One of the best investments for accumulating money ever is real estate, which offers consistent profits across all market cycles. Traditional methods of real estate investing, however, are getting more and more challenging.
As a result of the housing crisis, it’s harder to find good investment opportunities. Recent increases in interest rates and property prices have made it even harder to invest in real estate.
This may seem like the end of many investors’ dreams of becoming real estate billionaires, but more and more small investors are turning to fractional real estate as a more cost-effective and effective way to become landlords.
Jeff Bezos, the creator of Amazon.com, supports the real estate investment platform Arrived Homes, which is one of the fastest-growing companies offering fractional real estate investments. Through SEC-approved offerings, the business sells securitized shares of single-family rentals that generate revenue.
During the company’s seed round, a number of well-known investors showed interest, including Jeff Bezos through his Bezos Expeditions fund, Marc Benioff, the founder of Salesforce.com, through Time Ventures, Spencer Rascoff, the former CEO of Zillow Group, and Dara Khosrowshahi, the CEO of Uber.
Using Regulation A+, the program could let people who aren’t accredited investors buy property with investments of between $100 and $10,000 per property.
Investors in real estate receive distributions from their portion of the rental income on a quarterly basis, and at the conclusion of the intended hold term, they realize gains due to price growth.
The tax advantages that come with holding equity in investment real estate, however, are one of the most ignored perks. Since real estate loses value over time, the cash distributions received each year are often more than the taxable income.
Not all single-family rentals engage in fractional ownership. Shares in multi-million dollar commercial real estate assets and even significant new construction projects are available to accredited investors.
With minimal investments starting at $35,000, the real estate platform RealtyMogul offers private equity for commercial buildings, including multifamily, industrial, office, and self-storage. On realized investments made through the program, annualized returns have typically been around 17%.
Real estate investment trusts (REITs) have long been the most common way for passive investors to invest in real estate. However, this type of real estate investment is still subject to changes in the stock market.
For instance, the largest single-family rental REIT, Invitation Homes, has seen its share price fall by around 20% so far in 2022 despite growth in its real estate assets, rental income, funds from operations (FFO), and net debt reduction.
On the other hand, there is very little link between the stock market and fractional real estate. As a result, total investment returns are frequently more steady and predictable.
However, there is a cost associated with the lower volatility. Liquidity alternatives are often more constrained because shares of fractional rental properties aren’t listed on a stock market. While shares of a publicly traded REIT may often be sold promptly during trading hours, there aren’t many possibilities for secondary trading today.