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A Guide to Investing in Volatile Markets for Private Real Estate

Investing in private real estate during periods of market volatility can be a daunting task. However, with careful planning and a strategic approach, it can also present unique opportunities for savvy investors. 

Investing in private real estate during volatile markets requires a cautious yet opportunistic mindset. By understanding market dynamics, conducting thorough due diligence, prioritizing risk management, emphasizing cash flow, maintaining liquidity, and staying informed, you can navigate through market uncertainties with confidence. 

Remember, investing in volatile markets carries inherent risks, and seeking guidance from professionals can provide valuable insights and support. 

With a well-planned strategy and a long-term perspective, private real estate investments can still deliver favorable returns even in the face of market volatility.

Over the last ten years, the S&P 500 has generated an average yearly return of 13.79%. Due to the danger of rising interest rates, a protracted trade war between the U.S. and China, and new hostilities with Iran, Forbes stated in June 2019 that this pattern of double-digit gains may be coming to an end.

In this guide, we will explore key strategies to help you navigate volatile markets and make informed investment decisions in the realm of private real estate.

The CBOE Volatility Index (VIX) and REITs

We will first examine how REITs operate before examining how the VIX is used to gauge stock market volatility in order to comprehend why investing in REITs may be a technique to adopt if the stock market gets erratic.

1. Investment trusts for real estate

Investment-grade commercial real estate, such as office buildings and multifamily housing developments, is what REITs, or real estate investment trusts, invest in. Direct real estate investment demands significant time, market expertise, and financial resources. 

Investors can avoid the difficulties of direct ownership while yet enjoying the advantages of investment real estate, such as the potential for regular dividend income and property appreciation, through the use of REITs.

The IRS mandates that REITs distribute at least 90% of their annual taxable profits as dividends to shareholders. Investors receive a recurrent income stream from the REIT when dividend payments are made, much like the periodic rental income from directly owning real estate.

We can evaluate the performance of REITs in relation to the overall stock market by looking at an index of REITs. 

The equity REITs that own and manage mostly income-producing real estate properties make up the MSCI US REIT Index. Investors have received compounded annual returns from the MSCI during the past ten years of 15.42% compared to the S&P 500’s 13.79%.

2. Volatility index VIX of the CBOE

Analysts use the VIX, also known as the Volatility Index, which was developed by the Chicago Board of Options Exchange, to gauge the predicted price changes or prospective volatility of the stock market.

The VIX also calculates the frequency and size of price swings that occur across specific time periods. Volatility increases as price changes become more pronounced. 

Expected future volatility measures price changes implied by options pricing in addition to short-term price fluctuations, while realized volatility measures actual past price changes.

Comparison of REITs and Stocks Historical Performance

A financial metric known as correlation is used to assess how closely two investments or other assets move in relation to one another. They are said to be highly linked if both go up or down simultaneously. 

On the other hand, correlation is said to be low or even negatively correlated if one asset moves down while the other stays the same or increases.

1. Lower Correlation and Greater Variety

The historical performance of commercial real estate was compared to the performance of stocks and bonds in the report Real estate: Alternative no more by J.P. Morgan Asset Management. J.P. Morgan observed that the following while describing the private real estate investment sector as too significant to ignore:

  1. Real estate has historically produced performance that lies in the middle of stock and bonds, but it is supported by a bond-like yield and has less volatility than equity.
  2. In contrast to bonds that pay a set coupon rate, real estate’s low volatility cash flow supports consistent returns with dividends that can increase in pace with cash flow.

Real estate historically offers a basis for low correlation to equities performance as well as a tactical option for portfolio diversification, according to J.P. Morgan.

The analysis compared the performance of private real estate to a 60/40 U.S. stock and bond portfolio over the 20 worst quarters between 1990 and 2008 using information gathered from the National Council of Real Estate Investment Fiduciaries, Barclays Capital, Wilshire, and J.P. 

Future Projections For REITs

Naturally, prior performance does not guarantee present or future results. The National Association of Real Estate Investment Trusts (NAREIT) examined the returns, volatility, correlation, benefits of diversification, and forward expectations for REITs in January 2019.

NAREIT monitored the daily total returns for equity REITs and the overall stock market in 2018. Lows of 45% and highs of roughly 60% were observed in the REIT-stock correlation. 

The low connection between the stock market and REITs may serve to safeguard investors from stock market volatility, notwithstanding the Financial Times’s observation that Stock market slide in 2018 leaves investors bruised and wary.

NAREIT used another way to quantify volatility known as REIT beta in addition to examining the current REIT-stock connection. In comparison to a benchmark, such as the entire stock market, beta assesses the risk of a particular asset. 

For instance, an investment that has a beta of 1 moves with the market. A beta of 1.3 indicates that an asset is 30% more volatile than the market as a whole, while a beta of 0.7 indicates that it is 30% less volatile.

Are REITs More Expensive to Invest In?

Investors might be willing to pay extra for the benefit of REITs’ possible insulation from stock market volatility.

By examining the VIX Index, volatility measurements from the S&P 500 and Russell 2000 indexes, and using other empirical research techniques, researchers from Johns Hopkins University tried to provide an answer to this topic. 

They discovered that equity REIT equities do not now reflect systemic volatility risk. The research team also pointed out that this stands in stark contrast to the behavior seen in common non-REIT stocks like FAANG firms and blue-chip, high dividend-paying stocks.

The research study from Johns Hopkins continued by noting that:

  1. The performance of REITs differs noticeably from that of non-REIT shares.
  2. Investors may be able to protect their portfolios using REITs against changes in overall market volatility.
  3. REITs often are less subject to the overall volatility of the large S&P 500 companies or the smaller Russell 2000 firms.

Getting Ready For a Possible Bear Market

As of the end of June 2019, the Dow Jones Industrial Average had increased from a low of 6469 in March 2009 to 26,599 overall. Even if there is no such thing as a crystal ball, considering how markets are cyclical, getting ready for a bear market may not be too far-fetched.

Public Real Estate financed with fixed-rate debt is one of Forbes’ five potential investment strategies that could shield investors from rising interest rates. Additionally, multi family homes, which frequently modify their rent, can do well when there is inflation. 

If you want to potentially shield your portfolio from stock market volatility and get ready for a potential bear market, think about investing in Mogul REIT II, our REIT that only invests in the multifamily asset class.

10 Reasons Why Invest In Private Real Estate

Private real estate investment is a desirable choice for investors due to its many benefits. Ten reasons are listed below why buying private real estate is a good idea:

1. Potential for Higher Returns: 

When compared to more conventional investing options, private real estate investments may offer more enticing returns. 

Higher overall returns on your investment may be a result of factors including rental revenue, property appreciation, and value-adding techniques.

2. Portfolio Diversification: 

You can increase the diversity of your holdings in your investment portfolio by including private real estate. Historically, real estate has had little correlation with other asset classes like stocks and bonds, lowering the overall risk of a portfolio.

3. Tangible Asset: 

Owning physical properties as part of a real estate venture creates a tangible and potentially appreciating asset. This may provide you a feeling of security and add to the value of your investment.

4. Revenue Production: 

Rental payments from properties can serve as a reliable source of revenue. A steady source of cash flow that may be reinvested or used to augment your income can be provided by this income stream.

5. Tax Benefits: 

There are a number of tax advantages to investing in private real estate. Through 1031 exchanges, you might be able to postpone paying capital gains taxes and claim deductions for things like mortgage interest, property taxes, depreciation costs, and mortgage interest.

6. Hedge against inflation: 

Investing in real estate is a possible option. Rental income and property values may grow when the cost of living rises, offering a potential buffer against the loss of purchasing power.

7. Control and Active Management: 

You have more control over your investment when you invest in private real estate. You can actively manage and make decisions about your properties, in contrast to passive investments in public markets, allowing you to put plans into place to increase returns and reduce risks.

8. Long-Term Wealth Accumulation:

Investing in real estate may result in long-term wealth growth. Equity and wealth can be built over time through the increase in property values, rental income, and mortgage principal payments.

9. Potential for Value Creation: 

Through property renovation, redevelopment, or repositioning, private real estate investing provides potential for value creation. Increased rental revenue and property appreciation can result from adding value to properties.

10. Attractive Financing Options: 

Mortgage loans and other attractive financing options are frequently available for real estate investments. Using borrowed money to leverage your investment can boost profits and increase cash-on-cash returns.

The necessity for active management, illiquidity, and market swings are just a few of the hazards associated with private real estate investing that should be kept in mind. 

You can lessen these risks and raise your chances of success in private real estate investing by carrying out extensive due diligence, getting expert guidance, and diversifying your investments.

How Does Real Estate Compare To Other Investments?

Compared to other types of investments, Public Real Estate investments have unique benefits and traits. Here is a comparison of real estate and several popular forms of investment:

  1. Bonds and stocks:
  2. Risk and Volatility: 

Compared to real estate, stocks often have higher levels of volatility since their prices are more susceptible to sudden changes in response to the status of the market. Investing in real estate typically offers greater stability because it is less volatile.

1. Income generation: 

Rental income can be produced through real estate investments, ensuring a consistent stream of revenue. Dividend income from stocks is not always assured, however it is possible.

2. Tangible Asset: 

Owning real estate can provide investors a sense of security because it involves owning physical properties. 

Bonds and stocks, on the other hand, do not directly represent ownership of tangible things; rather, they represent ownership in businesses or debt instruments.

3. Diversification: 

Real estate and stocks/bonds both provide diversification advantages, although they do so in various ways. In contrast to stocks and bonds, which diversify within the financial markets, real estate offers asset class-wide diversification.

4. Stocks, bonds, and ETFs:

  1. Liquidity: Investors can buy and sell shares in mutual funds and exchange-traded funds (ETFs), which are extremely liquid investments. Direct ownership of real estate is particularly illiquid and may take more time and effort to sell than other types of real estate investments.
  2. Control and management: Investing in real estate gives investors more power over their assets and chances for active management. Contrarily, with little involvement from individual investors, mutual funds and ETFs are managed by qualified fund managers.
  3. Income generation: Depending on the underlying assets, real estate investments may generate steady rental income, while mutual funds and exchange-traded funds (ETFs) might do the same.

5. Precious metals and commodities:

  1. Precious metals and commodities are physical assets, much like real estate. They might not be as useful as real estate, though, in terms of providing shelter or a consistent source of income.
  2. Real estate values are governed by regional factors like supply and demand, whereas commodities and precious metals are affected by global market dynamics, which might include elements like geopolitical developments and prevailing economic trends.
  3. Contrary to commodities and precious metals, which rarely produce consistent revenue, real estate investments can produce rental income. Price swings and market speculation determine their potential profits.

6. CDs and savings accounts:

  1. Compared to savings accounts and certificates of deposit, which frequently have lower interest rates, real estate investments typically offer better potential returns.
  2. Savings accounts and CDs are regarded as low-risk investments since they offer stability but little growth. Investments in real estate are riskier, but they also have the potential to yield bigger returns and income.
  3. Savings accounts and certificates of deposit (CDs) have high levels of liquidity, making it possible to access money quickly. Direct ownership of real estate is especially risky because it can have limited liquidity and take longer to sell.

Your portfolio’s diversification across several asset classes can help you balance risk and maximize return possibilities. A financial advisor you consult with can offer you individualized advice based on your unique situation.

Private Real Estate Investing Vs. Public Market Volatility

Here is a table highlighting the main variations between private real estate investing and public market volatility:

Public Market Volatility Private Real Estate Investing
Liquidity High Relatively low
Volatility High Low
Transparency High Low
Access Easily accessible Restricted
Investment Size Flexible Typically larger

The Challenges Of Investing In Real Estate

The possibility of long-term financial growth and the creation of passive income, real estate investing can be a tempting alternative for many people. It does have its own share of difficulties, though, just like any investment. The following list of typical real estate investment difficulties:

1. Initial Capital: 

One of the biggest obstacles is the significant sum of money needed to begin real estate investment. Buying a property can be expensive and necessitate a substantial initial outlay, especially in desirable locations.

2. Sector volatility: 

Just like any other investment sector, the real estate market is susceptible to ups and downs. Economic downturns or changes in the local market could have an impact on rental demand and property values, which could affect how profitable your investment is.

3. Financing & Mortgage Rates: 

Getting financing for real estate investments can be difficult, especially for novice investors or those with less-than-stellar credit records. The cost of borrowing as well as the overall profitability of an investment can be impacted by changing mortgage interest rates.

4. Property management: 

If you choose to be a hands-on landlord or have several investments, managing properties can be a time-consuming chore. Property management services may be necessary to handle the demands of dealing with tenant complaints, upkeep and repairs, and assuring compliance with local laws.

5. Risk and Uncertainty: 

Investing in real estate carries a number of inherent hazards, including loss of property, tenant defaults, and legal issues. Along with market trends, property appreciation, and prospective rental revenue, there remains uncertainty. 

Despite these obstacles, real estate investing can be profitable for those who approach it with thorough planning, market expertise, and a long-term outlook. 

Some of the risks involved with real estate investing can be reduced by diversifying your portfolio, getting expert counsel when necessary, and following market trends.

The Advantages of Investing in Private Real Estate

Private real estate investing has a number of advantages that make it a desirable investment choice for many people. Private real estate investing offers the following main advantages:

  1. Private real estate investments have the potential to yield greater returns than more conventional investment options like stocks and bonds. Investments in real estate can provide financial gains over time and frequently create income through rental returns.
  2. Cash Flow and Passive Income Buying rental property can produce a consistent cash flow and passive income. Tenant-generated rental revenue can generate a consistent flow of cash that can be reinvested or used as a source of extra income.
  3. Diversification of your portfolio can assist to lower risk. One way to do this is to include private real estate assets. Due to its historically low correlation with other asset classes like stocks and bonds, real estate is a useful addition to an investment plan that includes a variety of asset types.
  4. Real estate investments entail owning real estate, which can give investors a sense of security. Real estate investments, in contrast to stocks or bonds, have intrinsic value like land and buildings, and they can be financed with debt or improved to boost their value.
  5. Possibility of Appreciation: Over time, real estate properties could increase in value. Due to factors like urbanization and population growth, the demand for real estate is rising.

It’s vital to remember that investing in private real estate entails some dangers, such as illiquidity, market fluctuations, and the requirement for active management. 

The dangers associated with private real estate investing can be minimized, and their advantages can be increased, by carrying out rigorous due diligence and collaborating with knowledgeable experts.

3 Extra Advantages of Investing in Private Real Estate

1: Real estate generates high absolute returns

Investors can get significant absolute returns through private real estate. An investment’s absolute return, which is represented as a percentage gain or loss on the initial investment, accounts for appreciation, depreciation, and cash flows to determine how much it earns over time.

According to Bloomberg data, a $100,000 investment in private real estate made on December 31, 2000, would have been worth around $420,000 on December 31, 2019

According to the figure below, by December 31, 2019, the same $100,000 investment in the S&P 500 would be worth nearly $356,000.

2: Low Correlation Between Private Real Estate and Other Asset Classes

Every portfolio aims to generate the maximum overall return with the lowest volatility. The majority of investors feel secure having a mix of stocks and bonds in their investing portfolios, at least until the ups and downs of the markets start to worry them. 

Because it is resistant to the daily shocks of trade, private real estate aids investors in reducing the volatility in their portfolios. A private real estate fund’s worth is determined by the actual value of the real estate it owns. 

3: Real estate owned privately is tax-efficient

Investors that just pay attention to an investment’s underlying returns and disregard its after-tax yields miss out on a significant advantage of real estate investing. 

Property income is typically protected through depreciation, giving investors the long-term advantages of significant cash flow and minimal tax burden.

Owners are allowed to deduct annual losses from their profits in order to level out future capital costs as buildings get older. However, a property’s physical components are the only ones that can depreciate. 

$5 million divided by 27.5 equals $181,818 in annual non-cash depreciation if the home was purchased for $6 million and is situated on land worth $1 million.

Issues With Real Estate Investing

Real estate has many advantages as an investment vehicle, but it also has certain disadvantages. The list is as follows:

1. Capital investment is significant

The capital needed is one of the biggest disadvantages of investing in real estate. Land and physical property are expensive to purchase. The cost of purchasing the property is in the lakhs or crores of rupees. 

The minimum investment amount for REITs starts at roughly Rs. 50,000, thus even if you wish to invest in them, it might not be possible for small investors. As a result, real estate often appeals to investors who have substantial sums of money to spare.

2. Illiquid

Real estate might be simple to buy, but difficult to sell. When you wish to sell the property, you might not be able to find the ideal buyer. Finding the ideal buyer without lowering the property’s value takes a lot of time and work. 

Real estate is therefore not a highly liquid investment option, whether for emergencies or other reasons. However, since you don’t directly own real property when you buy in REITs, the liquidity issue is somewhat addressed. 

3. Short-term goals might not be met by it

Real estate investments are better suited for long-term holdings because they have the potential to increase in value and produce lucrative capital gains. Real estate might not be the best investment for you if you have a limited time horizon.

4. Investing in real estate requires regular maintenance

If you invest in real estate or land, you must also invest in its upkeep. All investors may not be able to put the necessary time and effort in this. Tenant management and property upkeep can pose serious problems even in cases where a property is rented out.

5. No refunds are guaranteed

Although real estate typically increases in value over time, the returns are not assured. If you wish to sell the house, you might not get the best price in a weak market.

Why Do the Richest Investors Pick Real Estate?

Market diversification apart from stocks and bonds Commercial real estate acts very differently from equities, bonds, or mutual funds as an asset class.  Commercial real estate direct investment has historically had little in common with the stock or bond markets.  

In contrast to the stock market, commercial real estate does not have a substantial amount of short-term volatility or headline risk.

1. Cash Flow – Direct real estate investments can yield cash flows that are equal to or greater than those found in typical income markets.  

Additionally, the majority of commercial real estate purchases are designed to yield a sizable profit upon exit or property sale.

2. Less Volatility – Many leases for commercial real estate are long-term agreements, some of which are over ten years.  

Tax benefits can be obtained by making an investment in the limited liability company (LLC) that owns the commercial real estate.  In the form of equity or debt, investors purchase LLC units.   

Should Real Estate Be a Part of Your Financial Portfolio?

Real estate deserves a spot in your portfolio, or not, is the following query to ask now that you are familiar with the idea of real estate investing. There is no single, correct response to this issue; it depends on your specific investment needs. Nevertheless, the practice of investing in real estate has grown more and more common recently.

A poll by CII found that 28% of respondents favored equities investments, while 59% of participants had a strong preference for real estate investments for the first six months of the fiscal year 2022–23 (April 2022–September 2022).


Investing in private real estate is the process of acquiring homes that are not listed for sale on stock exchanges. It entails purchasing tangible assets with the intention of creating income and capital appreciation, such as residential or commercial real estate. 

Private real estate investing entails risks, and individualized circumstances and objectives can change. Making informed investing decisions requires extensive research, consulting a professional advisor, and staying current on market developments.

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