Is there truly a cash flow real estate investment option that can weather a down market cycle?

Yes. And there's data to back it up.

It's all in a study published in 2012 by JP Morgan Asset Management called "Real estate: Alternative no more." The research follows the real estate investment world from 1977-2011. Researchers found that the commercial real estate market, even in the worst five-year downturn, made more money for the investor than any other asset investment option.

If you’re looking to diversify your investment portfolio, Capital Gains podcast host Jonathan Twombly says commercial real estate is a good option. With commercial real estate, you stand to make money not only through appreciation but also through cash flow.

Does that mean buying a home is a bad investment?

You may lose less money buying a home than you do renting. But that doesn't mean single family homes are a sound investment.

Putting this into context, consider buying a New York Brownstone for $500,000 and selling it for $1,000,000 after 10 years. On the surface, it appears that the return on investment is huge.

What buyers do not account for, Jonathan explains, is that throughout the 10 years of ownership they incurred enormous costs along the way. Taxes, maintenance, renovation, very often when taking the aforementioned into account the buyer has made no money at all.

The difference between an active and passive investment

The wrong perception is that real estate is a passive investment from which you receive passive income.

The only way the investment can be truly passive is if you invest through an asset management company as part of a syndicate. In this instance, they do the work for you whilst you receive a dividend. The investor does not own the real estate itself, just a membership in a company that owns real estate.

Making an active investment in real estate involves work. The investor takes on the responsibility of leasing when vacant, filing taxes, maintaining the property and being the main point of contact for the renter. It’s a business and must be treated as such.

Active investment has the potential for offering a higher return on investment but requires considerably more time and effort.

Making an investment as part of a syndicate

Investing as part of a syndicate takes the headache out of real estate investment. They do all of the legwork and secure the right deal.

If this is the kind of investment opportunity you’re looking for it is integral the syndicator you work with has a good track record, will provide regular communication reports and is a cultural fit.

Syndicate deal documents are drafted in a way that the investor has very little power over the property. Investments are not liquid which means the money invested will likely need to sit for a long time before any returns are seen.

What return can you expect from a syndicate deal? In the current market syndicate investments are returning 7-8% cash on cash immediately.

Over the life of the deal, you can be looking at receiving anywhere between 15-20% on an annualized basis over the life of the sale.


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