Investors are fed up with traditional assets like stocks and bonds and their mediocre returns and susceptibility to market volatility. That’s why more are increasingly turning to alternative assets and strategies for achieving above-market returns insulated from broader market volatility.
The numbers back up alternatives as reliable sources for generating above-market risk-adjusted returns:
The numbers also point to alternatives becoming more and more mainstream as investors discover strategies for forcing the growth of their portfolios. Whereas individual investors can’t force the price growth of any particular stock, the same does not hold true for the potential impact investors can have on certain alternative assets – specifically, CRE.
When it comes to traditional assets found on Wall Street, unless you’re Warren Buffett, you are powerless to force growth in the stock price of your holdings. There are too many forces at work that are out of your control for you to force appreciation of your stock holdings personally. Stocks are too unpredictable, and there are too many factors for individual investors to influence a stock’s price. Commercial real estate is a different story. With CRE, smart investors have been leveraging tried and true strategies for decades to impact the growth of their investments directly. Smart investors leverage these alternative strategies to create and maintain wealth beyond their lifetimes.
Alternative Investment Strategies:
Smart investors know that CRE appreciates organically over time. Market appreciation is the natural appreciation of CRE over time as a product of supply and demand. As populations grow, the land becomes scarcer because nobody can create more land.
With CRE, not only do investors benefit from natural market appreciation over time, but they can also benefit from bonus appreciation that can be generated by applying particular strategies.
Growth Targeting.
Growth targeting involves acquiring or developing CRE with long-term revenue growth prospects by acquiring or developing assets in the early stages of these properties’ life cycles. Being proactive in investing in these assets ensures that they mature and realize their full potential. For example, if developed, operated, and disposed of properly, development properties can yield high returns for investors.
Value-Adding.
Value-adding is a strategy investors can implement to force the appreciation and value of a property. Value-adding begins with acquiring undervalued assets to implement minor to major improvements to force the appreciation of the acquired property.
The list of improvements an investor can make to add value to a property is long and diverse. The most typical strategy for adding value is improving NOI, which directly impacts long-term value. Investors can force an increase in net operating income (NOI) by increasing revenue, improving efficiencies, decreasing expenses, or a combination thereof.
Here are some typical strategies for improving NOI:
- Adjust rents to match market rates.
- Add amenities and capital improvements.
- Improve screening to acquire higher-quality tenants.
- Make cosmetic improvements to enhance curb appeal.
- Improve marketing.
- Improve management and property management for more efficient and cost-effective operations.
Strategic Investing.
Strategic Investing involves investing in specific assets to take advantage of market changes or shifts in underlying fundamentals or demographics. For example, investors often target properties in high-population growth areas or areas experiencing high influxes of national and international businesses.
By targeting population and business shifts, investors can benefit from rent increases due to increased demand.
Leveraged Acquisition.
Leveraged acquisitions involve using bank financing to augment acquisition and renovation opportunities. This strategy can increase the number of acquisitions to maximize returns. This allows for creating capital appreciation without having to invest large amounts of your capital upfront if acquiring a single property or for creating multiple sources of capital appreciation through acquiring multiple properties through the power of leverage.
Arbitrage Strategies.
Arbitrage involves taking advantage of information and networking advantages to find and acquire undervalued properties that can be resold at a higher price or held onto to extract growth in the future.
As investors become more and more savvy, they increasingly turn to alternative assets and strategies to build and maintain multigenerational wealth effectively.
By implementing alternative strategies to force growth and increased profits of an asset, smart investors are able to extract returns far above what traditional investments can offer and at lower risk.
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.
