Is It Time To Add Alternatives to your
Investment Portfolio?
Many Americans are not
satisfied with the meager return they are receiving from their typical stocks,
bonds, and mutual fund investments. So,
what are alternatives and are they safe investments? Basically, alternatives are any investment
vehicle other than stocks, bonds, and mutual funds. There are literally 100's of alternative
investments available for you to invest your hard-earned money into. As far as their risk, each one comes with
moderate to extreme risks, but you need to compare the risks with other
investments to shed some light on the true risks involved--not to mention your
individual tolerance for risks. All in all, some of these alternative
investments can be safer than the stock market.
If you want returns not tied to the stock market whims, alternative
investments might be a good source. Let's
just touch on a few of the most common alternative investments.
Purchase Real Estate
There are no surprises
here, real estate has always been a popular alternative investment. However, there are several different ways to
invest in real estate. Of course, the
most common method is to purchase outright residential or commercial
properties. Or, if you want to share the risks and profits you may want to
consider syndications such as private placements (Individual, Delaware Statutory
Trusts, and Tenancy in Common), real estate investment trusts (Both public and
private), or partnerships. Adding some
investment real estate to your portfolio can also give you some added tax
benefits such as depreciation and interest deductions. Just like stocks, real estate can be
purchased for future appreciation or cash flow.
Real Estate Notes
Have you ever considered
being the bank? Purchasing real estate
notes allows you to become the bank instead of a landlord. Many seasoned real estate investors
eventually decide to buy and sell notes instead of renting properties. You do need to qualify the buyers and if
foreclosure is necessary, be knowledgeable enough to remodel and sell the
property quickly to avoid loss of income.
Real Estate Tax Liens
Many counties auction tax liens on a monthly
basis. Purchasing tax liens can be a
good investment because some states allow interest returns as high as 20%. You will need to hold the tax lien until the
owner satisfies the lien or foreclose on the property. Most tax liens are set for one year. These investments are best suited for
experienced investors because of the time and knowledge needed to deal with the
county agencies.
Bridge Loans
Bridge loans are similar
to buying real estate notes except most bridge loans are short-term notes with a high return on
investment. Typically, bridge loans are
designed specifically for corporate or business owners who need loans for short
durations--say 6-12 months. Again, you
can invest in a pool to share the risks and profits.
Life Settlements
Life settlements move away from real estate into the insurance
market. Believe it or not, many people
have insurance policies they no longer need and are willing to sell them to
investors. The original owner of the
insurance contract assigns their beneficiary interest to an investor at a
discount to the face value of the insurance death benefit. The investor does not receive a return on
their investment until the person dies.
Oil and Gas Leases
These leases depend on
the production capacity of the particular sites. Of all of the alternative investments
mentioned thus far, these investments carry the most risks. Naturally, the return on your investment can
be considerable when production capacity is up, however; when the well runs dry
you are left with asset value only. It
is best to invest small amounts into syndications and partnerships.
As you can see, many of
these alternatives investments involve real estate in some form. Real estate, as an investment vehicle, has
many faces which make it an excellent
investment choice for individuals seeking a higher return on their money. I have been involved in all of these
alternative investments in one form or another.
However, I do not recommend any first-time
alternative investor to go at it alone.
I advise all newcomers to team up with a more experienced investor and make
sure you also work with professional investment and management advisors.
As always, let me know if I can help
Gerald House MSM
Comments
Post a Comment