Real estate, unlike other asset classes, operates in an inefficient market. Does this mean that making money in real estate is akin to a crapshoot? No—in fact, it's just the opposite. Unlike the "equilibrium" markets, real estate is dynamic and remains one of the last opportunities to systematically exploit market inefficiencies. There are numerous types of inefficiencies, but the one most commonly discussed is spatial inefficiency—or inefficiency due to variation across locations.
As we know, real estate, really by definition, is a site-specific asset, more so than any other investment or commodity. For institutional investors, there has always been a tendency to invest in the most prominent locations, where market information is more available and the necessary local relationships are more open to outsiders. In other words, there have always been barriers associated with investing across regions, particularly in smaller markets. The greater these barriers, the greater the inefficiencies. Certain players within those markets continue to have preferred access to information and expertise, allowing them to capitalize upon these inefficiencies and produce superior risk-adjusted returns for their investors.
Specific advantages to real estate investment include:
It's no secret that the greatest wealth-builder in history has been investment real estate. And unlike the "paper" investments of the stock and bond markets, carefully selected investment properties have real long-term value secured by physical assets.
While the public stock markets can provide opportunities for building wealth, their volatility also brings tremendous risk. Real estate, on the other hand, is not subject to the wide fluctuations and, when properly managed, can continue providing a steady return on investment—even when the public markets are down or flat.
Distributions to Investor-Partners are treated more favorably than other investments from a tax perspective because a significant portion of those distributions are not considered income. This is due to the flow-through of expenses and depreciation associated with the real estate asset itself. Furthermore, the capital appreciation is deferred from taxation until the asset is sold.
L4 investments are 100% qualified for self-directed IRAs and other registered retirement savings plans so you can maximize your investment while deferring taxes. Every investment is structured to ensure that Investor-Partners receive the maximum tax benefit for ownership of private real estate. A self-directed IRA is no different from any other IRA; it simply means that you choose the investments with more flexibility and control over your retirement portfolio. To learn more about self-directed IRAs and their many benefits, please contact us.
Investment real estate's combination of stable revenue (from rents), capital appreciation (from increasing property values), and tax savings (from the unique flow-through structure) have historically provided the highest risk-adjusted returns among the major asset classes over the last three decades (1978-2010).