Australia’s median house values have risen 412% over the past 25 years, so it’s no surprise real estate remains at the heart of many investors’ portfolios. But investing in bricks and mortar isn’t the only way to add real estate to your investment portfolio.

The grass isn’t always greener

While investing directly in real estate can provide strong returns and capital growth, implementing a real estate investment strategy has some challenges:

• High transaction costs: Buying and selling real estate can be costly when you add up all the duties, legal costs, and agency fees. To recover these costs, you need to hold onto your investment long enough to generate sufficient capital growth and/or rental income. Because the market goes up and down, this could mean a holding period of many years.

• Time horizon: If you’re an investor who doesn’t have time on your side to ride the wave of a rising market, you could miss out on the benefits of capital growth.

• Difficult to diversify: Real estate is generally a ‘big-ticket’ item – a single asset normally costs several million dollars. This can make it very hard to diversify an investment portfolio without an institutional size cheque book.

• Illiquidity: Unlike other investments, such as shares, it takes more time to sell real estate if the need arises.

• Time-intensive to manage: It also takes time, energy, expertise, and cost to professionally manage a profitable direct real estate portfolio.

Real estate investing, only better

One way to get around these challenges is to invest in professionally managed real estate debt. This approach offers you the potential to insulation your investment from market fluctuations while providing access to regular interest payments.