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Alternative Investments as a Safety Net During Real Estate Downturns

By Jamie Richardson | December 13, 2018

Most readers have heard the old saying “Don’t place all of your eggs into one basket.” If anything sums up an approach to investment as an income, that saying says it all. And if your primary investment choice is commercial real estate (CRE),then you know the pain of a market downturn.

When any financial crisis hits, the commercial real estate industry is among the first to suffer. In turn, savvy CRE investors have long understood the importance of diversifying their investment portfolio.

The question is:what investments should you get involved in the promise good returns and minimal risk, especially during a time when your real estate investments are struggling.

Viatical Settlement Investment

A viatical settlement is a type of life insurance settlement. According to Mason Finance viatical settlements are mostly used by terminally ill people looking to take advantage of their policy’s value before passing.

In most cases, such individuals don’t have beneficiaries to their life insurance policies, so they decide it’s best to sell their policy to a third party rather than surrender it to the insurance company for little to nothing.

Investors have been attracted to viatical investments for quite some time. First of all, due to the nature of the investment, a return on the investment is higher than other types of investments. Secondly, market downturns have little to no effect on the viatical settlement industry.

It should be noted that viatical settlements aren’t for every investor. However, for those who find this type of investment promising, it can prove to be a great investment for those looking for an investment income to help prop up their real estate investments during real estate market downturns.

Crowdfunding Investments

Crowdfundinginvestment is popular among companies, especially young startups, looking to acquire investment capital by inviting a large number of "backers" to invest small amounts of cash into the business venture. In return, each backer receives shares in the form of equity in the enterprise.

Before there was crowdfunding, angel investors were the ones entrepreneurs went to for investment capital. These angel investors were usually found within their network of family, friends and business associates. This was due to the Securities Exchange Commission (SEC) banning public solicitation of investments in 1933. This meant that, traditionally,such investments were restricted to large, accredited investment companies.

However, the 2012 JOBS Act passed by President Obama legalized general solicitation,also known as “crowdfunding” today. Now a broader scope of investors could put their money together and invest in ventures that have a hard time finding credit elsewhere.

Crowdfunding investments might also include obtaining a company’s debt or equity stakes. Alarge group of investors can invest in a small portion of a larger loan through companies called "micro-loan" providers.

Typically, those participating in the investment know the purpose of the loan, the terms, its length, and the estimated credit rating of the borrower. This allows each investor to make an informed decision on whether they wish to participate or not.

Micro-lending agencies usually charge borrowers a higher rate of interest than their counterparts due to the higher credit risk of the borrowers. However, byspreading a large amount of the loan incrementally over a large number of loans, they can decrease the risk some. Borrowers usually resort to this sortof credit over traditional financing when traditional loans prove too costly or not an option.

The two above mentioned alternative investment ideas have proven to be great ways to stay afloat during market downturns, especially for those in the real estate business.

Jamie is a 5-year freelance writer who enjoys real estate. He is currently a Realty Biz News Contributor.
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