The practice of investment diversification has been the long-standing and preferred methodology for balancing economic risks with returns. Amidst today’s fast-paced, computer-powered, algorithm-driven financial climate, it’s the age-old adage “too many eggs in one basket” that has become the chief warning and proverbial North Star for mitigating investment exposures. It’s with this mindset that savvy investors are no longer satisfied with spreading their investments across various exchanges and securities, but going even further, diversifying their investments within each respective stratum. And real estate investing is no exception.
Today we want to spend some time exploring the various investment avenues the real estate market offers:
Do It Yourself (DIY) Real Estate
Whether you watch hit HGTV shows such as Fixer Upper and Property Brothers, or have heard radio commercials advertising for house flipping seminars, DIY real estate investing has become an increasingly popular option for investors. DIY real estate investing, also known as active real estate investing, generally consists of individuals buying properties for 1) renovation and sale, or 2) long-term ownership for sustained cash flow. As its name implies, DIY real estate requires more hands-on and direct involvement in a project, requiring considerable understanding of construction, real estate and market conditions. Though this type of investment demands significantly more time and energy, it also has the potential for a high return on investment.
For those not looking to self-manage their own real estate projects due to a lack of time, knowledge, or risk tolerance, there are several ways to passively invest in real estate.
REIT (Real Estate Investment Trust)
A REIT is a company that owns, operates or finances income-producing real estate. Adhering to guidelines set by the SEC (Securities and Exchange Commission), companies must first be qualified as a REIT, then adhere to a handful of ongoing regulatory parameters to maintain their REIT status. REITs cover various market sectors (commercial REITs v healthcare REITs v residential REITs) and are organized into three categories:
- Equity REIT: Income from property-owned rents to pay investor dividends,
- Mortgage REIT: Income from property mortgages to pay investor dividends,
- Hybrid REITS: A mixed portfolio containing both Equity REITs and Mortgage REITs
Not only that, but REITs can be classified into three securities types: Private REITs, Public Non-Traded REITs, or Publicly Traded REITs.
Private Equity Real Estate (The Watermark Difference)
Similar to Private REITs, Private Equity Real Estate's invested capital is unlisted on the national exchanges, thus insulated from market volatility. This is where the similarities end. Private Equity investors allocate their investment either directly to the privately-held company, or into a fund created by the privately-held company. Whereas with Private REITs, the exact purpose of investments are not necessarily disclosed to investors, Private Equity firms often declare how they are allocating capital; typically to projects, innovations, acquisitions, or operational budgets.
This is where Watermark exists.
Watermark is a private equity real estate development firm by which we provide the means for investors to passively and strategically invest into real estate. Investment guru Warren Buffet once wrote that “risk comes from not knowing what you are doing.” By leveraging Watermark’s ability to identify, design, build and manage construction projects, risks typically associated with real estates are mitigated and our equity partners can be confident that returns on their investments will be realized. Whether you’re passionate about a specific Watermark project or want to spread your investment across our project portfolio via Watermark’s Growth Fund, we have a spot for you.
Karl is the Director of Operations of Watermark Equity Group. Since graduating Wheaton College (IL) with degrees in Business and Economics, Karl was active in both finance and construction before joining Watermark in 2016.