What is an alternative investment? First, let us define what an “alternative investment” is. When the average investor is asked about his investments, you are surely to hear the most common answers. Usually, it is with a company’s 401K, an IRA, bonds, stocks and maybe even options. If he is a bit more diversified, it may include real estate or annuities.
In the past few years, you may have heard about hedge funds or trading the Forex currency market as a form of alternative investments. While this is an “alternative” to mainstream ways of investing, it does not encompass all the varieties of investments available to those that want to look outside the box.
An alternative investment can be any type of investment that can bring you an above average return from investing in areas outside the norm of stocks and bonds. It does not always have to be a form of tradable securities to be classified as an alternative investment. Examples of this would be rare coins, books, stamps, art, or even precious stones.
I bet you did not know that many colored diamonds have appreciated over 2000% in the past 30 years or a collection of high quality rare coins have outperformed many the most common forms of investments in the past seven years. Alternative investing is not limited to rarities and collectibles. For instance, you can invest in a tree farm for the hardwood or a crop that provides feedstock for bio-fuel; invest in tax liens, structured settlements, invest in lost treasure explorations, or be an “angel” investor financing in a startup for a huge return.
This is just only a small sampling, because the types of alternative investments available and other ways to invest are almost limitless. There is even a whole class of alternative investments that many astute and savvy investors have invested in over the years to build their wealth. These alternative investments are with direct participation programs (DPPs).
Direct Participation Programs are publicly registered direct investment programs that include un-traded real estate investment trusts (REITs), limited partnerships and limited liability companies. The assets involved could be real estate, lease-backs, mortgage loans, oil/gas, equipment leases like shipping containers and even wireless towers. The type of DPP can be very diverse and creative.
Investments in DPPs in 2007 are projected to surpass the $10.7 billion record level set in 1987 according to the Investment Program Association (IPA), the association for the non-traded DPP industry. While the non-traded REITs will account for 96% of these investments, programs with limited partnership and limited liability companies have accounted for more than a half a billion in new investments each year.
One popular direct partnership program is in the “wildcatting” or exploration of oil and gas. Hitting a mother lode can pay out handsomely if you are a limited partner in one of these wells. Be cautioned that if the well is a dry hole, the only benefit you may get is a tax write off. So, if you are feeling adventurous then this type of alternative investment might be right for you. Who knows, you may have bragging rights of being a part owner of the next big oil find.
There are many DPPs available for investors to choose from. For more information on non-traded investment programs including partnerships, non-traded REITs and limited liability companies, you can visit http://www.ipa-dc.org.
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