The term “alternative” encompasses a broad range of investments, including private Real Estate Investment Trusts (REITs), real estate funds, energy-based offerings, private equity, private debt, and various tax-advantaged investments. While these investments often come with the risk of illiquidity, they can offer advantages such as attractive cash flow, potential for appreciation, and insulation from market volatility when compared to exchange-traded investments.
The cash flow generated by alternative investments is typically derived from rental income, business income in the case of private equity, loan servicing income for private debt, oil and gas income, or royalty income. Many alternative investments have the potential to provide cash-on-cash returns of 6-8%, offering appealing risk-return profiles and often including tax benefits.
The appreciation potential of these investments is primarily based on the actual increase in net operating income of the real estate or business, or through an aggregation strategy where multiple cash-flowing assets are combined under one management structure and sold to an institutional buyer at a premium.
It is important to note that these alternative investments are typically offered through private placements and are only available to accredited investors. They are not publicly traded and should be considered illiquid investments. Each investment is accompanied by a private placement memorandum or prospectus and undergoes a thorough due diligence review, similar to DST and TIC offerings. It is also worth mentioning that these investments are generally not eligible for 1031 exchanges, except for certain oil and gas-based investments.