Capitalizing on the Historic Trend

Diversification and Direct Participation Real Estate (DPRE)

We believe novice investors often get it wrong. They allocate investments to numerous asset classes aiming to diversify. Sure, diversification requires asset allocation, but not all broadly allocated portfolios are created equal.

We believe allocation to non-correlated assets – assets whose returns don’t always change in the same direction at the same time – helps create diversification. And thoughtful selection can capitalize on opportunity. Combined with suitable risk exposure, a portfolio of carefully selected non-correlated assets may deliver more stable portfolio growth and preservation. A historic demographic trend presents potential investment opportunities using non-correlated real estate assets.

The Historic Demographic Trend and Housing Demand

That historic trend is the growing senior population. Minnesota state demographers estimate age 65+ residents represented 14% of the state population as of six years ago. Today they represent 17%. Demographers project by 2030, age 65+ residents will exceed 21% of the population.1And by 2036 their numbers will surpass the 18-and-under population for the first time in state history.2

We expect many seniors to seek housing devoted to their special preferences and needs. But they have discriminating tastes. Not all senior housing can serve demand well.

According to a paper published by the Minnesota Housing Finance Agency,3more affluent suburban seniors seek housing in areas with sparser populations, not urban areas. The paper projects senior population growth on the perimeter of the Twin Cities to exceed growth in most other parts of the state. We believe suburban senior housing assets can serve demand best.

Operational Efficiency and Market Efficiency

We also believe asset size matters in Minnesota. For investors, smaller assets – single-family or duplex properties – can be expensive; it’s an economies-of-scale hurdle. Large institutional assets, on the other hand, often:

  • adequately address the economies-of-scale problem, but they work better in more densely populated urban areas; and
  • operate in efficient markets, which limit opportunities for exceptional value.

In our opinion, sub-institutional assets – assets that fall between small and large – offer the best potential because they:

  • can deliver economies of scale;
  • exist in less efficient markets that can present exceptional value opportunities; and
  • satisfy what we know about senior housing demand.

The Facts on Direct Participation Real Estate (DPRE)

DirectRealEstate.com delivers personalized information about opportunities that we believe can capitalize on demand for senior housing. Here are some points to consider about Direct Participation Real Estate (DPRE):

  • DPRE enables precise allocation to specific properties investors can visit and evaluate themselves. Investors cannot do that with conventional real estate exposure through real estate funds or through investment trusts (REITs).
  • IRA accounts can hold these investments.
  • Changes in DPRE investment values are non-correlated with changes in prices of stocks, bonds, and other asset classes, so we believe DPRE investments may improve portfolio diversification.

Investors can get detailed information about DPRE opportunities and some of the projects underway to serve both accredited investors and senior housing demand. Go to DirectRealEstate.com to learn how DPRE might meet your investment interests.

Endnotes

1Minnesota State Demographic Center, Excel spreadsheet downloaded on 13 Dec 2018 from https://mn.gov/admin/demography/data-by-topic/population-data/our-projections/ under the “Age & Sex” tab at the Minnesota’s total population, age and sex projections from 2017-2070  link.

2Minnesota State Demographic Center, Retrieved 13 Dec 2018 from https://mn.gov/admin/demography/data-by-topic/population-data/our-projections/.

3Schuller, J. (2010). Housing for Minnesota’s Aging Population: Discussion Paper. Minnesota Housing Finance Agency Research and Evaluation Unit. Retrieved 13 December 2018 from http://mnhousing.gov/idc/groups/secure/documents/admin/mhfa_010262.pdf(See map on page 6).

The opinions, news, research, analyses, prices, or other information contained in this article are provided as general market commentary and do not constitute investment advice. Financial Fortitude and its affiliates are not liable for any loss or damage which may arise directly or indirectly from use of or reliance on such information. Financial Fortitude has taken reasonable measures to ensure the accuracy of the information.

The opinions expressed and material provided are for general information and entertainment and should not be considered a solicitation for the purchase or sale of any security. You should not rely on any of the information provided by Financial Fortitude as a substitute for the exercise of your own skill, judgment, and due diligence when determining the appropriateness of any investment.


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