SheDefined recently featured an excerpt from Grow Your Wealth Faster With Alternative Assets

Most people consider property to be the largest alternative asset in Australia, which includes residential, commercial, agricultural and industrial.

Within those sectors, there are three primary types of investment strategies: property equity, property debt and property options.

The property asset class is a market sector where you will deal with insiders (property developers/ builders) with access to asymmetric information and capital raisers with conflicts of interest. This can lead to decision-making that’s not always in the best interests of the investor.

Let’s take a closer look at the types of property investment strategies that will even the playing field.

EQUITY

There are two main types of property equity: project-based property development and established assets.

If you invest in the equity of established assets such as a fully leased office building, shopping centre or childcare centre, you’ll be buying the equity for potential upside in the value of the property and for the income it generates.

Whereas, putting equity into development is akin to being an armchair developer – you relax while the developer does the work. The risk here is that your success is driven by the success of the developer and the project.

PROPERTY OPTIONS

Another way to invest is through a property option, which is a contract between two parties that gives the buyer the right to buy or sell an underlying asset at a predetermined price at a specified time in the future.

This means you can ‘lock in’ an optional buy or sell price for, say, three months’ time, giving you price certainty. The key with options is the leverage that’s factored into them.

Option leverage is great once you get above the breakeven point. In options, breakeven is the point at which the asset price appreciation equals the amount of premium you paid.

DEBT

Investing in property debt has become common in private markets. It has become so mainstream and commoditised, you could argue that it’s no longer an alternative asset.

When an asset class is saturated with a supply of cheap capital, it means an excess supply of capital goes into that market.

An excess supply of capital means the borrower can get cheaper interest rates, which is great for the borrower. It’s basic economics: the supply-and-demand equation (excess of capital) is in the developer’s favour, which simply means the relative return on investing in property debt isn’t there.

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