The New Era Of Real Estate Investing - A Simpler Path To Building Wealth
Real estate is one of the greatest wealth-building assets of all time, offering stable returns through all market cycles. However, it is becoming increasingly difficult to invest in real estate in the traditional way.
The housing shortage has made it harder to find investment opportunities and rising house prices coupled with recent interest rate hikes have further limited access to real estate investment.
While this may seem like a death knell to many investors' dreams of becoming real estate moguls, more and more small investors are becoming landlords through a more affordable and efficient strategy: fractional real estate.
Real estate investment platform Arrived Homes, backed by Amazon.com Inc (NASDAQ:AMZN) founder Jeff Bezos, is one of the fastest growing providers of partial home investments. The Company offers securitized interests in high-yield single-family homes through SEC-regulated offerings.
The company caught the attention of many high-profile investors during its seed round, attracting investments from Jeff Bezos through his Bezos Expeditions fund, Marc Benioff, founder of Salesforce.com Inc (NYSE: CRM) through Time Ventures, formerly Zillow Group Inc (NASDAQ:Z) CEO Spencer Rascoff and Uber Technologies Inc (NYSE:UBER) CEO Dara Khosrowshahi.
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Leveraging Regulation A+, the platform can offer property holdings with investment amounts between $100 and $10,000 per property to non-accredited investors.
Real estate investors receive quarterly distributions from their share of the rental income and later realize profits through the price increase at the end of the targeted holding period.
However, one of the most overlooked benefits are the tax advantages that come with owning equity in investment properties. As real estate is depreciated, the actual cash distributions received each year often exceed taxable income.
Fractional ownership is not just limited to single-family homes. Accredited investors are able to own interests in multi-million dollar commercial real estate and even major construction projects.
RealtyMogul real estate platform offers private equity listings for commercial properties such as multi-family, industrial, office and self-storage properties with minimum investments starting at $35,000. Annualized returns on realized investments through the platform average around 17%.
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Partial real estate vs. REITs
Real estate investment trusts (REITs) have long been the popular option for passive investors to gain real estate exposure, but this type of real estate investment is still vulnerable to stock market volatility.
For example, so far in 2022, the share price of leading single-family rental REIT Invitation Homes Inc (NYSE:INVH) is down about 20%, while its real estate portfolio, rental income, funds from operations (FFO) are up, and its net debt is up went back.
Partial real estate, on the other hand, has only a very low correlation with the stock market. This means total investment returns are typically more predictable and stable.
However, the lower volatility comes with a trade-off. Since shares in part rental properties are not traded on a stock exchange, liquidity options are generally more limited. There aren't many opportunities for secondary trading just yet, while shares in a publicly traded REIT can usually be sold immediately during trading hours.
If one of your investment goals was to invest in real estate, you can now find available properties and become a landlord in minutes without pre-approving a mortgage or getting into bidding wars with other home buyers.
Photo: courtesy of Arrived Homes
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