Owning a home is a cherished dream for many, but real estate offers more than a place to live. Real estate as an investment is a powerful avenue for generating a steady and diversified income stream, achieving financial independence, and building wealth. However, acquiring income-generating real estate or even building one often requires a substantial financial outlay, making it challenging for the average investor. While direct investment in real estate can be difficult for the average investor, other options like real estate funds provide a cheaper alternative.

Real estate as an asset class can be a major source of income, providing reliable cash flows from owning properties like a house or apartment or a commercial space for rent or lease. Real estate opens the door to capital appreciation as the properties tend to grow in value over time, and can be sold at a higher price than initially purchased. Capital appreciation is more likely to occur when the local economy is strong, unemployment is low and wages are high as there are more well-funded buyers in the market to drive demand. Additionally, low interest rates, which translate to lower mortgage rates make real estate more affordable, which increases demand, while factors such as location, also play a significant role in capital appreciation. Given that real estate is a physical asset, it provides tangible value that is less susceptible to market volatility than financial assets like stocks and bonds. Additionally, real estate often has a low correlation with other asset classes, meaning real estate’s performance is less likely to go bad at the same time as other types of investments, like stocks or bonds. Thus investing in real estate reduces portfolio risk and improves portfolio diversification. Its intrinsic value and potential for passive income and capital appreciation make it a stable investment choice.

Despite the benefits of real estate investments, direct ownership can be challenging for the average investor due to the high price, high transaction costs, and demanding maintenance requirements, which can be key stumbling blocks to direct real estate ownership. Directly owning real estate will normally require a significant upfront investment for the down payment, closing cost, legal fees, and initial upgrade costs, if it’s a fixer-upper, making it inaccessible to most investors. Once acquired, there will likely be routine maintenance, insurance, and tenant-management needs, which can be time-consuming and require specialised knowledge. This can be especially true of commercial real estate, which typically requires a very large initial investment. Moreover, while real estate can provide attractive returns on your investment, it is a relatively illiquid asset compared to stocks and bonds, meaning it can take a long time to sell a property and convert it to cash.

Fortunately, in recent years, real estate as an asset class has become more accessible to local investors through real estate funds. Real estate funds are investment funds that pool money from investors to buy and manage real estate properties. These funds are managed by professionals to maximise returns. Professionals manage the properties and distribute income from rent, leasehold income and potential gains from property sales to investors. They also benefit from the appreciation of the properties over time through growth in the value of their units or shares. Locally, real estate funds exist in the form of unit trusts, mutual funds or real estate investment trusts (REITs). Real estate funds are designed for persons who may not have the substantial funds needed to purchase expensive properties outright, thus, allowing small investors to own a piece of various properties. This set-up reduces risk exposure and allows investors to earn income from real estate without the need to buy, manage, or finance properties themselves, enabling them to benefit from the real estate market at a fraction of the cost. Because the returns from real estate funds typically come directly from different property types in different locations, it can help diversify your investment portfolio by spreading risks across different sectors and markets. Thus, adding real estate funds to your portfolio can reduce the volatility of relying solely on stocks and bonds for returns. For example, the NCBCM’s Real Estate Fund (rE Fund), manages a pool of high-quality commercial properties that provides a leasehold income stream to investors. The leasehold income provides quarterly cash distributions to investors that are inflation-hedged to preserve the purchasing value of returns. The rE Fund also provides capital gains, compounding by 12 per cent annually between August 2021 and January 2024. Coupled with a 10.8 per cent gain since the start of the year to August 7, 2024, if you invested the current $50,000 minimum amount to participate in 2021, it would have grown by 47 per cent to $73,545 during this period, adding $23,546 to your investment portfolio!

Bottom Line

Real estate investments are often inaccessible to most investors because of the high purchase price, property maintenance and management requirements, and illiquidity. However, by investing in real estate funds with a strong track record and management like the NCBCM rE Fund, investors can fully leverage the financial benefits of real estate investments without significant upfront costs. By investing in the rE Fund or another real estate fund, you can access protection from inflation, market volatility, and illiquidity while benefiting from steady cash flows, capital gains, and portfolio diversification. To start your financial journey with real estate funds, speak with an NCBCM wealth advisor.