Of the various ways in which one can get exposure to real estate in their portfolio, direct ownership of an investment property is by far the most pure and will provide the owner with the lowest correlation to the wider market. Having a basket of investments in your portfolio that do not correlate highly with one another has been shown to be the key to reducing volatility in an investment portfolio. There are two other ways in which an investor can get some exposure to real estate albeit slightly more indirect.

Traded and non-trades REITs both offer their shareholders exposure to real estate however, of the two, non-traded REIT’s provided a lower correlation with the wider markets. The reason for this is simple, not surprisingly; traded REITs behave much more like stocks and tend to correlate highly with the markets they trade in. By definition, non-traded REITs do not, as they do not trade in the open market as the name implies. Insteadthey tend to be highly correlated with the risk-adjusted premiums of a well-balanced bond portfolio, which makes them very attractive to investors who want to safely invest in the commercial real estate sector without having to own real property.

A well-managed REIT provides a diversified and sustainable investment opportunity that is based on three factors: credit quality of the tenants, the lease contracts’ terms and duration, and future rent increases. While investing in a REIT has a fundamentally different return profile than owning investmentreal estate, a balanced REIT can be a lower risk alternative without the responsibilities of having to manage one’s own portfolio of income properties.