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Top 5 Up and Coming Alternative Investment Strategies

Tuesday 04 May 2010

“Diversification is the key to protection” – A phrase often heard in the investment world when it comes to spreading risk. We take a look at some of the more diverse property based investments and explain a little more about alternative property investment strategies.

REITS (Real Estate Investment Trusts)

Companies established as trusts that invest in real estate, mortgages, or a combination of each. A REIT is a tax designation for a corporation investing in real estate that reduces or eliminates corporate income taxes. In return, REITs are required to distribute 90% of their income, which may be taxable, into the hands of the investors. The REIT structure was designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks. Although only recently introduced into the UK, REITs have been available in the USA since the 1960’s. Entry levels are variable, as are returns, which are not guaranteed. In a down trending market not the most profitable, but long term certainly a worthy investment.

Property Mutual Funds

Sometimes confused with REITS, Property Mutual Funds have the ability to be a little more diversified than REITS being funds of property companies and companies supplying services to the real estate market and real estate investment trusts.

Property funds jumped to No. 4 out of 34 in the rankings of the most popular vehicles for individual investors in 2009.  They were in second-to-last place in 2008, when net withdrawals, including sales to professional investors, totaled 1.16 billion pounds.

Entry levels are again variable, sometimes as low as a $2000 USD, returns again are rarely guaranteed, but given the wider ability to diversify, they arguably encumber slightly less risk than REIT’s.

Car Parks

A bit out there, but anyone who has tried parking in a major city around the world will understand the need and value of spaces. Can be done by simply looking around in most major cities, or through management and sometimes direct from developers at the near completion stage of a new building. It’s not unusual in the case of apartment blocks to see apartment owners offering their spaces for sale privately, back through the developer themselves, or through a separate management companies specialising in car park investments.

Without doubt speculative, but certainly something the amateur can “have a bash at” after doing some simple calculations with respect to costs, supply and demand.

Marina Berths

Probably the most speculative. Whilst marina berths in general would appear to have gone up in value in recent times, the buyer or renter of said marina does need to have invested a pretty hefty lump of cash into a boat in the first place. Boat owners aren’t 10 a penny to say the least, but you can be sure when you find one, they will need somewhere to park. Marinas on the whole tend to be well maintained and kept presentable on the account they act as the key attraction to an entire area (For example Puerto Banus near Marbella, Spain, or indeed Monaco)

With the high speculation nature a given, one also has to consider the commonly high initial outlay, as well as lack of available finance on such an investment. (Mortgage companies are not known to issue finance on a patch of water!) Having said that, there are brokerages out there that specialise in just berths around the world, and prices appear to continue to rise.

Student Accommodation

Very new to the scene in some respects. There has always been the local landlord with a few knocked through semis of course, but with the tightening of regulation this has forced many of the “do it yourself” landlords out of the business, opening up the doors to companies buying and redeveloping swathes of run down housing specifically for use by students, often encouraged by local authorities, universities and student unions.

Whilst many might recoil sharply from the very idea of dealing with students directly, it is possible to invest through fully encompassing management companies. Students themselves are a known entity as far as income and the like are concerned, and payment by them is virtually guaranteed to the company allowing the management company to structure and budget the investment accordingly.

What else?

Well, at IPIN we have our own unique SES (Secure Exit Strategy) applied investments. Whilst not really fitting neatly into any of the traditional categories, SES does take advantage of most of the beneficial sides to investment, whilst at the same time removing or at least reducing the risk aspects and still offering comparable returns with those above. The Secure Exit Strategy application takes advantage of current market conditions, leverage, deposits bonded by insurance, and underwritten profit guarantees when applied to investment property projects.

- Author: Peter Mindenhall

via ipinglobal.com