Looking to distribute 50-100k into RE as part of re-balancing and wondering if there are other options I should consider. Must be either completely or mostly passive after initial due diligence. I've invested with Equity Multiple a few times in the past and it was fine but am curious folks here like/recommend. Open to syndication groups/sites, private RE funds, etc.
First, I do not have any financial relationship/interest except as a customer or investor of the things I’m about to discuss and this isn’t investment advice, etc. Second, sorry for the wall of text:
What are your investing goals? Why private real estate? How does real estate help you meet your goals? What do you want it to do in your portfolio? Does your investor policy statement call for real estate, if so how much? Equity or debt? I ask all of this as someone who cannot yet invest in private real estate funds like equity multiple but I am investing in fix and flip loans via Groundfloor $10-$30 at a time as I’m still early in attendinghood and am not an accredited investor yet. I’ve been trying to learn as much as I can though, and my undergrad major was finance so I have a very slight background knowledge with some of this. The rest of this post is to inform, not dissuade, as I have felt the FOMO and pull of real estate and this has helped me calm that somewhat and really simplify a lot of my investing.
What I’ve learned in my research is a couple of interesting things: private real estate does NOT outperform REITs, on average over long time periods anyway, and especially after taxes and management fees. You may be good at picking a manager or developer. I am a factor tilting boglehead, so I don’t believe I can pick stocks or managers well. Private real estate, and illiquid assets in general of late, haven’t been returning the expected illiquidity premium. Direct real estate investing is a different case entirely, but that is also a part/full time job. A couple papers demonstrating the REIT outperformance over private real estate:
https://jpm.pm-research.com/content/early/2021/07/16/jpm.2021.1.276.abstract and
https://www.schroders.com/en/mt/pr...eits--which-performs-best-over-the-long-term/. First paper has the abstract there but paper is behind a paywall. This article (can sign up for free account and access 4 articles a month there) explains it well:
https://seekingalpha.com/article/4470755-reits-vs-private-equity-real-estate-whats-best-way-invest .
Also, the performance of REITs are actually explained by their exposure to other factors of investment risk, namely the credit or default factor and the small and value equity factors. Larry Swedroe explains this well in this article:
https://www.etf.com/sections/index-investor-corner/swedroe-real-estate-isnt-special?nopaging=1 .
The funds I use to tilt to my chosen factors (mainly small and value, but the company I use also targets other quantitative risk factors like profitability and investment) exclude REITs from their funds entirely and then have a separate reit fund. I hate bizarre numbers in my portfolio so I hold 5% of that fund. I didn’t like the bond yields I was seeing, so I’m holding 5% of my bond allocation in groundfloor where I can get 6-15% annualized returns on my money, with a risk of default. And that risk isn’t 0, I have several loans in foreclosure right now or heading that way. I’m taking an index fund like approach and just allocating to dozens of loans in nonjudicial foreclosure states (so if they do default we cut our losses and move on). I’m somewhere over 200 loans on there. It keeps me interested and it seems to quell my urge to research stocks and try to stock pick like my instructors taught me back in undergrad (not taught well enough I’d expect these days).
So, I hold some real estate in groundfloor as part of my bonds. I have a slight overweight in my main portfolio to REITs but won’t be investing in private real estate as fees are high, and I could screw up my due diligence. I don’t really feel like putting in the work to get good at it, or the money to take a course on it, since the returns likely won’t be worth it anyway.
Id stick with where you already have experience though. We’re supposedly towards the end of the real estate cycle. That was another big reason I went with groundfloor and debt (before I’d done my research and got all excited about it) was because debt lending tends to do better in real estate downturns, as does buy and hold or direct investing. Fix and flip (like groundfloor) tends to get hit hardest in downturns, which could explain my defaults im seeing. Equity LPs tend to get wiped out or have poor returns. Equity multiple has a good reputation on white coat investor, I think you’d be fine there. 1031 exchange was super responsive when I was just perusing their site (they have some no accredited deals so they ask for your info before they’ll show them to you) and had someone call me to answer my kind of silly question about DSTs.
Any investment has risk, otherwise it wouldn’t have return. Just figure out which risks you want to take and allocate your money to those.
