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Why real estate investors are looking to alternatives

by Joe Rosengarten on 25 Sep 2017
With uncertainty spreading through traditional investment markets, more investors are seeking out alternative vehicles in which to place their funds. Historically, when people thought about investment opportunities, their options were limited to stocks, bonds and real estate, but with returns increasingly difficult to find in traditional places, the alternative investment space is one of the fastest growing segments across the globe.

Included in the alternative space are REITs, Mortgage Investment Corporations (MICs) and individual mortgage investments.

“The alternative space has become especially important for people over the last decade as they look for something that is not correlated to the stock and bond markets,” explains Bryan Jaskolka, VP of Canadian Mortgages Inc. (CMI). “Although this space can have correlation to the real estate market, it does not move in the same patterns as other liquid financial investments that people have historically been buying.”

With a large proportion of the boomer generation reaching retirement, concerns around pensions funds are front of mind for many Canadian families. It’s a definite challenge, particularly when considering that people are living longer than ever before and traditional fixed income vehicles are not yielding the returns they did previously.

“Because of quantitative easing and other loosening measures worldwide in the past decade, people are seeing incredibly low returns on their GICs, certificates of deposit, and corporate bonds,” Jaskolka says. “It’s very difficult for people to live on that income, particularly when you consider that returns are, in many cases, totalling just a few percent. When you have a similar inflation rate, the real net income is next to nothing.”

As well as providing returns ranging from 6% to 16% depending on location, equity and risk factors, investments in alternative vehicles, like MICs and individual mortgages, provide investors with a level of diversification that is crucial in any modern portfolio. As was proven in the dotcom-bust and the economic meltdown of 2008 – 2009, having all of your eggs in one basket has the potential to be catastrophic.

“People have been looking for alternative mechanisms for generating income and cash flow and mortgage investments and MICs are excellent areas for them to do that,” Jaskolka says. “Generally speaking, they provide static payments, which are income driven, and they do not trade as a public market stocks so are not subject to daily price fluctuations.”
 

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