Is Real Estate An ‘Alternative Investment’?

The Big Picture on Real Estate As an Alternative Investment: 

• Real estate’s income generation, tangible value, and standardized valuations align it more with traditional investments than speculative alternatives.
• Real estate’s “alternative” label stems from advisory industry convenience, not its fundamental investment characteristics.
• High-net-worth individuals allocate heavily to real estate, treating it as a stable, core investment rather than an alternative asset.

I’m just going to say it: real estate is not an “alternative investment.”

Don’t believe me? I’ll prove it to you with both data and common sense. 

Suit-wearing investment advisors call real estate an “alternative investment” because they can’t easily earn fees or commissions on it, outside of REITs. So it comes as no surprise that they’re quick to add REITs to clients’ portfolios, but anything beyond REITs falls into the so-called “alternative” bucket. 

Strap in and get ready for a fresh take on real estate and how it fits into your financial goals.

What Is An Alternative Investment?

First off, let’s address the elephant in the room. What exactly makes something an “alternative” investment, anyway? The general consensus is that alternative investments are asset classes that fall outside the traditional category, like stocks, bonds, actual business, cash, etc.

However, the line between alternative and traditional investment becomes blurry in some areas. Let’s use hedge funds, for example; they often trade the same stocks as traditional investors, just with different approaches. Or, private equity: investing in private companies, pretty much like you do in public markets, except it comes with a different ownership structure.

That said, the primary characteristics that come with alternative investments are limited liquidity, specific fee structures, lower correlation with traditional markets, and often less regulation. Conversely, when we look at real estate investments through the same lens, we start to check fewer and fewer of these “alternative” boxes.

Sure, real estate is less liquid than stocks, but it’s more transparent than most alternative investments we know—and boy, do I have some thoughts about that coming up.

Real Estate’s Revenue-Generating Capabilities

Perhaps the most valid argument against the classification is that real estate investments result in revenue generation. Particularly, these investments produce predictable income streams through rental payments and other associated revenues—you can’t say that about most alternative investments out there.

The revenue aspect aligns more closely with traditional investments like dividend-paying stocks or bonds than with typical alternative investments like precious metals.

To further prove my point; when you invest in a rental property, you can calculate returns through common metrics landlords know and love:

• • Cash flow after debt service
  • Capitalization rates
  • Net operating income (NOI)
  • Return on investment (ROI)
  • Monthly rental income

If we look close enough, the measurability of returns starkly contradicts many alternative investments, where value assessment is often speculative at best.

The Valuation Method Says Otherwise About Real Estate

The methods used to value real estate investments mirror those used for traditional investments like businesses. Stick with me here—just as investors value companies based on their earnings, cash flows, assets, etc., real estate investors can use similar methodologies to assess the value of a property.

This factor alone differentiates real estate from typical alternative investments like cryptocurrency, gold, art, designer bags, or even sneakers. Those are basically just riding waves of market sentiment. Real estate valuations commonly incorporate:

• Income approach (based on revenue generation)
• Comparable sales analysis
• Replacement cost analysis
• Net present value (NPV) calculations

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Advisory Industry’s Classification Conundrum

One thing I’ve noticed through the years of investing in real estate—and this has been a real eye-opener—is that a significant factor in real estate’s “alternative” classification stems from the investment advisory industry’s business model rather than the asset’s inherent characteristics.

A bold claim, right? Perhaps, but the way I see it, investment advisors often categorize real estate as “alternative” primarily because they can’t easily earn management fees from direct real estate investments. In simple words, the classification is really more about business convenience than the investment’s actual fundamentals.

It gets better. The exception to this rule is telling: Real Estate Investment Trusts (REITs) and real estate funds, which advisors can manage and earn fees from, are often included in traditional investment portfolios. Funny how that works, isn’t it? 

Comparing Investment Characteristics

So, upon examining the characteristics of investments, real estate behaves more like traditional business investments than alternative ones. Based on these aspects:

Tangible Value

Of course, real estate represents ownership of physical assets with utility value, similar to owning a business with physical assets. Its tangibility provides a floor for valuation, unlike many alternative investments where value can theoretically drop to zero.

Income Generation

Like traditional businesses, real estate generates regular income through operations. This income provides a basis for valuation and return calculations as well, similar to how business earnings drive stock valuations.

Market Efficiency

While not as liquid as public markets, real estate markets show relatively efficient price discovery through professional appraisals, comparable sales, and income-based valuations—more closely resembling traditional markets than alternative ones.

High-Net-Worth Individual (HNWI) Investment Patterns

Don’t want to take my word about the classification?

Fine—let me show you something that blew my mind about how the wealthy actually invest their money. I’ll tell you something pretty fascinating about the true nature of real estate investment. High-net-worth individuals are investing heavily in real estate, and not as some exotic “alternative” play either.

These investors, who have access to literally every investment vehicle under the sun, are putting a whopping 32% of their wealth into residential properties and another 21% into commercial real estate.

That’s 53% of their portfolio in real estate—more than double what they’re putting into stocks, which sits at around 26%. What’s more, these are the same stocks everyone considers quintessential “traditional” investments.

In my view, if the wealthy choose to put more than half their wealth into real estate, they see something that goes way beyond viewing it as just another alternative investment in their portfolio. I mean, come on—the numbers speak for themselves, take a look!

How Private Equity Real Estate Has Given the Wealthy an Edge

Something interesting occurred between 2015 and 2024. Billionaire wealth increased by 121%. To put that in perspective, during the same period, the MSCI AC World Index grew by 73%, and the S&P 500 increased by 77%.

That’s not just beating the market—that’s absolutely obliterating it.

Now, let’s look at how the wealthy approach real estate investment going forward. About 43% of them plan to pour even more money into real estate. That’s not something you’d expect if this was just another alternative investment, right? Even better, billionaires are getting more hands-on—38% of them are looking to increase their direct private equity investments in real estate.

Why? Perhaps they also learned what I’ve realized: real estate isn’t just about diversification or having an “alternative” in their portfolio. They see it as a stable foundation for wealth building, especially during market volatility. We all know stock markets can get choppy, and traditional investments start swinging wildly whenever that happens.

However, in my experience (and I’ve seen my fair share of market cycles), real estate provides that “stabilizer” that keeps portfolios grounded.

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An Investment Opportunity That Proved My Point

Deni recently shared details about a real estate investment opportunity that had me geeking out all over.

The deal involves a portfolio of a whopping 415 units composed mainly of duplexes scattered across the Midwest. The projected distributions start at 8.7%, and once stabilized, the numbers are expected to increase to 12.6%. And hey, these aren’t some pie-in-the-sky numbers—they’re all based on the actual rental income potential of the investment properties. 

Now, this is exactly the kind of measurable revenue I’ve been preaching about in the last hundreds of words or so. Let’s be real for a second, shall we? You can’t get this kind of income predictability from what we call “alternative” investments like gold, crypto, or arts (unless you’re selling fake Picassos, which I definitely don’t recommend!). 

The operator, in this case, scored an unusually low purchase price because the properties are placed across different locations—that’s definitely a massive headache for some investors, but it’s golden for those with the right operational expertise.

The cherry on top (and also my favorite part) is that the deal includes a refinancing option that could return 100% of investors’ capital—all while maintaining their ongoing distributions from retained ownership. You’ve probably heard of “infinite returns” if you’ve been in the industry long enough, and this is exactly what it is. 

Although I don’t intend to badmouth alternative investments because our portfolio includes tons of them as well, go ahead and try finding this kind of deal with those alternatives. Spoiler alert: you won’t.

How to Invest In Private Equity Real Estate Without Being Wealthy

There are indeed some practical ways to get into private equity real estate without having millions in the bank. I did some of this myself when I was starting up, working with little capital I had.

First would be REITs, which are probably your most accessible entry point. Although they’re not exactly private equity, they can expose you to institutional-quality real estate. Here’s the deal though—looking for both publicly traded REITs on major exchanges would be best. Just keep in mind that non-traded REITs can be less liquid (I learned that one the hard way!).

Another would be real estate crowdfunding platforms. These platforms essentially eliminate the barrier to entry to private real estate deals. Platforms like Fundrise, RealtyMogul, Concreit, and CrowdStreet let you invest in commercial real estate deals with much lower minimums than traditional private equity—sometimes as low as $10. Pretty sweet, right?

Real estate syndications are another option. Like our Co-Investing Club, these are private deals where investors pool money to buy larger properties. Although traditional syndications often require $50,000+ minimums, some newer platforms offer lower entry points. You’ll want to look for sponsors with solid track records. And spoiler alert: we check the boxes. No bragging, just stating facts!

Are Real Estate Investments Truly ‘Alternative Investments’?

In my view—and I say this after spending years into this matter—the classification of real estate as an “alternative investment” appears to be more a product of industry structure than a reflection of its real characteristics. Wealthy investors’ allocation to real estate, its proven wealth-building capacity, and its fundamental characteristics all point to one thing: it might be time to reconsider this classification.

Rather than viewing real estate as an alternative investment, I’ve come to believe it’s more accurate to recognize it as a traditional investment class that just happens to fall outside the typical investment advisory business model.

And honestly? That’s their loss, not real estate’s problem.