Get off the stock market roller coaster and into real estate

How commercial real estate is a hedge against volatility

This past March, the bull market celebrated its 10-year anniversary, and it’s generated one of the S&P 500’s best surges ever. The New York Times reported, “the rise has generated more than $30 trillion in wealth. Adjusted for inflation, that is the most created during any bull run on record, edging out the $25 trillion in gains during the epic streak from December 1987 to March 2000, which ended with the bursting of the dot-com bubble, according to Federal Reserve data.”

But nothing lasts forever. And there are multiple reasons why this historic run might end soon — interest rates hikes in response to increasing inflation, heightened political risks, global markets in distress, and more. Perhaps the bull run won’t end in 2019, but the forces that pushed the S&P 500 down 6.2% in 2018 are still at play.

S&P 500 growth chart

(Source: The New York Times)

The stock market is inherently volatile and influenced by a multitude of factors, and many investors are looking for a way to escape the stock market roller-coaster and protect their portfolios from the inevitable rainy day.

Adding in real estate

It’s easier said than done when headlines focus on the daily rise and fall of the stock market, but the most successful investors tend to invest for the long run and disregard the noise of day-to-day market volatility.

Enter real estate.

Many investors assume that adding real estate to their portfolio simply means buying or renting a residential property. Historically, one of the most common ways to build wealth has been to buy a home, hold it, and ultimately sell it for more than you put in. So why not just do that again and again — or even buy a rental and earn a monthly income in the form of rent from a tenant?

Going commercial

With single-family residential properties, your source of cash flow is not diversified — do you have a tenant or not? On the other hand, most commercial real estate properties have multiple tenants, so the monthly income is diversified and likely more stable, meaning more stable income for you. In addition to the ongoing cash flow from rent, you can earn a portion of the profits when the property sells.

Typically, when you invest in a commercial real estate deal that is offered by a sponsoring firm, you become a passive owner in the property. You’re not the landlord, which means you’re not legally responsible for the day-to-day maintenance or management of the property. This protects you from the various liabilities, and time costs often associated with owning real estate. (No late night calls because the roof is leaking!)

While the external shocks/factors that drive the stock market can certainly affect commercial real estate, a property’s value is driven more by tangibles factors such as physical improvements (e.g. a new lobby = higher value) and submarket appreciation (e.g. overall property values in Dallas increasing).

Hindsight is always 20/20 and the bullish S&P 500 has seen an impressive annualized return of 15% since 2009. And while there are no guarantees, commercial real estate investments can produce the same, if not better, results than the stock market, while also breaking free from the ups-and-downs that make many investors nervous. Investors can access these commercial real estate investment opportunities via online syndication platforms like CrowdStreet.

Over the past five years, investors on CrowdStreet have contributed more than $600 million to both new and existing commercial real estate projects in 42 states from 300+ real estate firms across the United States. To review the current deals on the CrowdStreet Marketplace, create a free account at CrowdStreet.com today.