How Investors Can Weather Downturns By Diversifying Their Portfolios With Real Estate

By: Greg Salley, Equity Residences Managing Director and real estate investor.

How Real Estate Helps Balance Your Investment Portfolio

In this blog, I am sharing my perspective as a real estate investor and as Managing Director of a private equity fund that provides investors with attractive financial returns and vacations in luxury vacation homes.

Many investors I speak to are contemplating how real estate fits into their overall investment portfolio as they seek to balance stock and business investments.

Omer Amsel, co-founder and COO of the real estate crowdfunding platform StraightUp, recently told U.S. News, “Real estate exhibits low correlation with public markets and, due to its fundamental value, is uniquely positioned to weather downturns.”

He continued, “It’s not typically impacted by changes in market sentiment as quickly as equities,” representing an opportunity to “diversify, reduce overall volatility and create a stronger portfolio, offering downside protection among stocks, bonds, and other assets.”

I strongly agree that real estate can help balance your portfolio as we go through different market cycles.

Equity Residences’ investment funds take diversification to another level with a portfolio of luxury residences in different vacation destinations across the U.S. and in select international markets.

Real estate provides a natural hedge against rising interest rates and inflation as noted in the article referenced above. Jay Hatfield, portfolio manager of InfraCap’s REIT Preferred ETF (ticker: PFFR), says the biggest downside associated with rising interest rates for real estate investors is rising capitalization rates, which negatively impact valuations. When inflation rises at a similar pace, however, it can have a neutralizing or even positive effect “as the cost of replacing real estate will rise and rents are likely to be rising at an accelerating rate.”

Because Equity Residences homes are owned outright with no debt, we are widely seen as a capital preservation/growth play with upside income potential. Your investment is secured by hard assets in prime locations. As inflation pushes up vacation home prices and vacation home rental rates, your fund assets appreciate and your personal use of fund vacation homes has greater imputed value.

Why I Am Passionate About Real Estate Investing

I saw a great opportunity to invest in real estate after the 2008 financial crisis. I bought distressed homes at heavily discounted prices and turned them into profit generators by renting them.

I consider real estate a primary investment vehicle because it is backed by underlying hard assets that I can control. To varying degrees, I can control the quality of my property managers. I can control the locations in which I invest. I can control the rental rates. And I consider real estate counter-cyclical to the stock market.

Having worked at large publicly traded companies, I saw firsthand how little control individual shareholders have over company performance and its investment decisions. Stocks are also subject to market sentiment, which makes them much more volatile than hard assets.

Having also traveled extensively, I can attest that vacations can cost a fortune and those costs can quickly escalate if you bring friends and family to share the fun.

I created Equity Residences to help others benefit from real estate investment and to enjoy luxury vacations with their families without having to spend tens of thousands of dollars renting vacation homes.

Equity Residences first fund, the Equity Villa Fund, pioneered luxury vacation residences as a true investment fund back in 2012 and has seen values increase over 50%.

How Equity Residences Finds The Right Real Estate Investments

I’m often asked how we find attractive values given the increase in U.S. real estate prices. It’s because we’ are monitoring multiple markets continuously and we only need to find that one gem, offered by a motivated seller, in a highly desirable location.

We have blogged about our investment methodology previously:

Here you can learn why we invested in Costa Rica.

This blog post described our thinking when buying a penthouse in Tuscany, Italy.

In this post you can read about our overall philosophy on investing in luxury vacation residences vs joining a luxury vacation club.

Conclusion.

I believe in hard asset investments like real estate. In anticipation of a cyclical bear market, rebalancing your portfolio with an Equity Platinum Fund investment could put you ahead of the game if you’re willing to commit to a 10-year hold period. After 10-years the Fund portfolio is sold and the profits are distributed to our investors.

The icing on top is that you enjoy rent-free luxury vacation homes in an astounding number of locations while your investment grows. Building lasting memories with friends and family is priceless. It’s even better when you can do so while securing your family’s financial future.