Real estate development is one alternative investment corner that often gets overlooked, and Fred Hubler makes the case for adding a small allocation to a portfolio otherwise built on already-completed properties via DSTs and REITs. He notes that real estate development funds can hedge against inflation and rising interest rates, citing the current prime rate of 8.5%.
He describes development as the purest form of opportunistic real estate investing: properties that cost less to buy but require significant work to bring up to standard, sometimes including redeveloping existing structures. Because more work is required, the potential returns are higher too, with annual returns around 20% that Hubler says most conservative investments, including the stock market, can rarely match. Typical development scenarios include ground-up construction, repurposing, mass renovation of a distressed “fixer-upper,” or demolishing and rebuilding entirely, and the more work involved, the higher the eventual rent or sale price, along with the risk.
A small dose of development might be exactly what a too-conservative real estate portfolio is missing.
Hubler breaks down the full risk factors on Forbes, Most People Need This Asset Class In Real Estate, Do You?