What is real estate?
Real estate refers to land and the buildings on it, as well as the natural resources of the land. The sectors we are most familiar with are: residential real estate – the buildings where people live, and commercial real estate – properties owned or leased for business purposes, such as offices and retail stores. But there are other sectors as well: industrial and logistics, data centres, medical centres, student housing. The list goes on and on.
The demand for real estate will mainly depends on evolution of demographics, the level of interest rates, the health of the economy and government policy. But their impact will vary from one real estate sector to another, which means they can perform differently according to the environment.
There’s more to real estate investing than buying your home.
By the end of this video, you’ll know the different types of property assets, the potential benefits of incorporating real estate into your investments and how you can invest in this sector.
Can adding real estate to your investments help diversify your portfolio?
A 24% addition of real estate can improve the risk-return profile of an initial portfolio of 50% equity and 50% bonds. Several factors such as demographic changes, active improvement of a property or urbanization can also increase a property’s value, allowing an appreciation of your capital. Finally, renting a property generates a rental income. This could act as a partial mitigation against inflation, because rents are often linked to inflation.
3 main ways to invest in real estate
- Buy a property asset directly
- Invest in specialised vehicles which own property assets, or
- Invest in listed real estate companies.
A positive aspect of investing directly is that you have direct control over your investment, but you have to deal with any administrative burden. Real estate sectors such as commercial real estate may also not be accessible to private investors due to their high cost.
Alternatively, investors with the same objectives can pool their money together in a vehicle and have a professional real estate manager invest across different property types for them, in exchange for a management fee.
There are also listed real estate companies, which own and manage a diversified pool of commercial and/or residential properties. This solution offers the benefits of a wide diversification from a small upfront investment. This is usually combined with liquidity, allowing an investor to buy and sell funds at any time. Although this may not always be the case at times of market crisis.
Remember: the benefits of real estate investment, the various ways to invest in real estate.