Real estate investing has grown in popularity in recent years—and, along with it, the types of opportunities available to investors. While real estate investment trusts (REITs) and public markets are among the more well-known options, private markets are beginning to achieve the same level of recognition.
To help you determine whether private real estate investments are right for you, we’ve highlighted some of the key benefits of these unique assets.
The Potential for Strong Returns
Once considered the realm of institutional investors, private market investments have long been popular for their consistently strong performance and their ability to balance out more volatile investments.
As a result, these types of investments have become a prized asset class and hundreds of billions of dollars are pouring into private real estate each year. When compared to stocks and bonds, the value of these assets is clear—relative to a traditional 60/40 portfolio composed of 60% large-cap stocks and 40% bonds, a portfolio that includes private real estate holdings has historically performed better and driven higher returns. In fact, the income component of the NPI (the index that tracks private real estate performance), has averaged a higher rate than the yields of these other major asset classes:
Read more about this graph.
The Ability to Diversify Your Portfolio More Broadly
The volatility of the past two years has taught us a lot about market swings, and about our ability to withstand risks. One of the other benefits of private market real estate is the fact that it can help to add stability to a portfolio and offset risks associated with market downturns.
As seen in the chart above, over the past 20 years, private market investments have been associated with lower volatility as well as strong performance. Choosing the right investment options is key here, since diversifying within this asset class can help to broaden your exposure further and increase portfolio stability. When diversifying into real estate, the key is to recognize that there are many methods, so you need to find what’s right for you. For instance, just owning your own house isn't meaningful diversification into real estate, meaningful diversification is investing in private assets that aren’t correlated with the public markets.
The Benefits of Generating Income
For investors interested in additional sources of income, private market real estate can provide other attractive opportunities. Due to its historically strong performance, this asset class can be a great way to generate passive income and has been shown to have a higher yield than the yields of some of the other major asset classes.
The past few years have led to significant changes in both public and private markets. New and seasoned investors are seeking out new opportunities at a higher rate than they have in the past and many are looking for stability along with strong performance.
If you’re interested in investing in private market real estate, Fundrise is a leading option. An investment platform designed to help investors access institutional-quality investments without the high fees, Fundrise offers flexible investment minimums and the ability to manage your portfolio through an easy-to-use mobile app.
Building a stable portfolio doesn’t mean you have to sacrifice performance. With an allocation into private market real estate, you can better maximize returns and help generate the income you need to create added security now and in the future.