With inflation spiking to levels not seen since the 1980s, many people are turning to alternative investments, such as real estate, to generate passive income and hedge against stock market volatility.
Commercial real estate accounts for 14% of the U.S. investment market and is the third-largest asset class behind bonds and equities, according to Nareit, an association representing real estate investment trusts (REITs) and publicly traded real estate companies with an interest in U.S. real estate.
While you may think investing in real estate is a hands-on strategy that requires you to collect rent and maintain a property, that’s not always the case.
Here are three real estate investment strategies you should consider.
Investing in REITs
REITs, which are traded like stocks, own and operate income-producing real estate. They own many types of real estate, including office buildings, warehouses, hotels and hospitals. All told, REITs own more than $3.5 trillion in real estate assets across the country.
REITs outperformed the S&P 500 last year. They returned 40.11%, compared with the S&P’s return of 26.89%.
Many REITs, which typically provide investors a steady income stream in the form of dividends, are listed on major stock exchanges. That means that if you need your cash, you can just sell your shares — unlike owning an actual property that could take months or even years to sell.
Among the fastest-growing REITs is Boston Properties (BXP -4.80%), a developer, owner and manager of Class A office properties in Boston, Los Angeles, New York, San Francisco, Seattle and Washington. BXP shares are up 17.23% this year, and its annual dividend yield is 3.16%.
If you’re interested in retail real estate, you could invest in Kimco Realty, which focuses on grocery-anchored shopping centers. Shares of Kimco have ranged from $19.54 to $26.53 this year. The REIT’s dividend yield is 3.01%.
There also are industrial REITs like Prologis, which invests in warehouses, or hospitality REITs such as Summit Hotel Properties or Apple Hospitality.
Owning a share of multiple properties
Crowdfunding gives investors access to privately held real estate that may be too pricey to purchase outright.
CrowdStreet, for example, enables users to invest in institutional-quality real estate across the United States. Since it launched in 2014, the platform has raised $3.16 billion in capital and returned $591 million to investors, according to the company’s website.
CrowdStreet’s investment options include diversified funds, individual deals, and tailored portfolios that are professionally managed.
Another crowdfunding platform – DiversyFund – is open to all U.S. investors, not just those who are accredited, and you only need $500 to get started.
The company raises capital to acquire multifamily properties that it puts into its DiversyFund Growth REIT and uses the cash flow for the properties to renovate properties to add value. The average annual return is 17.6%, and the company pays quarterly dividends.
Owning real estate as part of an alternative asset fund
For people who don’t want to take an active role in their investments, funds like Hedonova may be worth considering. The company reports an internal rate of return of 55.2% since its inception in 2020. Real estate investments account for 11% of the 12 alternative asset classes in Hedonova’s fund.
Hedonova, which bills itself as a hedge fund open to everyone, invests in all sorts of alternative assets, which helps minimize risk. In addition to real estate, Hedonova invests in start-up companies, art, wine and real estate. The company charges a 10% performance fee when capital gains are realized and a 1% management fee charged annually.