The Growing Role of Alternative Investments

Why Investors Seeking Diversification Are Choosing Alternative Investments Increasingly

It is standard practice for people to open retirement accounts with their employers, then hand control of those accounts over to the plan's custodian, who will deploy the funds based on the participant's age, income, and retirement goals. Many consumers choose a hands-off strategy after the initial account setup and allow the custodian manage investments as they see fit.
The issue with this strategy is that the majority of custodians will opt to invest in conventional assets like equities, bonds, and mutual funds. Because of this, a person's portfolio is very vulnerable to the ups and downs of the stock market, and they are unable to invest in other places where they might receive superior returns.

This refers to alternative investments in this context. Alternative investments, traditionally seen as "too hazardous" for participation by private investors, are growing more popular. Individual investors are now imitating institutional and wealthy investors who have been making alternative investments for years. Alternative investments have the potential to offer individual investors a great deal of value, from diversification to increased stability, growth potential, and more.

Continue reading to find out more about investing in alternative assets, such as real estate, and how you can start doing so right away.

Alternative Investments: What Are They?

The majority of individuals are instructed to invest in a mix of stocks, bonds, and mutual funds, whether for retirement or other purposes. These publicly traded shares are the most popular investment options and are regarded as "conventional" investments. When someone refers to "diversifying" their portfolio, they typically mean investing in a variety of these equities, from historically "safer" bonds or mutual funds to "riskier" stock options. As a means of further diversification, some investors may choose to invest in particular industries (such as technology or energy), while others may want to do so in emerging industries (such as a "sustainable leaders" fund).

Whatever the case, all of these conventional investments are fairly liquid and closely correlated with the overall stock market action. It follows that the value of conventional assets may fluctuate, occasionally substantially, even on a daily basis.

Alternative investments frequently differ significantly from conventional ones.

Diverse assets, such as precious metals, collectibles like artwork or antiques, crops, and other commodities, might be included in alternative investments. They could also be investments in financial assets like hedge funds, distressed securities, carbon credits, venture capital, private equity, and distressed securities. The most well-liked alternative investment nowadays is real estate, notably private equity real estate.

Important Characteristics of Alternative Investments

A few crucial characteristics serve to set apart alternative investments from standard ones. These qualities consist of:

Very little historical association with the stock market.

Alternative investments typically operate more independently from the overall stock market than do standard stocks, bonds, and securities. This partly results from alternative investments' lack of liquidity (more on this below). Simply said, unlike conventional publicly traded securities, the majority of alternative investments cannot be quickly bought or sold with the press of a mouse. As a result of the lengthier lead times involved in buying or selling alternative assets, which frequently include a thorough due diligence period, these investments have historically been less susceptible to market volatility.

During the COVID-19 pandemic, investors had first-hand experience with this. When the pandemic was at its worst, the Dow once dropped 10,000 points in a single day. It has subsequently recovered, but in the interim, a number of other assets, many of which were real estate investments, maintained their worth (with a few notable exceptions, like hospitality which took a hit due to widespread pandemic-related restrictions on travel).

Identifying the underlying value may be challenging.

The fact that it can be difficult to determine the underlying value of these assets is one of the difficulties involved with investing in alternative investments and one of the reasons why these investments have historically been limited to institutional and high-net-worth investors. Those interested in alternative investments will discover that they are operating in a world of incomplete knowledge and marketing information, in contrast to investing in stocks or bonds, where the majority of data is publicly available.

One might be prepared to pay more for a certain property, for instance, if they have a strong personal connection to that investment. This is just one example of how the value of some things can be wholly subjective. Properties in tourist markets are a fantastic example of this phenomenon: if someone's family has a long history of taking vacations in Cape Cod, they might be willing to spend twice what someone else is willing to pay for that home. In this instance, the investor's willingness to pay a certain value may not be logical. The value that the "market" assigns to an item may also be unduly influenced by other factors, such as a person's desire to borrow against a property (and under what conditions). The market value of an alternative asset is simply the price that someone, even just one person, is willing to pay for it.

Lower liquidity compared to conventional investing.

Alternative investments tend to be less liquid than traditional investments. The lack of organized markets and the relatively low demand for certain of these assets in comparison to traditional investments might be used to explain the illiquidity (e.g., fine art).

In many alternative investments, the investor must commit to the transaction for a set amount of time or risk incurring penalties for an early exit. One could, for instance, invest in a real estate fund with a five-year minimum hold. Investors in this fund might be able to withdraw their money early, but doing so might incur some sort of withdrawal fee.

Alternative investments typically require significant due diligence and/or processing time for a transaction to complete, even in a situation where someone is free to buy or sell at any time. For instance, if someone wants to sell an office building, they still need to find a buyer, engage with a broker, and go through at least 30 days' worth of paperwork, processing, financing, etc. before the sale can be closed. The illiquidity of alternative assets is a result of this.

DST properties
DST properties

Historically prohibitive admission requirements.

The entry hurdles into alternative assets have always been very high. This is especially valid when it comes to expensive alternative assets, such "trophy" real estate. Only institutional investors and high-net-worth people had access to deals of this scale and value. The ability to conduct "general solicitation" made crowdfunding for alternative assets simpler after SEC regulations changed in 2014. This, in turn, has made it possible for people to invest in alternative assets in lower amounts for the first time.

What is the perception of these assets' "riskiness."

The idea that investing in these asset classes entails higher levels of risk than investing in more conventional asset classes like stocks or bonds is the original source of the term "alternative" investment. However, institutional investors have significantly expanded their allocation to alternative investments over the past 20 years as a result of technological advancements and better access to data regarding specific alternative investments. Institutional investors made an average of 5% in alternative investments in 2000; by 2020, that figure had risen to 30% or more. Alternative investments are becoming increasingly commonplace as a result of their historical and potential risk-adjusted total returns, net of expenses.

True diversification is provided by alternative investments.

Investors can truly diversify their investing portfolios by making alternative investments. Generally speaking, experts advise putting between 15 and 20 percent of your holdings into some sort of alternative asset. Institutional investors invest more than this amount; endowments and pension funds occasionally allocate more than 30% of their assets to alternative investments, respectively. Individual investors currently invest just an average of 5% in alternatives, a figure that most experts advise tripling or quadrupling.

Diversification has a number of advantages. One benefit of diversification is that it might potentially increase stability and shield a portfolio from market fluctuations. Two: People may be able to increase returns by investing in alternatives instead of low-yielding asset types like government bonds.

Compared to traditional investments, alternative investments frequently aim for higher returns.
Compared to typical investments, many alternative investments have the potential for better returns. When examining risk-adjusted returns over a decade or longer, this is especially true. For instance, over a 20-year span, farms, timberland, and real estate all beat the S&P 500. Sometimes even more astounding were the absolute returns. For instance, the average total return on farmland from 1992 to 2018 was 10%, combining income and price growth.

Historically, alternative investments have frequently performed admirably during times of market turbulence. An otherwise significant drop in stocks and bonds was avoided thanks to alternative investments' superior performance in the early days of the pandemic, according to an EY report released in November. Alternative investments and diversification in portfolios protected them from potentially devastating losses.

"During Covid-10, alternative managers exceeded performance expectations, particularly in private equity, when a 4:1 ratio of investors believed their managers exceeded expectations. Although hedge fund success varied by strategy, on the whole, nearly all of them greatly outperformed key benchmarks. Early in 2020, when major indices were down by 15-20%, several hedge funds were merely down by low single digits. Funds proved valuable by protecting cash during the recession and swooping in when appropriate to profit from market turbulence."

We are currently experiencing a period of historically low interest rates, which is one of the reasons alternative investments are doing so well. While inflation is closer to 2 percent, the rate on 10-Year U.S. Treasury bonds is less, hovering at 1.6 percent. Greater yield-seeking investors are forced to choose investments with higher levels of risk, which frequently directs them to alternative investments like real estate.

Investing in Alternative Assets: A Guide

The process of investing in alternative assets has historically been time-consuming, difficult, and expensive, leaving regular investors perplexed and unhappy. Investing in alternative assets is now simpler than ever thanks to improvements to SEC rules and regulations.

There are several ways to begin. One strategy would be to sell your stocks or bonds and/or put your funds straight into a different asset class. For instance, you may accomplish this by working directly with a fund manager that specializes in alternative assets or a real estate sponsor. Individuals can participate in fractional shares of private equity firms like Delaware statutory trusts (DSTs), which enable them to invest in alternative assets like real estate.

A self-directed IRA (SDIRA) with an alternate asset custodian is another choice for rolling over your standard or Roth IRA. You can then invest in alternative assets of any kind through the SDIRA, including but not limited to real estate, DSTs, or other investments. In order to hold title to the assets on your behalf, the SDIRA will first facilitate the transaction.


Previously regarded as being too hazardous for private investors to invest in, alternative assets are now more widely accepted. Real estate will undoubtedly be an alternative that investors wishing to diversify their portfolios should think about. If you want to try to reduce the risk normally connected with alternative investing, investing with a real estate sponsor or fund that has a long track record of performance is a wonderful way to do it.

Are you prepared to begin? Get in touch with us right now to find out how our DST and real estate investment platform may assist you in your efforts to put your money to work.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only, and should not be relied upon to make an investment decision. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

Crowdfunding, TICs, DSTs & REITs - What's the Difference?

Some consumers are confused by the distinctions between the numerous possibilities available to them as real estate investing becomes more popular. Should they put their money into a Delaware Statutory Trust (DSTs), a real estate fund, a tenant-in-common (TIC), a real estate investment trust (REIT), or a real estate crowdfunding website like Fundrise? All provide co-investment options, but every one has unique characteristics that could affect the choice of each investor.

The contrasts between each of these passive real estate investment vehicles are examined in this article. The possible merits and drawbacks of each will be discussed, with a focus on some of the potential tax advantages that investors may or may not be able to take advantage of with each, including 1031 exchanges.

Trusts that invest in real estate (REITs)

A company known as a "REIT," which stands for "Real Estate Investment Trust," owns and/or manages commercial real estate that generates income. REITs come in a variety of forms. Others are more open-ended in terms of product type and instead concentrate on specific geographies. Some specialize in particular product kinds, such as multifamily, retail, hospitality, senior housing, self-storage, industrial, etc (e.g., commercial real estate in the Southeast or Midwest).

A person purchases a share in the business that owns and manages the real estate when they invest in a REIT. They are not investing in a real estate asset or a portion of a real estate asset. Comparable to purchasing shares of Apple, Philip Morris, or Berkshire Hathaway is purchasing a REIT. You invest in the firm, not its particular products, when you purchase these stocks. The same idea holds true for REITs.

For those with little investment capital, REITs are a popular alternative to invest in commercial real estate. REITs have a low entrance cost; an individual share costs less than $100. The advantage of investing in REITs is that their shares are typically very liquid; publicly traded REIT investments may frequently be bought and sold with the click of a button, just like other equities or bonds. Those who wish to diversify their portfolios by investing in commercial real estate but who cannot or do not want to have their capital tied up for extended periods of time find REITs, at least those that are publicly traded as opposed to private REITs, to be particularly alluring.

An organization must satisfy the following requirements in order to be considered a REIT:

At least 75% of the total assets of the corporation must be made up of real estate;
That rental portfolio, which may comprise both rents and the sale of property, must provide at least 75% of the company's total revenue;
At least 95% of gross revenue must come from passive sources;
At least 90% of the company's taxable profits must be distributed to shareholders as dividends on a regular basis;
After the first year of operation, the company must have at least 100 shareholders, with no more than 50% of the total shares being held by five or fewer investors. Additionally, the company must be organized as a taxable organization that is governed by a board of directors or trustees.
One of the major challenges businesses encounter when attempting to qualify as a REIT is the demand for at least 100 shareholders.

Many REITs are traded openly on the stock exchange, unlike traditional real estate. REITs that are traded publicly must register with the SEC. Others are privately traded, in which case they are exempt from SEC registration requirements. Typically, privately traded REITs are only available to accredited and institutional investors.

The ability to preserve liquidity is the main advantage of investing in a publicly traded REIT. Their REIT shares are just as simple to trade as other stocks, bonds, and equity securities. REIT shares, on the other hand, are more erratic as a result. They fluctuate in value with the market, with shares sometimes doing so often on a daily basis.

The fact that REITs do not enjoy the advantages of real estate ownership, such as the mortgage interest deduction, depreciation, and 1031 exchanges, is another disadvantage of REITs. By selling an asset and then buying similar-type property with the profits, investors can use a 1031 exchange to postpone paying capital gains tax. Using 1031 exchanges, many investors can postpone paying capital gains taxes—often indefinitely—while shifting into higher-valued assets and expanding their real estate holdings. Investors in REITs are not permitted to use this significant tax-saving strategy, but DST and TIC investors are.

Property Equity Funds

Investment funds come in a variety of forms, such as mutual funds, money market funds, and hedge funds. Real estate funds are merely another category of investment funds that are solely dedicated to buying income-producing real estate.

An alternate means of investing in commercial real estate is through real estate funds. Real estate funds will combine money that has been collected from various investors and sources. Depending on the predetermined investment criteria of the fund, the fund will subsequently invest that money on behalf of the investors. Similar to REITs, some funds will define investment criteria based on the type of product (such as multifamily, retail, or office), while others will focus investments in a particular geographic area (such as the Northeast or Southwest) regardless of the type of product.

A stringent investing philosophy, such as value-add development or ground-up development, is also typically adopted by some real estate funds. Other funds can be established up to acquire and hold stabilized assets.

Typically, real estate funds are organized as either limited partnerships or limited liability corporations (LLCs) (LP).


In either scenario, they are typically led by a sponsor who has years—if not decades—of expertise in the real estate sector. The fund management will evaluate each investment opportunity and use the pooled funds to invest in a few chosen transactions depending on the fund's criteria.

Investors that prefer to be completely passive and delegate all duties to the sponsor are frequently drawn to real estate equity funds. Investors in funds should adopt a long-term mindset because assets are typically illiquid and tie up capital for years (and if withdrawn early, will be subject to fees and penalties). A fund's investment minimum is typically between $50,000 and $100,000, though it can often be significantly higher.

The sale of a property or portfolio of properties in a traditional LLC/LP offering does not provide passive investors with the same tax advantages as a TIC or DST, namely a 1031 exchange. Investors are responsible for capital gains and depreciation recapture when the property is sold, which results in a taxable event.

The "drop and swap" trade, which calls for the company (the LP or LLC) to execute "drop down deeds," which are deeds that transfer title out of the company and down to the individual members or partners as tenants-in-common (TIC) with undivided fractional interest, is the exception to this rule.

In order to comply with the 1031 rule that states that the property must be "kept for productive use in a trade or business or for investment," the TICs must continue keeping the property for a specific amount of time (usually, two years is seen to be the minimum). If not, the drop-down deeds are regarded as proof that the property is being held for sale, which disqualifies it from being eligible for a 1031 exchange. A few years of holding the property as TIC can help demonstrate investment intent. Individual investors can sell their TIC interest as surrendered property after the holding period has passed and either complete a 1031 exchange on their own or pay their respective capital gains and walk away with the sale profits.

Although drop and swap exchanges take a lot of effort and are rarely pursued by equity fund sponsors, it is important to remember that these swaps are technically feasible for those looking for the advantages of 1031 exchanges. People who want a more straightforward, well-defined method will typically choose to invest in a DST instead (see below).

Tenants-in-Common (TICs)

Tenant-in-common, or TIC, ownership of real estate is another way to invest in it. Each co-owner of a TIC has a proportionate share of the property's title, according to their total equity contribution.

TICs are distinctive in that all participating members must agree to every choice, including the most basic ones like who to refinance with. Although the 35 members (or "co-owners") of TICs may appear like a tiny number, in reality, this might make decision-making more difficult. Additionally, it implies that investors are more active than those who participate in purely passive investment vehicles such as REITs, funds, or DSTs.

The federal government declared that TIC assets might benefit from 1031 exchanges at the beginning of the twenty-first century. Up until the Great Recession began in 2008, this led to an increase in TIC investments. When real estate prices fell, TIC popularity also fell. Investors were held individually responsible for the debt on the property (compare that to a DST in which it is the DST Sponsor that is solely liable for debt repayment, not the investors). During the economic downturn, TIC investors frequently found it difficult to come to consensus on the best course of action, and as a result, many TICs failed to survive. A number of these properties went under foreclosure, and investors completely lost their equity investments.

Due to the problems that TICs have revealed, many investors no longer like them. Instead, people seeking to co-own real estate typically make DST investments (more on DSTs below). It is important to note that TIC investors can use 1031 exchanges, which allows them to defer 100% of any potential gain and depreciation recovery from their initial investment. As a result, value-add investors seeking co-ownership will frequently choose TICs since DSTs typically only invest in stabilized, cash-flowing assets.

Deleware Statutory Trusts (DSTs)

Another form that is frequently utilized by persons looking to co-invest in real estate is a Delaware Statutory Trust, or DST. The majority of DST programs are provided by third-party broker dealers and sponsored by sizable, seasoned national real estate organizations. The property(ies) to be offered under the trust are purchased by the DST sponsor with their own money. The asset(s) are subsequently made fractionally owned by the DST sponsor available to investors. Investors are absolutely passive when it comes to DSTs.

A direct beneficial ownership interest in the underlying asset(s) is acquired by someone who invests in a DST, allowing them to report the item on Schedule E of their tax returns.

Due to this direct ownership interest, DST investors enjoy many of the same tax benefits as those who purchase and own real estate on their own, including the option to use depreciation to possibly offset income from the property. A 1031 exchange can be used by investors to invest in and out of DSTs.

Crowdfunding Websites

Since the federal JOBS Act relaxed the restrictions on how people can raise funds for commercial real estate ventures in 2012, crowdfunding has gained popularity. Previously, project sponsors had to be personally acquainted with the investors in their projects, but today, sponsors are allowed to participate in "generic solicitation." Due to this, real estate crowdfunding websites like RealCrowd, Fundrise, and RealtyMogul among others came into existence.

In order to invest in real estate ventures, a project sponsor (often a real estate corporation, LP, or LLC) aggregates money from a large number of investors (dozens, if not hundreds).

Fundraising websites like Fundrise are essentially the same as the equity funds mentioned earlier. Instead of the sponsor having to hold individual meetings to pitch to investors, the platforms are just a tool for putting money into a fund online. These platforms allow sponsors to expedite their capital raising, but in the end, a person invests in a fund, not the platform.

As a result, much like with conventional equity funds, the investors won't be allowed to participate in a 1031 exchange when it comes time to sell the property. Investors are required to pay capital gains tax on their profits when they sell the property because this constitutes a taxable event.


Real estate co-investment can be done in a variety of ways. Each of these investment vehicles has advantages and disadvantages of its own, as well as varied levels of tax benefits. DSTs and TICs enable investors to use their 1031 exchange dollars, which is a substantial advantage.

Contact us right away if you're interested in finding out more about DST investments and 1031 exchanges. We would be pleased to go over the advantages of DST investing in greater depth with you as well as the current options.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only, and should not be relied upon to make an investment decision. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

Where Do I Consider Investing My Money Today?

Today’s market offers investors a plethora of investment opportunities across numerous industries. While having multiple options can help improve an individual’s investment strategy, they can also cause uncertainty, raising questions about which investment suits the person’s financial objectives. To help provide direction on which investment is right for you, we will outline the basic elements of today’s most desired investments and briefly review the pros and cons of each one.

For this article, we will divide the information into two sections. First, we will look at more traditional investment options, such as investing in stocks or bonds. Next, we will review alternative investments. Although less known among today’s investors, alternative options offer potential perks that many traditional investments lack.


Traditional Investment Options

Historically, investors have relied upon a 60/40 portfolio composition to help them achieve their long-term financial dreams, such as building a nest egg for retirement, repaying a mortgage early, or paying educational expenses for their children. According to this model, an investor’s portfolio should consist of roughly 60 percent stocks and 40 percent bonds. This model historically tended to deliver investors stable growth and income to help them meet their financial goals.

Stocks, or equities, are securities that represent fractional ownership in a corporation. Investors buy stocks and rely upon the corporation’s growth to increase their wealth over time. Additionally, stocks may offer investors dividends – or payments to shareholders – for passive income. On the other hand, bonds are debt securities offered by a corporation or government entity looking to raise capital. Unlike stocks, bonds do not give investors ownership rights, but rather they represent a loan. The most significant difference between stocks and bonds is how they generate profit: stocks must appreciate in value and be sold later on the stock market, while most bonds pay fixed interest over time.

While stocks offer investors the potential for higher returns than bonds, bonds are generally considered a less risky investment. As a result, many investors turn to investment funds, such as mutual funds, exchange-traded funds, or closed-end funds, to diversify their portfolios while maintaining a 60/40 composition. These investment funds pull together capital from multiple investors, which is then invested into a portfolio of stocks and bonds. Investment funds offer investors the potential to mitigate risk through a more balanced portfolio.

A Change in the Portfolio Model

Due to ongoing volatility in the stock and bond market, rising prices for commodities, and high equity valuations, the traditional 60/40 portfolio model is no longer serving investors to the same degree it once did. As a result, many financial experts are now recommending that investors diversify their portfolios with 40 percent alternative investments to help potentially improve their financial position. 

Alternative Investments

While numerous types of alternative investments exist, we will focus on alternative real estate investments due to the benefits they can possibly offer investors in today’s market. 


Why real estate?

Real estate has long been one of the most sought-after opportunities for investors. As a limited commodity, real estate has historically afforded investors the potential for long-term security, great returns, passive income, tax advantages, and a hedge against inflation. However, real estate investments also come with certain disadvantages. Getting started in real estate investing typically requires an extensive amount of capital and strong financials for those who are leveraging debt. Furthermore, real estate generally requires active participation – investors are required to manage their assets to ensure optimal performance.

Therefore, alternative investments in real estate have started growing in popularity among the investment community. While they can often offer similar advantages to real estate investing, they deliver a passive opportunity, meaning they have zero management responsibility. Here are a few options for investors seeking alternative real estate investments.

Real Estate Investment Trusts

A real estate investment trust (REIT) is a company that owns and typically operates income-producing real estate or related assets. REITs incorporate all asset types, including multi-family, retail, senior living, self-storage, hospitality, student housing, office, and industrial properties, to name a few. Unlike other real estate investments, REITs generally purchase or develop real estate for a long-term hold.

Investors rely on a REIT professional’s understanding of the real estate market to diversify and stabilize their portfolios. Many REITs are publicly traded, meaning that all investors, including unaccredited investors with limited capital, can invest in them.

While publicly-traded REITs deliver many advantages associated with traditional real estate investing – such as income potential, diversification, and possible inflation protection – they also come with some distinct disadvantages. For example, REITs often experience slow growth. Because REITs must pay out at least 90 percent of their profits in dividends, new acquisitions and developments are limited. To determine the strength of an investment, potential investors should conduct due diligence – with the help of an expert – on the REIT prior to purchasing shares.

Delaware Statutory Trusts

A Delaware Statutory Trust (DST) is a legally recognized real estate investment trust where investors purchase an ownership interest, or fractional ownership, in a real estate asset or real estate portfolio. DSTs are commonly relied upon by 1031 exchange buyers since they qualify as a like-kind property per the Internal Revenue Service (IRS).

In addition to providing investors passive income potential through a management-free investment, DSTs enable investors to invest in institutional quality assets to which they would not otherwise have access. These assets may be able to deliver higher returns and longer-term stability. Furthermore, the debt structures of DSTs are attractive to many investors. People who invest in DSTs have limited liability equal to their investments; however, they are able to take advantage of the often attractive financing obtained by the sponsor companies. Unfortunately, only accredited investors can invest in DSTs.

Opportunity Zones

Opportunity zones (OZs), defined by the IRS, are “an economic development tool that allows people to invest in distressed areas in the United States. This incentive's purpose is to spur economic growth and job creation in low-income communities while providing tax benefits to investors.” OZs were introduced under the Tax Cuts and Jobs Act of 2017, and investors interested in investing in an OZ must do so through a qualified opportunity fund (QOF).

QOFs can be a superb option for investors due to their tax benefits, which depend on the length of time an investor holds a QOF investment. We have previously explained these benefits, which we refer to as OZ triple-layer tax incentives. Here’s a snapshot of the tax benefits a QOF offers an investor:

While opportunity zones are considered a risky investment, given their purpose, they can potentially deliver investors higher returns when compared to other alternative real estate investment options.

Interval Funds

An additional alternative investment option worth mentioning are interval funds. These funds are not limited to real estate but instead can be used to invest in many securities, including real estate. Similar to previously mentioned funds, interval funds pull shareholder capital together to invest in different securities. However, they offer a lower degree of liquidity. Instead of being able to trade shares daily, investors are typically limited to selling their shares at stated intervals (i.e., quarterly, semi-annually, or annually). The benefit of interval funds is the flexibility they offer the funds – they allow the fund to execute longer-term strategies, creating the potential for a more stable investment. As a result, interval funds tend to deliver higher returns and a more diversified opportunity.

Now, where do I invest my money today?

While the above information offers a snapshot into the pros and cons of various investment options, you should consider additional aspects. Rather than immediately trying to identify which option is best for you, the key takeaway here is to understand that today’s market offers an array of investment options that were previously unknown to many. Investors can diversify beyond stocks and bonds, which can possibly provide them with higher returns while seeking to mitigate risk. To develop an investment portfolio that meets your financial goals, we advise you to speak with a financial professional at Perch Wealth.


General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

•          There is no guarantee that any strategy will be successful or achieve investment objectives;

•          Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;

•          Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;

•          Potential for foreclosure – All financed real estate investments have potential for foreclosure;

•          Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.

•          Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;

•          Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits