EquityMultiple Learning Series Introduction
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The document introduces modern real estate investing and emphasizes its diversification benefits, particularly in comparison to stocks and other investments. It discusses the challenges investors face in accessing real estate opportunities, notably prior restrictions that limited participation to institutional investors, which have since changed due to the Jobs Act. The series aims to educate investors on navigating online real estate platforms and optimizing returns while minimizing risks.
EquityMultiple Learning Series Introduction
- 1. Modern Real Estate Investing Intro Series equitymultiple.com
- 2. © 2015 EquityMultiple, Inc. All rights reserved. Whether you’re investing in real estate for the first time or looking to expand your existing portfolio, this introductory series will help answer some of the fundamental questions you might have about why you should invest in real estate, how it compares to other investment alternatives, where it fits in with your existing portfolio and investment goals and what you should consider when you’re ready to invest. Intro Explore the Platform Here are the articles you can look forward to over the next two weeks. Please reach out with any questions at any time: How Modern Real Estate Investing Differs from REITs The Capital Stack: How Deals Are Structured & What it Means for You Real Estate Asset Categories & Diversifying Your Real Estate Portfolio Underwriting & Diligence: Platform Best Practices
- 3. © 2015 EquityMultiple, Inc. All rights reserved. The most important reason to include real estate as a significant portion of your overall portfolio is the diversification benefits it can bring. Modern portfolio theory holds that diversification is a key element of reducing portfolio risk and optimizing returns. David Swenson, the long time Chief Investment Office of the Yale Endowment and a Trustee of TIAA-CREF, pioneered the famed Yale Model based on modern portfolio theory. Swenson used the Yale Model to guide the endowment to a staggering 13.7% annual return from 1992-2012, with a 22% allocation to real estate. Diversification “ Asset allocation plays a central role in determining investor results… approximately 90% of the variability of returns stems from asset allocation, leaving approximately 10% to be determined by security selection and timing...Careful investors play close attention to the determination of asset class targets. “ 1
- 4. © 2015 EquityMultiple, Inc. All rights reserved. Part of what makes real estate such a good complement to a portfolio that includes stocks is that it demonstrates a low correlation with the public markets and far lower volatility. While all asset classes can be impacted by a significant recession, real estate has shown a limited relationship to the boom and bust cycles of the stock market. The Yale Portfolio Natural Resources Real Estate Private Equity Absolute ReturnFixed Income Domestic Equity Foreign Equity 22 % 35 % 18 % 7 % 4 % 6 % 8 %
- 5. © 2015 EquityMultiple, Inc. All rights reserved. Real estate offers more than just diversification - its combination of current income and long term appreciation, as well as the downside protection of a tangible asset, provide appealing risk adjusted returns. Historically, real estate returns have exceeded those offered by stocks, bonds and savings account, while high fee alternative investments like hedge funds and private equity funds are frequently criticized for underperforming stock market indices. The Benefits of Real Estate Cash/Savings Bonds Stocks Real Estate 2.99% 3.91% 4.07% 8.72% Average Returns 2000-2014 2
- 6. © 2015 EquityMultiple, Inc. All rights reserved. Despite these benefits most investors have little to no real estate exposure in their portfolio. This is because real estate investments have always been difficult to access, with most investors given the choice between REITs (which, as we’ll explain in more depth, do not offer the same kind of advantages as most real estate investments) or real estate private equity funds, which frequently have high fees, high minimum investments and little clarity into what real estate you’re actually investing in. This is finally starting to change thanks in large part to the JOBS (Jumpstart Our Business Startups) Act, which allows real estate and other traditionally private investments to be broadly marketed to individual investors for the first time. The Changing Landscape of Real Estate Investing Securities Act 1933 2012 2015 JOBS Act $ Invested through online platforms Securities Act: Prohibited the marketing of real estate-backed securities to most investors JOBS Act: Lifted the ban on “general solicitation”, allowing accredited investors to participate in large commercial real estate projects
- 7. © 2015 EquityMultiple, Inc. All rights reserved. So, whereas a few years ago real estate investing - and all its benefit - was available only to institutions and the very well- connected, now any accredited investor can realize the benefits of direct real estate investing. This sea change has given rise to platforms like EquityMultiple, which aim to connect investors with these opportunities the same way companies like E*Trade - and, more recently, Betterment - made investing in the stock market far easier for individuals.
- 8. © 2015 EquityMultiple, Inc. All rights reserved. Explore the Platform This introductory series aims to give you a solid grounding in investing through online real estate platforms - how to best capitalize on this new world of access, and how to best protect yourself against risk. Please stay tuned for the second installment: How Modern Real Estate Investing Differs from REITs Questions? contact@equitymultiple.com http://investments.yale.edu/images/documents/ Yale_Endowment_12.pdf https://www.ncreif.org/property-index-returns.aspx2 1 Sources