This is one article in a series of four about alternative investing. The other articles cover an overview of the universe of alternatives, private equity and hedge funds and energy master limited partnerships.

The universe of alternative investments may not be infinite, but it’s not static either. There are plenty of options for clued-up wealth managers looking to diversify client portfolios and potentially add some extra value. Such alternatives include timber, private real estate investment trusts, private debt and collectibles.

Like many alternatives, these investments are not particularly transparent or liquid. But as long as you exercise due diligence and make adequate provision in client portfolios for liquidity, these aren’t overwhelming obstacles to overcome.

Here’s a run down of these options, and what they can do for client portfolios.

Timber. Timber is an alternative asset for a number of reasons, according to Drew Kanaly of Kanaly Wealth Management in Houston, TX. “Timber falls into the alternative category because it shouldn’t be affected by the economy or the markets like bonds or stocks,” he remarks. “Trees don’t know you’re in a recession.”

Timber is not a liquid asset and it isn’t necessarily one that works well in all environments. “You’ve got to wait until the tree grows up, which means you need staying power,” he says. “Also, the timber business is driven by sawmills, which is a very inefficient market. You don’t want to cut the trees down when sawmills have a lot of inventory, you want to wait until there’s a lot of demand, and then you tell them to come and get it.”

Not all timber investments are created equally. The worst kind of timber investments are those that are packaged as highly leveraged investments. “The key to a potentially good return in a timber investment is to let the trees grow and harvest them when you want to, not when you have to. You don’t want to have to cut them down at the wrong time,” he says.

One advantage in investing in timber right now is cheap land. “There was a period of time in the early part of this decade when timber growers were competing with housing developers for land and that drove up prices,” he says. “That certainly isn’t the case today. Now you can get in and acquire the land and the assets on top of it – the trees – for a much better price, which will lead eventually to a much better return.”

Private real estate investment trusts. These REITs offer the opportunity to invest in real estate without dealing with the volatility of the markets that investing in publicly traded REITs brings, according to Vijay Marolia, chief investment officer for Private Wealth Management in Lake Mary, FL.

“We’ve been invested in private REITs for a while, but really stepped it up during the financial crisis,” he says. “We started taking a good hard look at real estate, and narrowed it down to areas we thought would do well if there was a prolonged recession or even a depression. The first area we identified was healthcare real estate, healthcare-related buildings on campuses near hospitals.”

To get the most out of this investment, Marolia looks for private healthcare REITs with low fees, short holding periods and buildings close to hospitals where the doctors need to be located to be able to do their jobs with maximum efficiency. “We also believe that healthcare real estate can keep up with inflation – owners of buildings can increase rents because that space is in demand,” he continues.

Marolia also likes private REITs that invest in apartment buildings because of the potential demand from the "echo baby boomers", the children of baby boomers. “That demographic is growing rapidly and many of them don’t want to buy a home,” he says. “In addition, because of the foreclosure crisis, many people have lost their homes and need to rent. So there is a great opportunity for these kinds of private REITs as well.”

Private debt. Lending money privately to entrepreneurs looking to build houses, start businesses or engage in other activities is another alternative investment. Kevin Amolsch, president of Pine Financial Group, in Denver, CO, notes that private notes secured by real estate provides a good opportunity for passive investors to earn market-beating rates.

“Investing in private notes is the best of both worlds,” he believes. “You get the hassle free investing that paper assets provide with the security of real estate. When done right, the yields are high and the risks will generally be low.”

Pine Financial Group lends money to individual real estate developers who buy, renovate and sell properties usually within a nine-month period. The company performs thorough due diligence on the borrowers, including credit checks and a third-party appraisal on the property. All loans are secured.

He cautions wealth managers who are interested in putting client money in this sector to make sure to invest with a reputable company. “If you don’t know what you’re doing you could make some costly mistakes,” he notes. “A common mistake I see is when the private investor is not listed on the title or the hazard insurance policy. Another mistake is not investigating the true value of the collateral. This can be mitigated or eliminated by working with a professional, licensed, hard money broker.”

Collectibles. Many investors are attracted by the opportunities afforded by collectibles, such as art, coins, stamps, cars and antiques. One attraction is the ability to possess a physical object that is rare and may appreciate over time.

However, the collectibles market is fragmented and it can be difficult to establish the value at which a specific collectible would sell. Collectibles are also subject to bubbles and can be very sensitive to down economies.

“Collectibles provide no cash flow, you can’t really use them in any specific way,” notes Tim Courtney of Burns Wealth Management in Oklahoma City, OK. “They don’t have a function and are only worth what someone else is willing to pay for them. So in that sense they are very speculative."

Courtney doesn’t believe that collectibles should be considered an investment because they are so illiquid and so speculative. “People who are wealthy got that way by taking risks and being innovative, not by owning nice things. People may associate collectibles with the wealthy, but it isn’t something that causes the rich to become wealthy,” he says. “Remember, there’s no free lunch.”