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When it comes to investing and wealth building, real estate investment trusts (REITs) have long been a preferred investment vehicle for both institutional funds and private investors alike. The reasons are obvious. REITs are diversified portfolios of commercial real estate that perform several key roles for investors.
First, they offer a solid hedge against the volatility of the stock market because, historically, real estate values and stock prices are not inextricably intertwined. Second, REITs offer investors a chance to double dip on profits as the assets in the REIT appreciate in value while also providing passive income. Although all of these things make REITs great investment options, there are other ways for investors to get REIT-like benefits without actually buying into REITs. Keep reading to find out about REIT alternatives.
It certainly sounds like REITs provide an enticing package for investors. This begs the question of why anyone who wanted to invest in real estate would look for a REIT alternative.
One reason is that most REITs are publicly traded, making them vulnerable to stock market volatility. Most REITs that aren’t publicly traded are considered private REITs, which the majority of investors aren’t eligible to invest in.
Many private REITs have high investment minimums — sometimes as much as $50,000 or more — and are only available to accredited investors.
An accredited investor is someone with an annual salary of over $200,000 or a net worth of over $2 million. That’s certainly a club any investor would want to be in, but those membership requirements are pretty exclusive.
If you don’t meet the investor accreditation threshold for private REITs but still want to invest in institutional-quality real estate without the wild price swings from the stock market, the good news is that there are some very solid real estate funds you can buy into.
Not only do these funds have the potential to net solid returns, they are much more flexible in their investor requirements.
CalTier is a San Diego-based real estate investment firm that established itself with a mission to make real estate investing available to more people. To that end, it established the CalTier Multi-Family Portfolio Fund. This fund consists of between eight and 10 multiunit residential properties in some of America’s fastest growing real estate markets, mostly in the Sun Belt.
The assets in the Multi-Family Fund have been chosen for their potential upside in rent and overall asset-appreciation value. Most of the assets in the fund are value-add, which means CalTier is banking on a combination of renovations, aggressive leasing and continued population growth in the markets its properties are located in to deliver investor returns.
The Multi-Family Fund is projecting an annual 8% investor return, and it’s accepting contributions from individual retirement account (IRA) holders. Interested investors can purchase shares for $5 and the only entry requirement is purchasing 100 shares. Additionally, CalTier has early redemption options (with restrictions), which is something many REITs don’t offer.
CalTier’s Multi-Family Fund offers investors a chance to get equity ownership of institutional-quality real estate assets for only $500 and the flexibility that comes with a secondary market if they want to liquidate shares early. That all adds up to a rock-solid REIT alternative.
Another barrier to investing in REITs is that many REITs and real estate investment offerings don’t accept contributions from individual retirement account (IRA) holders. Although the reasons for this are too numerous to list here, the net effect is that many IRA holders are frozen out of real estate offerings, which is ironic because real estate offers the kind of long-term returns that IRAs are designed for. That’s where the Fundrise IRA can help.
Fundrise is a well-respected online investment platform that prides itself on offering-institutional quality offerings to investors without the high fee structure that normally accompanies them. The Fundrise IRA offering is a diverse mix of multifamily, single-family home rental and industrial assets.
These assets are strategically spread across multiple real estate markets both to maximize upside potential and minimize the effects of a downswing in one or more markets. Like a REIT, the Fundrise IRA pays investors a double helping of profits through dividends and property appreciation.
The hold period is set for five years, but there is also a limited secondary market for Fundrise shareholders. As is the case with all secondary markets and early share liquidations, this is subject to restrictions, and IRA holders must take special care to make sure their withdrawals don’t result in tax penalties. With all that considered though, the Fundrise IRA is still a great alternative to a REIT for real estate investors.
Everyone would like to be an accredited investor who is well off enough to drop $25,000 to $50,000 into a REIT and just let that money earn passive income over a five- to seven-year period. Unfortunately, not everyone falls into that category. On the plus side, the rise of real estate crowdfunding platforms and syndication has created a positive shift in investors’ ability to access institutional-quality real estate offerings.
In fact, some real estate fund offerings are of such high quality that even traditional REIT investors would be wise to consider taking advantage of them. As always, there is risk of loss in every investment, so consider any investment carefully and consult with your financial adviser before pledging. In the meantime, keep your eyes peeled. Because there will likely be more funds opening up in the future.
Arrived Homes allows retail investors to buy shares of individual rental properties for as little as $100. Arrived Homes acquires properties in some of the fastest-growing rental markets in the country, then sells shares to individual investors who simply collect passive income while waiting for the property to appreciate in value over 5 to 7 years. When the time is right, Arrived Homes sells the property so investors can cash in on the equity they’ve gained over time. Offerings are available to non-accredited investors. Sign up for an account on Arrived Homes to browse available properties and add real estate to your portfolio today.
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