for growth or security.
  • Real Estate is Tangible – Whether you’re flipping a single family home, buying an office building or investing in a Real Estate Investment Trust (REIT), the underlying asset is a piece of property that holds intrinsic value.
  • High Investment Returns – Recent decades have seen some returns in the approximate 10%-20% range for real estate, a trend which, despite a major correction, appears to continue in many cases.
  • High Yield, Low Risk – Many real estate investments are designed to provide monthly income. While residential rental properties can often return 1%-4% of the purchase price on average commercial properties are averaging approximately 6%-12%. These figures depend, of course, on the local market and particular circumstances of the real estate investments.
  • Hedge on Inflation – While there are many other factors at play during inflationary periods, real estate has proven to be an effective hedge.

Disadvantages of Real Estate Holdings

  • Slow, Costly Transactions – Sure, you can decide to sell at any time and for any reason. But the process of doing so is much more difficult and expensive than withdrawing your cash from the bank.
  • Management Costs – Every real estate investment requires some level of upkeep and many require management.
  • Cyclical Markets – Real estate is cyclical, both for the leasing market, which involves occupancy and rental income, and the investment market, which involves property availability and purchase prices.
  • Liability – If someone slips on an icy sidewalk, or leaves a bathroom sink overflowing, the liability will ultimately lie with the property owner.

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IMPORTANT DISCLOSURES: Please remember that past performance may not be indicative of future results. Registration as an investment adviser (RIA) does not imply a certain level of skill or training. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Gray Private, LLC (“Gray Private”), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Gray Private. Please remember to contact Gray Private, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Gray Private is neither a law firm nor a certified public accounting firm and no portion of the commentary content should be construed as legal or accounting advice. A copy of the Gray Capital’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request.

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