Commercial real estate (CRE) investments are about to attract the spotlight as recession looms and the housing market is expected to shrink. So, while rising mortgage rates put downward pressure on the housing market, CRE acquisitions are rising – with multifamily leading the way.
“CRE activity is growing, as is demand for commercial financing.” –rejournals.com
It’s not surprising that investors are flocking to CRE even as housing and the markets retreat. I’ve been touting the merits of CRE for years – both as vital for building wealth through cash flow and appreciation but also as a buffer against recession and inflation.
Based on all the merits of CRE, you would think every investor should have significant allocations to CRE in their portfolios. But the reality is that the average retail investor allocates less than 5% of their portfolios to any alternative investment like CRE. What’s more surprising is that a large segment of Americans doesn’t invest at all – let alone in something as valuable as CRE.
In a 2017 Gallup poll, 46% of Americans indicated they did no investing. There may be some obvious reasons why this segment of Americans doesn’t invest – from lack of knowledge to lack of money – but perhaps the main reason boils down to one factor – fear.
Fear is undoubtedly keeping many Americans from enjoying the fruits of investing in CRE. Unfortunately, fueling this fear are lies, misconceptions, and myths circulating about investing that keep potential investors from enjoying the benefits of investing in alternatives like CRE.
Let’s delve into some of the more common ones:
Investing Is Risky…
This is more like an excuse than a lie. Of course, investing is risky. Everything entails risk. Every time you get in a car, there’s a risk you’ll get in an accident, but there’s an important reason for going wherever you’re going that you are willing to take that risk.
The common lie about CRE and other alternatives is that the only way to yield the above-market returns that advocates of alternative investments often tout is to take on more risk. Investors can achieve above-market returns at reduced risk through the right investment vehicles or in the hands of the right partners.
I Will Lose All Of My Money…
The only investment in which you could lose all your money is if you entrust money with your Uncle Stan to invest in that next “can’t miss opportunity.” With investments backed by tangible assets like CRE, it’s impossible to lose all your money. It may dip from time to time in the short term, but it consistently trends upwards over time.
It Is Way Too Complicated To Invest…
Everyone has to start somewhere, and it all starts with knowledge. With the myriad of resources to learn about CRE investing – on the internet, through connections with experienced investors, from investing clubs, online groups, and masterminds – there is no shortage of sources for learning about CRE investing.
I Need To Know A Lot About Investing…
This is a sub-lie of lie number #3 above. Some investors think they must know everything about every segment and market to invest in CRE. This is not true if you invest passively and partner with knowledgeable and successful experts in particular segments and markets.
The biggest task in those passive investment situations is to properly screen potential investment partners to verify their credentials and ensure their investment objectives align with yours.
It Is Too Time Consuming…
CRE investing can be too time-consuming if you do it on your own. This is where the passive investment option comes into play again. Savvy investors leverage the expertise of others because they don’t want to trade one job for another. They buy back their time by generating multiple income streams from multiple passive sources to let someone else do the work.
The Capital Requirements For CRE Are Insurmountable…
Yes, the cost of CRE is typically beyond the reach of an individual investor. Still, the ability to pool the capital with other investors and team with an experienced partner allows investors to access larger assets of higher quality than possible on their own.
I Just Don’t Know The Right People To Invest In Alternatives…
Alternative assets are more accessible than ever. The SEC has loosened the advertising rules in connection with private investments thanks to recent regulatory changes.
Many opportunities are discoverable with simply a web or social media search. With private investments, it’s no longer about the deals finding you but about you putting in the work to find the deals.
Don’t buy into the lies, misconceptions, and myths about investing in general and about investing in CRE in particular.
Don’t deprive yourself of the opportunity to invest in an asset class the wealthy have been leveraging for decades to build inflation-insulated and recession-resistant wealth.
Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.
Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.