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A Bird’s Eye View: Real Estate as an Asset Class

On a global scale, real estate has historically performed similarly to public equities (7.05% vs 6.89%). Not only does this asset class offer consistent returns with lower volatility, but in recent years, it has become relatively common to see real estate investments returning above 10%. Real estate as a whole tends to be quite cyclical — it goes up when times are good, and down when times are bad. On a more granular level, however, multifamily real estate is often seen as a defensive investment as opposed to the more volatile commercial real estate segment. The current low interest rate environment also creates the perfect landscape for the steady fixed income-like cashflow features of this investment. Historically, this asset class was reserved for property developers, wealthy individuals and institutional investors. But as fund managers and property developers look to pool capital from a larger group of investors, and individual investor platforms and options open up, real estate marketplaces are becoming increasingly prevalent in the private investments sphere.

The biggest barriers to entry in the real estate investment world are large ticket sizes and high legal and transaction costs. Investing in physical real estate can be extremely exclusive, especially in today’s economy. Individuals who want to finance their investments often need to undergo extensive credit checks and demonstrate material earnings or wealth. Further, the real estate market is relatively opaque, and information asymmetry can often lead to significant mispricing.

Real estate investment trusts were the very first iteration of a “solution” to the aforementioned issues. These funds essentially pool capital from public markets, and distribute the properties’ revenue to investors in the form of dividends. Investors can also profit from the assets’ appreciation. But investors are unable to pick and choose which properties and projects they want to invest in — their returns and risk appetite are left to the discretion of fund managers. In essence, REITs limit investors’ options.

Private real estate marketplaces, however, allow individuals to take a more selective approach to building their own portfolio, having more power over the way in which they allocate funds and vet property. Over the past decade, the most prominent private real estate marketplaces have produced an average yearly return of 12.16%, while the S&P 500 has averaged 10.88%. In terms of risk level, real estate is known for producing reliable, consistent cash flows, since most of the dividends come from properties’ rental revenue. Development deals can be slightly riskier, but usually yield higher returns. Debt issuings are also common in the real estate crowdfunding space, although more than two thirds of the offerings are classified as equity or revenue sharing.

Some of the top US real estate marketplaces have raised more than $1 billion and have distributed sizable cash returns to investors. See below:

The total real estate online marketplace is estimated to be worth close to $90 billion, up from $80 billion in mid-2018.

Benefits for Investors

With lower minimum requirements and greater granularity, real estate marketplaces are changing the way the average investor is able to allocate funds towards property. This is leading to a democratization of the real estate market. By choosing individual properties, investors are able to better accommodate their risk appetite. Since individuals directly control which properties are included in their portfolios, risk-averse investors can pick low-risk deals while risk-seeking investors have the option to look for higher risk profiles in exchange for higher returns. See below:

For each incremental unit of return, a risk-averse investor’s utility will increase less and less (diminishing utility). For a risk-seeking investor, it goes up incrementally. Since a public REIT is somewhere in between the two, both investors will be dissatisfied with the fund’s risk level. A risk-averse investor will not be compensated enough for the amount of risk they are taking, while a risk-seeking one will want higher returns than the fund can provide.

With private real estate marketplaces, investors are given a menu of projects, and they can pick the ones they find attractive at their own discretion. This allows for a more efficient distribution of risk tolerance, since investors can choose which deals they are most comfortable with, depending on their particular circumstances.

Although real estate marketplaces allow participants to invest in individual deals, investors may face single-asset risk (i.e. their investment is overly reliant on a single project). In order to successfully address this concern, marketplaces must encourage investors to build highly diversified portfolios. Crowdstreet, for instance, offers investors the option to buy into a custom-built portfolio tailored to their risk appetite. It is also important to curate deals as thoroughly as possible in order to minimize counterparty risk for investors.

There are challenges, however, when it comes to finding the most efficient way to streamline this particular investment process. Real estate marketplaces have to vet participants from various jurisdictions, as well as ensure that their deals offer full disclosure to investors. Furthermore, dividend distributions and transaction settlements are almost always manual, as they are generally done through outdated financial routes. Hence, there are tremendous opportunities for real estate marketplaces to leverage digital securities.

A New Market: Real Estate Marketplaces using Digital Securities

There is no doubt that a real estate investment platform of the future must leverage distributed ledger technology. These platforms have the ability to offer investors the same benefits as traditional real estate marketplaces, with the added value of digital securities. To date, there are around 16 real estate investment platforms using digital securities around the world. They are concentrated in the United States and Europe, but very few have their assets listed on secondary exchanges.

Some of these marketplaces (particularly in the Middle East and Europe) are multipurpose digital security issuance platforms that also feature real estate offerings. Some are solely dedicated to the issuance of real estate backed digital securities. As more issuers begin to tokenize multifamily properties, adoption of digital securities in the real estate market is likely to increase substantially over the coming year.

Digital securities provide an innovative solution to an outdated mechanism. By digitizing real estate, issuers are able to streamline the process for viewing holdings and analyzing asset performance. The concept of an online platform where transferable digital assets can be safely stored is set to transform the way people own fractionalized equity.

Broker-dealer networks are at the core of what makes digitization so important. Blockchain and distributed ledger technology provide the underlying infrastructure for transferability of digital securities. By creating a system that allows for the seamless flow of securities across platforms, broker-dealers are able to connect with each other and offer investors a wider array of assets. This enhances deal distribution by removing opacity in the market and eradicating the barriers between entities. Since investments are sourced online, the overall amount of opportunities available to investors is much higher than with traditional private securities.

Moreover, higher levels of transparency can result in lower barriers to entry for investors, due to more accurate security pricing and risk assessment as well as lower middlemen costs. In the future, Investors can gain liquidity by accessing licensed trading venues, significantly increasing the speed at which these private securities circulate and become accessible to investors.

Real estate marketplaces are at the centre of a trend in increased access to real estate investing and digital securities are the perfect vehicle to expand and accelerate that trend.

* * *

Disclaimer

The information provided on Atlas One’s research, social media channels, website, webinars, blog, emails and accompanying material (collectively, the “Information”) is for informational purposes only. It does not constitute or form any part of any offer or invitation or other solicitation or recommendation to purchase any securities. The Information should not be considered financial or professional advice. You should consult with a professional to determine what may be best for your individual needs. The Information is drawn from sources believed to be reliable, but the accuracy and completeness of the information is not guaranteed, nor in providing it does Atlas One assume any liability. Atlas One assumes no obligation to update the information or advise on further developments relating to these areas.

  1. Source: Bundesministerium für Bildung und Forschung (BMBF) & Institute for New Economic Thinking (INET), The Rate of Return on Everything, 1870–2015, page 13, https://economics.harvard.edu/files/economics/files/ms28533.pdf
  2. Source: Investopedia, Real Estate Crowdfunding Sites, https://www.investopedia.com/best-real-estate-crowdfunding-sites-5070790
  3. Source: Macrotrends, S&P 500 Historical Annual Returns, https://www.macrotrends.net/2526/sp-500-historical-annual-returns
  4. Source: EY, Real Estate Crowdfunding, https://www.ey.com/Publication/vwLUAssets/Real_Estate_Crowdfunding/%24FILE/EY-Real%20Estate%20Crowdfunding-March%202019.pdf

Naabiae Nenu-B is a Medical Health Student and an SEO Specialist dedicated to flushing the web off fake news and scam scandals. He aims at being "Africa's Best Leak and Review Blogger" and that's the unwavering stand of Xycinews Media.

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Fx Analysis

Chart Art: Back-to-Back Yen Plays With AUD/JPY and GBP/JPY

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It may be the last trading day of the week in the forex market but that doesn’t mean you can’t sneak in a couple of pips before you close shop!

Check out AUD/JPY and GBP/JPY’s downtrends on the 4-hour chart.

Think you can make pips from these setups?

AUD/JPY 4-Hour Forex Chart
AUD/JPY 4-Hour Forex Chart

AUD/JPY is consolidating at the 81.25 area!

And why not? The level not only hits the 50% Fib retracement of last week’s downswing, but it also lines up with a mid-channel resistance AND a broken support earlier this month.

If you’re an Aussie bear, you can start loading them shorts as soon as you see some momentum. The 80.20 previous low is a good initial target but you can also aim for new monthly lows if the (bearish) force is strong enough.

Feeling like buying the Aussie instead? Look for new weekly highs for AUD/JPY and see if an upside breakout can lead to a retest of the 100 SMA closer to the channel resistance.

GBP/JPY 4-Hour Forex Chart
GBP/JPY 4-Hour Forex Chart

Don’t worry, you’re not seeing double. Guppy is showing us a similar setup, yo!

GBP/JPY is about to reach the 152.25 area that lines up with not only the 100 SMA but also the descending channel resistance that started gaining traction in late June.

This time, pound bears also have the support of a hidden (read: continuing) divergence on the chart.

Now who’s ready to sell GBP/JPY? The most recent candlesticks haven’t exactly hinted at a reversal yet, so keep your eyes peeled for the start of some selling. July’s lows are a good level to target but make sure you also lock in pips along the way in case the pound doesn’t go back to its previous support.

If you’re confident that the pound has seen its lowest levels against the yen this month and that GBP/JPY will break above its trend line resistance, then you gotta design trading plans around a possible upside breakout.

Good luck and good trading, my dudes!

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Fx Analysis

Weekly Forex Market Recap: July 19 – 23

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After a volatile start to the week on covid-19 fears, markets calmed down to a steady recovery by the end of the week.

The Canadian dollar was the top dog among the majors, not only rising with the recovery in risk, but also likely on rising oil prices as traders forecasts tightening supplies.

Notable News & Economic Updates:

Intermarket Weekly Recap

Dollar, Gold, S&P 500, 10-yr Treasury Yield, Bitcoin, Oil
Dollar, Gold, S&P 500, 10-yr Treasury Yield, Bitcoin, Oil

Risk aversion sentiment hit the markets at the start of the week as traders priced in fears that the recent rise in the covid-19 cases around the world would weaken the economic recovery. On the chart above, we can see the turn lower in risk assets (i.e., equities, oil, and bitcoin), as well as a fall in U.S. Treasury yields.

That sentiment lasted through Tuesday’s session, where a bottom in risk aversion sentiment seemed to quickly form, despite a lack of attributable news events or headlines. With no apparent catalysts for the shift in sentiment, that bottom was likely a “buy the dip” move by traders.

In the currency space, safe havens like the euro, yen, and Greenback benefited from the risk-off moves on Monday and Tuesday, and as expected in this environment, the comdolls were hard hit early on.

But as positive risk sentiment slowly recovered through the rest of the week, the comdolls eventually took the top spot among the majors, lead the Canadian dollar. The Loonie’s out performance was likely boosted by the swift recovery in oil prices as traders speculated that oil supplies would tighten.

The euro had the most notable scheduled event of the week for currency traders with the latest monetary policy statement from the European Central Bank. This event came inline with the expectations that the ECB would remain accommodative, raised their inflation goal to 2%, and re-iterated that they’re not too eager to pull emergency support anytime soon. Euro volatility quickly pick up quickly on the event, ending with the euro lower on the session.

USD Pairs

Overlay of USD Pairs: 1-Hour Forex Chart
Overlay of USD Pairs: 1-Hour Forex Chart

GBP Pairs

Overlay of GBP Pairs: 1-Hour Forex Chart
Overlay of GBP Pairs: 1-Hour Forex Chart

EUR Pairs

Overlay of EUR Pairs: 1-Hour Forex Chart
Overlay of EUR Pairs: 1-Hour Forex Chart

CHF Pairs

Overlay of CHF Pairs: 1-Hour Forex Chart
Overlay of CHF Pairs: 1-Hour Forex Chart
  • No major news or catalysts from Switzerland this week. Price action was mainly influenced by broad risk sentiment as discussed earlier.

CAD Pairs

Overlay of CAD Pairs: 1-Hour Forex Chart
Overlay of CAD Pairs: 1-Hour Forex Chart

NZD Pairs

Overlay of NZD Pairs: 1-Hour Forex Chart
Overlay of NZD Pairs: 1-Hour Forex Chart

AUD Pairs

Overlay of AUD Pairs: 1-Hour Forex Chart
Overlay of AUD Pairs: 1-Hour Forex Chart

JPY Pairs

Overlay of Inverted JPY Pairs: 1-Hour Forex Chart
Overlay of Inverted JPY Pairs: 1-Hour Forex Chart

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Fx Analysis

One Simple Trick to Avoid Overtrading

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Most forex newbies often think that taking more trades leads to catching more profits.

The more setups you take, the better your chances of winning, right?

WRONG!

This isn’t the lottery, y’all!

Overtrading refers to taking so many trade setups to the extent that you lose your market edge.

One of my favorite trading psychologists, Dr. Brett Steenbarger, explains that the root of overtrading is the mismatch between one’s profit expectations and market volatility.

In other words, traders often feel the need to catch multiple market moves in order to hit their goals.

While it’s helpful to set trading goals, there’s one major problem with this line of thinking.

The market does not move based on your expectations!

This kind of mindset may lead a trader to overestimate his trading skills in an effort to reach his targets and mentally convince himself that he’s had a good trading day.

While this may work in some cases, it can wind up being harmful to your trading psychology when it makes you feel invincible and overconfident that you can trade in absolutely any market environment.

If you often catch yourself in this situation, don’t beat yourself up! It’s much more common than you think, and it happens even to seasoned traders.

You see, most of us have been conditioned to think that we must work harder and do more in order to achieve better results. While clocking in your 10,000 hours of deliberate practice has its merits, it’s a misconception to think that working harder equates to taking more trades.

Working hard means taking the best (a.k.a. high probability) trade setups.

This could involve waiting patiently or sitting on the sidelines if you have to. Doing nothing and refraining to take a trade when it’s not aligned with your strategy is a trading decision in itself.

Of course this is much easier said than done, so here’s one simple trick that can help you avoid overtrading:

Take only ONE TRADE each day.

That’s right, no exceptions. If you catch a big win, you’re done for the day. If you snag a loss, you’re done for the day.

Day trading coach and author Galen Woods calls this the One Bullet Action Plan.

Setting this absolute one-trade rule forces you to think like you have just one bullet left, which means that you have to aim properly and pull the trigger at the right time in order to make the most out of your only shot.

It sounds so simple, but it requires a lot of work.

You have to comb through the charts and all the available setups to see which ones line up with your strategy, so this addresses the psychological need to “do more.”

You must be extra picky in filtering out the “best” one for the day and at the same time be alert in catching the move.

Keep the wisdom of the great American philosopher Eminem in mind: “You only have one shot, do not miss your chance.”

What about undertrading?

Don’t worry about that just yet. Far more traders wipe out their accounts from overtrading than undertrading.

Once you are able to easily avoid overtrading, you’ll be able to fine-tune your market edge.

From there, sticking to high-probability setups will be like second nature to you, helping you stay consistently profitable in the long run.

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