Words and how you use them matter, according to a recently published year-long study by Invesco Global Consulting and Maslansky + Partners titled, Creating Opportunity: The Compelling Language of Real Estate Investment Trusts.
Using instant response technology to measure the emotional reaction of 500 accredited investors to the language of real estate, the study found that 60% thought now was a good time to invest in real estate, but only 40% said they were likely to make an investment.
One of the reasons for this lack of action, according to Paul Brunswick, head of Invesco Global Consulting, is that even if finance professionals know the benefits of investing in real estate, they may not know. that using certain words and phrases but avoiding others can make a world of difference with real estate investors.
Jargon is a denial
“Language matters,” says Brunswick. “Being frank helps. In other words, avoid using jargon. Jargon can fuel misunderstanding, miscommunication and mistrust.
When talking to investors about the potential benefits of real estate and what they would like to add to their portfolio to protect against inflation, 24% of investors chose “inflation hedge”, while 76% preferred “a source of income that can keep ahead of inflation.” The word “hedge” is a word that could be seen in a negative light, Brunswick says, because it doesn’t specifically describe something they know they want.
Another key finding from the study is that not all real estate is viewed equally.
Positive opinions about technology, medicine and housing
The study showed that 78% of investors thought it was a good time to invest in technology projects, followed by 72% in medical practices, 67% in housing for the elderly and 64% in housing and apartments. suburban. On the contrary, only 31% of investors believe that they should currently invest in office buildings, followed by only 25% for shopping centres.
“Investors currently see a risk in office properties,” Brunswick says. “They can walk through their community after the pandemic and see empty office buildings and empty malls.”
Of the 500 investors in the study – the majority of whom have more than $1 million in investable assets – 68% were more interested in a “premium” real estate investment, compared to 32% who wanted an “exclusive” real estate investment. . According to the study, one reason for this could be that “exclusive” suggests higher fees and less value.
Both “portion” and “full diversification” are helpful
Additionally, investors who were considering real estate for their income needs have turned to using a “part” of their portfolio. If this key word is not uttered, investors could interpret a real estate conversation as describing a significant change in their portfolio. While it “seems subtle, it can be a bit of a trap,” Brunswick says, “but it’s resonated with investors.”
A surprise in the study, adds Brunswick, is that investors rated diversification as a relatively low-priority concern. “Part of it was because they already thought they were diverse,” Brunswick says. “They viewed this as something they had already accomplished. However, they responded much better to the phrase ‘full diversification’. Overall, 44% of qualified investors preferred ‘full’ diversification to ‘full diversification’. real” diversification (29%) and “enhanced” diversification (27%). Focusing on switching to alternatives is tantamount to achieving better diversification, the study concludes.
When building a diversified portfolio, 73% of investors believe it should be supported by as many different pillars as possible, rather than the three main pillars of stocks, bonds and real estate.
“It’s common sense. If there are more opportunities, more options, that’s something they will look at,” Brunswick says.
Accentuate the positive
When asked to name the best way for a REIT manager to improve the management of a property, 67% of investors preferred the phrase “increase efficiency”, while only 33% preferred ” reduce inefficiencies”. According to the study, investors often prefer the language of “more” to the language of “less”. These investors would also prefer to invest in a REIT management strategy that “enhances returns by increasing property values” rather than “one that improves returns by increasing rents”, which could give the impression that investors benefited at the expense of others. .
Also, investors prefer to add “long-term growth potential” to their portfolios rather than “long-term appreciation potential” because “growth” is client-friendly language.
Brunswick mentions one of Invesco’s oldest studies, New work orderwho understands what he calls the four principles of communication, or “four Ps,” that an advisor should remember when talking to a client about any investment topic (including real estate): Be positive, plausible, outspokenand personal. These principles have been used for years, he says, and it’s never too late to change the way you communicate.
“I like to say the language is like an oil tanker,” Brunswick says. “It can change direction, but it takes a long time. The fact that the principles in place 20 years ago still resonate today is a key takeaway.