With real estate remaining a popular investment asset class, some investors are moving beyond traditional properties to seek unique real estate investments that may offer higher returns or diversification benefits. However, these non-traditional real estate investments also come with additional risks that must be carefully evaluated. This article provides an overview of the range of unique real estate investments available, analyzing the potential rewards and risks of each to determine if they deserve a place in an investor’s portfolio.
Understanding the motivations and risks behind unique real estate investments
Many investors are drawn to unique real estate like vacant land, farmland, self storage units, mobile home parks or niche hospitality properties because of the higher cash yields or growth potential compared to mainstream assets. However, liquidity is lower, there are fewer direct comparables for valuation and more specialized management skills are required. Thorough due diligence is essential before investing to assess factors like valuation and projected cash flows as well as legal, regulatory, environmental and local market risks.
Evaluating the role of crowdfunding platforms in unique real estate investments
Real estate crowdfunding platforms have opened up access to unique property investments like self storage, student housing and medical properties for smaller investors. They allow you to invest in specific assets rather than blind pool funds. However, platforms have different track records, fees structures and levels of transparency. As a passive investor, you have little control or influence over the assets. Despite offering diversification, you are still exposed to risks like declining occupancy, tenant defaults or cost overruns.
Determining if unique real estate strategies fit within a portfolio’s risk budget
The illiquidity, specialized management needs and potentially higher volatility of more unique property investments makes careful portfolio construction important. Their role depends on an investor’s total assets, time horizon, liquidity needs and risk tolerance. Most experts suggest limiting exposure to alternative real estate strategies to a moderate percentage of the overall portfolio, with higher allocations only suitable for larger, sophisticated investors able to withstand periods of low or negative cash flows.
While non-traditional real estate investments may provide portfolio diversification and higher returns, they involve significant due diligence requirements and risks that require careful evaluation by investors.