When stocks drop, the instinct is to move money into real estate. But “real estate” is not one asset class, and the structure behind an investment matters more than the label on it.
Real estate can hedge stock market volatility. But only when the combination of debt, equity, reserves, and asset quality behind the investment is built to withstand it. A good property with a poor capital structure can still become a bad investment. That’s the distinction most investors skip when they start looking for alternatives to a volatile stock portfolio.
Here we break down which types of real estate are designed to hold up when markets swing, which are not, and how to evaluate the difference before you commit capital.
Three types of real estate, three very different experiences when markets drop
Most investors think of real estate as a single category. It’s not. A public REIT, a rental property, and a private fund can all be called “real estate investments,” but the investor experience in each is fundamentally different, especially when markets get volatile.
Public REITs
A publicly traded REIT (real estate investment trust) may own high-quality buildings. But because the fund trades on a stock exchange, the investor experiences stock-market-level price swings.
When the broader market sold off in 2022, REITs dropped by roughly 25%. The underlying properties were still operating. Tenants were still paying rent. But because REITs are priced by the market every day, the investor’s account balance dropped alongside everything else.
That doesn’t make REITs a bad investment. But for individual investors adding real estate specifically to hedge stock market volatility, a publicly traded REIT may not deliver that experience. You’re still exposed to the same daily swings you were trying to move away from.
Single rental properties
A rental property can feel stable because there’s no ticker updating every second. But the absence of daily pricing isn’t the same thing as the absence of risk.
If your tenant leaves, you absorb the vacancy. If a major system fails, you absorb the repair cost. If property taxes or insurance rise, your margin shrinks. And because you own one property in one market, your entire position is concentrated in a single asset.
Not seeing a daily price doesn’t mean the risk isn’t there.
In 2020, rental properties tied to discretionary demand, short-term rentals, vacation markets, were hit hard because the income stopped when travel did. Properties tied to essential housing demand held up better, but individual landlords still faced tenant defaults, eviction moratoriums, and deferred maintenance costs with no reserve pool to absorb them.
Private funds and syndications
A private real estate fund pools money from multiple investors to buy and manage a portfolio of properties. A syndication is similar, but typically focuses on a single deal. Neither trades on a stock exchange, which means the investor isn’t exposed to daily market pricing the way a REIT investor is.
That structure can offer a more protected position, but only if the fund is well-run: spread across multiple properties and markets so one bad asset doesn’t sink the whole thing, not overloaded with debt, holding real cash reserves, and operating on a plan that’s built to work even if conditions aren’t ideal.
But “private” does not automatically mean “protected.” In 2022, when interest rates rose sharply, private deals built on floating-rate debt (loans where the interest rate adjusts with the market rather than staying fixed), aggressive rent-growth projections, and thin reserves couldn’t keep up with rising debt payments. Hundreds of billions in commercial real estate loans couldn’t be refinanced as rates climbed, forcing extensions, workouts, or losses. Sponsors who assumed they could refinance at low rates or sell at peak valuations were caught without an exit.
The difference between private real estate that held up and private real estate that didn’t came down to the capital structure.
The framework that separates durable real estate from fragile real estate
The distinction that matters most isn’t public versus private, or REIT versus fund, or single property versus portfolio. It’s whether the investment is structurally built to perform through difficult conditions, or whether it only works when conditions are favorable.
That comes down to three things:
Durable cash flow means the asset is likely to keep producing income in a weaker market. Properties tied to necessity (housing, healthcare, storage) tend to hold up across cycles. Properties tied to discretionary spending (hospitality, luxury retail) are more vulnerable when the economy contracts.
Disciplined capital structure avoids overleveraging: borrowing at fixed rates so rising interest rates don’t eat into your returns, keeping debt levels conservative, and holding enough cash in reserve to cover rough patches without forcing a sale at the wrong time.
Sponsor quality means the team running the investment has operated through stress, not just through favorable conditions. In private real estate, the sponsor makes every decision that determines whether your investment succeeds or fails. A disciplined sponsor can protect investor capital through reserves, lender management, tenant strategy, conservative underwriting, and realistic execution. An undisciplined sponsor can destroy a good asset.
Questions to ask before you commit capital
- What is the projected return based on: income the property is already generating, or assumptions about future rent growth?
- Is the loan fixed-rate or floating? If floating, has the sponsor locked in a cap on how high the rate can go?
- When does the loan mature, and what happens if the refinance market isn’t available?
- Does the investment still make sense if rents stay flat and occupancy drops?
- How many months of debt service do reserves cover?
- How long has the sponsor been operating, and have they returned investor capital on time through more than one cycle?
- Does the sponsor invest their own capital alongside investors?
The first question for any investor shouldn’t be “What’s the upside?” It should be “What has to go wrong before I lose money, and how much structural protection exists before that happens?”
What a structure built for income and resilience looks like in practice
Freedom Flagship Notes are a private debt fund from Freedom Family Investments that pays investors a fixed return backed by real estate. We built the structure around the same principles outlined above, specifically for investors who want real estate income to help hedge the volatility of the stock market.
Real estate backed by necessity. Flagship Notes are backed by apartments, senior living facilities, and self-storage. That doesn’t eliminate risk, but it means demand doesn’t disappear when the economy contracts.
Debt structured to survive, not just perform. We borrow at fixed rates and keep loan amounts conservative relative to property values. That means we underwrite so that investors get paid even if revenue comes in below projections, not just when everything goes right.
Returns that don’t depend on perfect timing. When you invest in Flagship Notes, you earn a fixed interest rate rather than a share of equity. Investors may target 8% to 14%* annually, depending on the offering. Those returns come from a rate set before you invest, not from rent growth projections or a well-timed sale. If a deal performs below our underwriting, the variance hits our equity position first, not the investor’s fixed return.
Reserves that have been tested. We’ve been operating for more than 17 years with no missed investor payouts to date, according to Freedom Family Investments. There have been tighter periods. That’s what the reserves are for. Past performance does not guarantee future results.
A defined path to liquidity. Most private real estate locks capital up for five to ten years. Flagship Notes offer an annual exit option starting from year one.
As with any private real estate investment, Flagship Notes involve risk, including illiquidity and the potential loss of principal. These are not publicly traded securities, and investors should review all offering materials carefully before investing.
Who this approach may not be right for
Not every investor is looking for what this structure provides, and that’s worth stating directly.
If your primary goal is aggressive growth or equity-style upside, a fixed-return model isn’t designed for that. You’d likely be better served by an equity fund or direct property investment where you participate in appreciation.
If you need daily liquidity, private real estate of any kind, including Flagship Notes, won’t fit. Our annual exit option provides more flexibility than most private funds, but your capital is still committed for a minimum of one year.
If you’re looking for depreciation-based tax benefits, Flagship Notes may not be the right fit. We issue a 1099 at tax time, not a K-1. That means simpler reporting, but it also means you don’t receive pass-through depreciation deductions like you might with other investment alternatives. For investors who want real estate specifically for tax shelter, an equity structure may be a better match.
And if you prefer to select individual properties, manage deals directly, or control the operating decisions, a pooled fund structure removes that control by design.
Ready to see if this fits?
If you’re evaluating how to diversify your portfolio with real estate, a clarity call is a good starting point.
Every new investor conversation at Freedom Family starts with a clarity call: 30 minutes with one of our Freedom Coaches, focused entirely on education. The Coach walks you through how Flagship Notes work, answers your questions about the structure, and helps you figure out whether it fits your situation.
It isn’t a sales call. The Coach’s job is to help you understand the investment and give you an honest read on whether this is the right fit, even if the answer is no.
Book a clarity call with Freedom Family Investments
*This material is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy securities. Any offering is made only through applicable offering documents and only to investors who meet applicable suitability and accreditation requirements. Private real estate investments involve significant risks, including illiquidity, loss of principal, lack of diversification, leverage risk, property-level risk, operating risk, sponsor risk, and market risk. Targeted or stated returns are not guaranteed. Past performance does not guarantee future results. Freedom Family Investments is not a licensed broker-dealer, investment advisor, or tax advisor. Investors should consult their own legal, tax, and financial advisors before investing.
