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Guide to Alternative Investments

  1. Certificates of Deposit (CDs):Certificates of Deposit sit at the top of the spectrum in the savings category. Per the SEC, CDs are generally considered to be one of the safest options because you invest a fixed amount of money for a fixed amount of time, often at a fixed interest rate.1  Your money is also insured up to $250,000, adding an additional layer of protection.1 Note: the current yield for CDs is 1.26 – 2.75%. If you already own CDs, you may want to consider adding diversification across medium liquidity savings alternatives that can provide potentially higher yields. 
  2. Alpine Note:For a short-term, high-yield savings alternative, we would consider the Alpine Note. Functionally comparable to a corporate bond, capital funded into the Alpine Note is used to pre-fund EquityMultiple’s future real estate offerings. Accredited investors who participate in the Note receive monthly distributions and can potentially capture an attractive rate of return in a short period of time (i.e. six to nine months). Read more on EquityMultiple’s short term notes here.
  3. 60% Alternative / Public 24/16 Portfolio:Realistically, we recognize that most investors will not dedicate 60% of their portfolios to alternative assets. That said, this sample portfolio can still serve as a helpful data point for investors who may be considering allocating a higher percentage of their portfolio to alternatives. Please note that your allocation should be a function of your personal tolerance for risk, and suitability of the investment products given your portfolio and timing/liquidity constraints, amongst others.We’ll dive into more detail on the traditional 60/40 portfolio later, but for now, just note this more aggressive approach has both higher historical annualized returns, and lower historical volatility in the same 10-year timeframe.
  4. Mezzanine Debt:Mezzanine debt is a form of bridge financing, which holds payment priority over all equity. Given its position in the capital stack, mezzanine debt typically offers less upside potential than equity, although investors are also protected if the borrower should default. As such, we believe it offers the potential for strong risk-adjusted returns.See below for a sample of past EquityMultiple mezzanine debt offerings.1Manhattan Luxury Condo – New YorkNew York, NYRate15%Minimum Investment$20,000Term10 MonthsLTC78%Asset TypeCondoDowntown Brooklyn Residential LoanNew York, NYRate10%Minimum Investment$10,000Term20 MonthsLTV70%Asset TypeCondoStaybridge Suites LoanIndianapolis, INRate11.5%Minimum Investment$15,000Term70 MonthsDSCR2.51XAsset TypeHotelView Live Investments1The above investments are not representative of all investments of a given type or of investments generally. Past performance is not necessarily indicative of future results. There can be no assurance that an EquityMultiple investment will achieve its objectives or avoid substantial losses.
  5. Public 60/40 Portfolio:“If the year were to end today, the current year-to-date return of -12.1% for a 60/40 portfolio would be the sixth-worst annual return over the past 100 years or so.” – Ben Carlson, CFA2
    A traditional 60/40 portfolio consists of 60% stocks, and 40% bonds. Investing in these two assets, which sit on opposite ends of the risk spectrum, we believe, at least in theory, helps investors maintain a balanced, diversified portfolio.However, we would argue that portfolio diversification is actually somewhat limited. Investors may spread their risk across multiple stocks and bonds, but they will likely not see the same benefits as someone who includes assets that aren’t strongly correlated with one another. It’s worth reiterating: non-correlated assets can benefit the entire portfolio by reducing overall risk and sensitivity to geo-political events. In an inflationary environment, for instance, the performance of both stocks and bonds may suffer as the Fed raises interest rates to combat inflation, undercutting the traditional 60/40 diversification argument. To offset this scenario, accredited investors may want to consider investing at least some capital in private real estate, which can serve as a hedge against inflation.
  6. Preferred Equity:Preferred equity is subordinate to debt, but senior to all common equity investments. Like mezzanine debt, preferred equity provides real estate sponsors with gap funding. However, preferred equity investors are typically entitled to additional profits if the project does well. At EquityMultiple, the forecasted returns for this investment structure must fall within our target ranges of 6-12% current net preferred return, and 10-18% total net preferred return as of July 2022. See below for a sample of past EquityMultiple preferred equity offerings.1Atlanta Medical Office PortfolioAtlanta, GATotal Net Preferred Return11%Minimum Investment$15,000Target Hold12 MonthsAsset TypeOfficeBoston Condo DevelopmentBoston, MATotal Net Preferred Return17%Current Net Preferred Return8%Minimum Investment$20,000Target Hold2 YearsWilliamsburg Mixed-Use Office & RetailBrooklyn, NYTotal Net Preferred Return10.5%Minimum Investment$10,000Target Hold24 MonthsAsset TypeMixed UseCar Wash Development – National OperatorPace, FLTotal Net Preferred Return13.5%Current Net Preferred Return10%Minimum Investment$10,000Target Hold36 MonthsLuxury Townhome DevelopmentDelray, FLCurrent Net Preferred Return9%Minimum Investment$10,000Loan-to-Value57%Target Hold20 Months

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