February 8th 2021

Why smart investors choose real estate

Truly wise investors flock to an investment class that can’t be manipulated—real estate. The high barrier to entry, illiquid nature, and private market prevent real estate from hedge fund-esque manipulation. Here’s a little more detail.

1. Real estate requires a capital commitment

Acquiring real estate, whether directly or passively, requires a capital commitment that prevents many investors with limited capital—like the ones flocking to Robinhood armed with stimulus money and unemployment checks—from participating.

Even direct investments acquired with a bank loan require minimum capital commitments. Typical passive investments also have typical minimum investments starting around $30,000. Investing in real estate isn’t necessarily prohibitive, but the high barrier to entry deters the casual, speculative investor who would prefer to trade on Robinhood for free.

2. Illiquidity insulates real estate from market volatility

The fact that day trading has replaced sports betting as America’s favorite pasttime should tell you all you need to know about the mindset of today’s stock market investor. This mentality is consistent with every other aspect of modern life—everything is expected in an instant. Buying and selling real estate doesn’t happen instantly, and that prevents investors from making snap decisions.

Passive investments are even more illiquid, with typical lockup periods of five years or more. The illiquid nature of real estate prevents the herd mentality that rules Wall Street. That insulates the real estate market from the volatility of the broader markets.

3. Private markets prevent collusion

Because real estate and passive real estate investments are not traded on public exchanges and online platforms, where buy and sell orders are executed in an instant, real estate prices are insulated from extreme volatility. Private markets prevent collusive behavior by hedge funds and subreddits, which—as we saw with Gamestop—can easily disrupt prices.   

You can’t buy real estate for a dollar and you can’t buy it and sell it on the same day. Because real estate isn’t traded on Wall Street, it can’t be shorted—and that’s why it can’t be manipulated.

To avoid market manipulation, avoid Wall Street. Return to Main Street, where real assets still offer the surest and safest path to wealth.

4. Be smart with your strategy

No matter what method or style of investing you prefer, when it comes time for real estate, be sure to work with an experienced broker who knows the market and is able to find your the best fit. When you're ready to start investing in the Cape May County real estate market, whether for a primary home or rental property, be sure to call the local leaders at The Coastal Marketing Group at (609) 884-4242.