5 Best Alternative to Real Estate 2024

Real estate investment has been a part and parcel of most investment plans for generations. But in this fast-moving world, where the financial landscape and investor preferences keep changing real quick, the alternative route to investing in real estate is definitely the new trend.
These new investments have the potential to generate high returns, unlike any traditional property investments. We will discuss in this blog the benefits such alternative real estate investments can bring to you and what to consider while investing in these alternatives.

List of Alternative Real Estate Investments

1. Gold

Gold is highly valued for its ability to protect against inflation, its ease of trade, and its long-term value, making it a popular alternative to real estate. 

The price of gold demonstrates low dependence on other assets. In times of hard economic phases, gold’s value increases making it a safe haven for investors.

There are a few different ways that investors can obtain exposure to gold: through the buying of physical gold in coin or bar form, through gold ETFs, opening gold accounts, or indirectly through gold mining stocks or gold-related futures and options.

For small investors, the best approach is often to invest directly in gold. This typically means buying gold bullion in the form of coins, bars, or other physical gold assets.

2. Peer-to-Peer (P2P) Lending

P2P lending has evolved as quite a popular alternative to traditional investments, be it in the form of real estate. Basically, P2P lending platforms connect lenders with borrowers. As a lender you can earn higher returns than what conventional investment sources offer.

P2P lending allows any investor to become a lender directly to borrowers, cutting out traditional financial institutions. This can be very effective, you can earn up to 12% per annum. P2P lending is not affected by the volatility in the markets.

Platforms like LenDenClub, provide a variety of lending options, like Lumpsum, Monthly Income Plan, and Manual lending.

Let’s learn about Manual Lending

Manual lending is an effective way to diversify your investment and earn high returns. An individual gets full control over the lending amount and you can lend based on your own research and analysis.

With manual lending, lenders can choose borrowers based on multiple parameters like credit history, income level, debt-to-income ratio, and employment stability. One has the flexibility to select a loan tenure ranging from 1 month to 36 months, depending on their lending goals.

Let’s talk about Automated Lending

Automated lending, such as the Fractional Matchmaking Peer to Peer Plan (FMPP), offers structured products like Lumpsum and Monthly Income. These options are designed to maximize interest through broad diversification, which spreads your funds across numerous borrowers, effectively reducing risk.

Lumpsum entails amounts ranging from ₹10k to ₹50L with tenures from one to six years, offering simple interest rates of up to 15%, with the payout at the end of the lending period.

MIP allows lending from ₹1 Lakh to ₹50 Lakh, with tenures of one to three years and a potential simple interest of up to 10%, with monthly payouts. The decision between manual and automated lending largely depends on your lending style, risk tolerance, and financial goals.

For those seeking a better investment than real estate, P2P lending provides an opportunity to generate passive income with relatively lower entry costs. However, it is crucial to assess the creditworthiness of borrowers and diversify loans across multiple borrowers to manage risk effectively.

3. Art and Collectibles

Art and collectibles are unique types of alternative real estate investments. Investors in this category acquire items like paintings, sculptures, and historical memorabilia, with the expectation that their value will appreciate over time. 

This form of investment requires a keen eye for detail, a good understanding of the art market, and patience, as it can take years or even decades for these assets to reach their full potential. 

Investing in art and collectibles also demands a good knowledge of origin, authenticity, and market trends. Unlike real estate, which is generally driven by location and development, the value of art and collectibles can fluctuate based on artistic trends, historical significance, and even pop culture influences. Therefore, investors must stay informed and talk to experts to make well-informed decisions. This can indeed be a better investment than real estate for those with a passion for art and a long-term investment horizon.

4. Cryptocurrencies

Cryptocurrencies have emerged as one of the most popular alternative real estate investments, both in India and globally. Bitcoin, Ethereum, and other cryptocurrencies have received many attention from investors , positioning themselves as a potential alternative to traditional fiat currencies.Cryptocurrencies have emerged as one of the most popular alternative real estate investments, both in India and globally. Bitcoin, Ethereum, and other cryptocurrencies have received many attention from investors , positioning themselves as a potential alternative to traditional fiat currencies.

However, it is important to note that the regulatory environment surrounding cryptocurrencies in India is still evolving. Cryptocurrencies are neither explicitly legal nor illegal in the country, leading to a somewhat ambiguous stance from the government. This lack of clear regulation means that while the potential for high returns is significant, so too is the risk. Investors considering cryptocurrencies as an alternative to real estate should proceed with caution, conducting thorough research and possibly seeking advice from financial experts to navigate this volatile market.

5. Securitised Debt Instruments

Securitised Debt Instruments (SDIs) present an alternative to real estate investment. These instruments are created by securitising individual loans and debts, allowing investors to receive income from the underlying assets. Essentially, SDIs are asset-backed securities designed to diversify investment portfolios while providing stable returns.

Banks and financial institutions often turn to securitisation to free up capital and reduce interest rates. The process involves collecting various types of loans into one comprehensive debt product. Pass-through certificates (PTCs) are then issued to investors against these securitised loans. This mechanism enables MSMEs (Micro, Small, and Medium Enterprises) to secure the funding they need, making SDIs a crucial element in supporting small businesses.

Originating institutions can pool different types of loan-backed assets for securitisation. These pooled assets are transferred to a Special Purpose Vehicle (SPV), which then issues PTCs to interested investors on the open market. Depending on the nature of the underlying assets, SDIs can be classified into two main categories: Mortgage-Backed Securities (MBS) and Asset-Backed Securities (ABS).

The pooled securities are often divided into tranches, each tailored to investors based on varying risk levels or other characteristics. Tranches are essentially several related securities offered together as part of a single transaction. Each tranche typically has different yields, risk levels, maturities, and repayment privileges, allowing investors to select those that best align with their investment goals.

For investors seeking an alternative to real estate, SDIs offer a diversified and potentially more stable investment option. Unlike traditional real estate investments, which can be highly dependent on market conditions and location, SDIs provide exposure to a wide range of underlying assets, thus spreading risk. This diversification can lead to more consistent returns, making SDIs a better investment than real estate for those looking to balance their portfolios and minimize risk.

Factors to Consider

1. Risk Tolerance

The alternative real estate investments carry different levels of risk. Like venture capital investments can lead to a complete loss of principal. You will be asked to make decisions about your risk tolerance.

2. Liquidity

Traditional real estate is usually much less liquid—that is, it takes time to sell, and the transaction costs are too much. Some investments, like P2P lending, could be more liquid. When considering the alternatives, select those that deliver the type of liquidity you would want or perhaps need.

3. Market Knowledge and Expertise

Remember that most of the alternate investments involve specialized knowledge. If you are investing in venture capital, then you need insights into startup ecosystems and technology trends. Consider your level of expertise and invest wisely.

4. Diversification

Diversification is the key to high returns, which will reduce the impact of the downturn in any particular market because of your diversification across various asset classes. For instance, the real estate market may be going through a bad phase, while venture capital is doing very good business, balancing your overall portfolio performance.

Conclusion

Looking at alternative real estate investments may specifically give an investor new ways to diversify further and enhance possible returns. From gold to P2P lending and venture capital, to co-working spaces, these alternatives bring along special opportunities and challenges. Inevitably, it is important to do your due diligence in an investment to understand a financial goal and risk tolerance associated. This will help you to hand-pick a very stable investment into a portfolio that can weather any kind of restructuring in market trends.