Retirement is best enjoyed when you get to do the stuff you love, without being worried about the cost it might incur or the money you might be able to make off it. And a good retirement plan should include at least one substantial option where a steady stream of passive income can be achieved. Most people in India would look at fixed deposits, NPS, NSC, and annuity plans as reliable options for supporting them financially during retirement. Mutual funds have also picked up pace for the past half decade or so. The area that unfortunately misses notice is real estate, and more specifically, commercial real estate(CRE). So, should CRE be a part of your retirement plan? How good is building a corpus that can leave you worry-free after you decide to retire?
Investments if made correctly and after understanding their pros and cons, seldom are a cause for concern. So, the short answer is yes. The long answer depends on factors like asset class, marketplace, the investment vehicle, and the experience and expertise of the managers of passive investment opportunities in CRE.
Have you ever given it a thought why the commercial real estate sector was among the first ones to bounce back and keep going even after the first wave of the pandemic hit? For the simple reason that even if businesses decide to suddenly close shop, their commitment to the space they have leased needs to be fulfilled. Even if certain businesses did shut down, and the demand for CRE stagnated for a couple of quarters, new businesses were back to add to the demand. In India, CRE is still the best performer when it comes to comparing investment options globally. Institutional investors are still making a beeline for commercial realty in India and the foreign investment in real estate is expected to increase by 4% during 2021. Looking at the portfolios of some of the wealthiest retail investors, one can easily find CRE making up almost 25% or more of their total investment.
Why is CRE so lucrative? For the simple reason that the sum of all parts of passive CRE investments offer the best combination for building not only enough funds for retirement but for generational wealth. An additional reason is that CRE is very insulated from the market and does not suffer the same ebbs and tides that affect the market significantly.
Here are some of the major compelling reasons why you should be looking at CRE as a valid investment option to plan for your retirement portfolio -
Passive Income. Once invested, CRE with sub-classes of specialized labs and warehouses are a steady source of passive income through the rent returns that are provided. Once invested in a specialty asset, the long lease periods rarely require any other involvement or manual interjection. Setting up multiple such assets is a great idea to ensure your income stream maintains a steady average.
Appreciation. Rental income is the major value factor of CRE. Apart from the natural appreciation of price over time, CRE’s intrinsic value is the reason why the asset appreciates more over time compared to other assets.
While inflation contributes to the growth of the CRE, rental returns also increase due to increased demand.
Transparency. What you invest in, the expected IRR, and the projected appreciation is all clarified right at the beginning of the investment. Along with the charges and management fees involved when dealing with a property investment firm. Everything is so clear and upfront, it gives you an exact idea of how much your earnings would be.
Diversification. As with every investment option, the golden rule of diversification also applies here. You are free to choose which asset would be part of your portfolio.
Leverage. Returns on stocks, mutual funds are speculative in nature. Real estate on the other hand always has pretty predictable returns which can allow an investor to get leverage at any point in time basis their investment.
Predictable Returns. CRE is highly illiquid. While one might consider that a problem, from the perspective of retirement planning, it is actually a great choice. Because of the illiquidity of CRE, pricing is not prone to mob behavior that can take stock prices on a roller coaster ride - making returns unpredictable. Long-term CRE investments are almost immune to volatile market movements - making your investments pretty much rock solid.
So, is CRE good for your retirement portfolio? Indeed. And if you are worried about the huge amount of initial investment required to have ownership of an asset, fractional ownership is here to help! To know more about how fractional ownership in CRE can be a great investment choice for retirement planning, do get in touch with us at www.strataprop.com.