Hedge Fund Opportunities May Come From Commercial Real Estate

Gaining the maximum return on your investment dollars is a goal most of us strive for

. This can best be accomplished with an investment that is versatile, such as commercial real estate. The typical stock investment hopefully will generate capital gains but these won't be seen until the security is sold and settled.

Bonds may provide regular cash flow but with recent interest rates and market uncertainty the yields on these investments are low at best. Stocks that pay dividends may be an alternative but you don't want to put all of your eggs in one basket. An investment in commercial real estate can provide great flexibility with bountiful cash flows and capital appreciation. This can be a great part of a diversification program to keep your asset allocation in check.

Real estate investment companies pool funds from private investors for the purpose of purchasing commercial real estate. This spreads the risk to the investor by having their investment dollars secured by a larger number of properties much like a mutual fund spreads the risk of buying individual stocks. In both cases your investment is managed by professionals.

Hedge funds are now utilizing real estate investment trusts to be included in their holdings for increased profitability and flexibility. A growing number of real estate investment trusts allow for greater choices among hedge funds. Commercial real estate is attractive for these funds for a number of reasons.

Hedging Your Bets

Short selling is a technique used by sophisticated investors to hedge their stock investment. They would "borrow" funds from a broker in hopes the value would decrease so they can buy it back later at a cheaper price. Although this technique is widely used with stocks it can't be done with conventional real estate. However, when you have a publicly traded firm short selling is not only possible but a great way to boost your yield when done successfully. Its options such as these that allow real estate investment firms another tool that will increase the yields to their investors while at the same time reduce the risk they would normally experience.

Hedge funds have been around for many years and used to be used exclusively for only a few select wealthy investors. They can combine years of real estate experience with overall knowledge of the market and integrate the real estate options to maximize yield and overall returns while minimizing risk. Investment companies are able to create investment instruments that hedge funds can utilize to remain completive in today's market and at the same time increase the wealth of private investors.

Variety In Investments And Consistency

The stock market as measured by the Dow Jones Industrial Average can fluctuate wildly within a short period of time. The commercial real estate market does not correspond directly to the overall stock market. Just because the stock market may be in a down mode that does not mean the real estate market will automatically participate with the downturn.

Because there is no direct correlation between commercial real estate and the overall stock market hedge funds often look to this investment as a way to diversify their holdings and spread market risk. Investments in funds help to insulate you from market fluctuations. In today's market this factor is even more important as we witness the retirement funds of individuals being decimated by stock market swings.

Real estate has traditionally been a stable investment when compared to stocks. There is no direct relationship between the two investments. With real estate you do not have sudden and wild price fluctuations as you might expect with a 100% stock portfolio. The type of investments provided by real estate investment firms provided a sound alternative to stocks while providing the diversification most experts recommend.

by: Chris Harmen

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