Real Estate Offering Update: CityVest Has Launched Catalyst Access Fund With 20%-25% Target Annual Returns (Accredited Investors Only).
Look beyond the brutal portrayal of the mobster lifestyle in the highly regarded TV program, “The Sopranos,” and you’ll find the occasional life lesson worth learning. One of them occurred when titular antihero Tony Soprano turned to his son and told him to invest in land because God isn’t making any more of it. That right there is the core argument for real estate investment — limited supply combined with growing demand translates to profitability. Better yet, you don’t need to be loaded as this sector offers several ways to grow your wealth.
Who Should Invest in Real Estate?
In many cases, different investment classes cater to specific functions or demographics. For instance, bonds and conservative money market funds best align themselves with retirement strategies for seniors. On the other hand, cryptocurrencies tend to cater to the young, who are more technology savvy and have time to work through poor decisions.
What distinguishes real estate investment options, though, is that they’re appropriate for virtually everyone. At the end of the day, most folks aim to pay down their mortgage in full, thereby giving them a roof over their heads during their golden years, when income usually becomes fixed.
Although think tanks and researchers debate this concept, real estate investment holdings tend to be the best way to build wealth. Under one asset category, you can enjoy the key attributes that drive the foremost investments, such as capital appreciation, leverage, cash flow and protection against inflation.
Below are people and entities that may benefit from property investment options.
Businesses: Many if not most entrepreneurs and small businesses lease the property or building where they operate. Over time, this arrangement will only enrich the landlord, especially as certain high-traffic commercial properties command a hefty premium. Depending on the needs of the business, management should consider owning its underlying property. This way, the company doesn’t pay rent expenses but rather builds equity. Further, owners could rent out unused space, organically creating multiple revenue streams.
Young people: According to multiple real estate investment trends reports, the homeownership rate among millennials is conspicuously lower than older demographic categories when adjusted for age. Beyond economic factors such as student loan burdens and stagnant wages, studies show that cultural shifts related to delaying marriage influenced millennials to put off home purchases. However, making real estate investment a priority puts buyers in a much better position financially as they will be more prepared to strike when the opportunity arrives.
Families: As young people venture into the next stage of their lives and start families, it becomes crucial to have real estate holdings. Naturally, with little ones to take care of, your ability to save money for your future retirement encounters serious constraints. As well, many parents prefer to accumulate funds for their children’s college education. These expenditures add up. However, if you buy your home instead of renting, you’re basically paying yourself.
Single parents: By far, single parents have the toughest job in terms of childrearing. But just like the situation for families, it’s imperative that single parents consider property investment options. Again, the responsibilities involved in caring for a dependent rack up serious expenses. Therefore, you want to make sure you are paying yourself at every opportunity. Also, a real estate investment may provide stability and comfort for your child that may be instrumental in their development.
Seniors: According to a report by Harvard University, “A large majority of older households—76.2% of households age 50 and over, and 78.7% of households age 65 and over — own their homes.” Homeownership gives seniors a leg up in the property investment game as they can rent out their homes, generating income to live in smaller, more manageable apartment buildings. In fact, Harvard states in the same report that after age 80, renting becomes much more common.
Are There Other Ways to Invest in Real Estate?
Although property investment deals represent the ultimate image of the American Dream, some people are not ready to make the major commitment that a mortgage requires. Also, even applying for a home loan these days is incredibly difficult. Not only have lending standards increased since the last housing crisis and Great Recession, you may find yourself competing with all-cash buyers.
Moreover, even if money isn’t the problem, renting out properties to complete strangers can be a stressful affair. For one thing, you never know what issues may arise. Secondly, the litigious nature of contemporary society means that landlords must make absolutely certain that they are acting transparently and within the law. Unfortunately, a misstep can be devastating both financially and reputationally.
It’s no wonder, then, that many refuse to deal with the direct approach of housing-related ventures. But before you give up, consider these real estate investment alternatives.
REITs: An acronym for real estate investment trusts, REITs are companies that own, operate or finance income-producing real estate holdings. The beauty regarding REITs centers on their convenience and passive-income generation. First, most REITs are publicly traded securities, enabling buyers to pick them up like regular common stocks. Also, they’re very liquid, allowing you to sell them relatively easily if you want. Second, by law, REITs must pay a minimum of 90% of their taxable income to shareholders in the form of dividends.
REIGs: Standing for real-estate investment groups, REIGs are companies that mostly focus on real estate investment deals. In most cases, REIGs identify viable properties for purchase at a reasonable price. Later, a REIG pays for renovation work with the intent of selling at a sizable profit. Also common among REIGs is investing in multi-unit properties, then selling individual units to investors. Before investing in this real estate category, please note that different REIG structures exist, including pass-through partnerships that have complicated tax implications.
Flipping houses: One of the riskiest categories of real estate investment, the concept of flipping houses, arguably attracts the most attention. A great example is the HGTV reality series Flip or Flop, which follows the exploits of a couple buying homes on discount that require some care and flipping them at a much higher price following a renovation. On successful flips, the profit margin can be astounding. However, the opposite is also true — and even the professionals routinely make costly errors.
Real estate crowdfunding: In recent years, crowdfunding — or the pooling of individual contributions to partake in a greater investment opportunity — gained substantial traction. While the sector is mostly associated with capital raises in private equity campaigns, real estate crowdfunding has also taken off, enabling everyday retail investors to buy a stake in a compelling project that they ordinarily would not have access to.
What About Taxes?
As Benjamin Franklin once referenced, “In this world nothing can be said to be certain, except death and taxes.” And when it comes to deciphering the total implications of the latter for real estate holdings, you may end up wishing for the former.
All this to say, before you embark on any property investment, make sure to hire a qualified accountant who can guide you regarding the complexities of real estate taxes. None of the information in this article should be construed as tax or legal advice. A professional accountant will be able to help you in these areas.
Tax identity implications: If you invest as a real estate business, the Internal Revenue Service (IRS) may treat you differently than if you act as an individual investor. Since you don’t want to run afoul of tax regulators and potentially subject yourself to greater scrutiny, make sure to consult an accountant before embarking on a property-related venture.
Deductions: As the IRS bluntly states, you can claim credits and deductions when you file your tax return. It’s not receiving these benefits that gets taxpayers in trouble but rather claiming benefits they are not entitled to. Often, people make honest mistakes, but spare yourself the heartache and get an accountant you can trust. This way, you can have confidence that you are taking lawful, appropriate deductions without having to worry about wearing an orange jumpsuit..
Depreciation: In consumer-level contexts, depreciation is usually a negative concept. For instance, depreciation explains why you lose 20% or more of the value of your new car in the first year of ownership. But in a real estate investment, particularly for rental property owners, you can use deprecation to reduce your tax liability. The process is a complicated one, varying between different use cases. Again, please consult a professional accountant to handle the nuances of your situation.
Benefits of Real Estate Investments
Based on its broad range of applications, most people focus on property investment deals to build their wealth. Below are the key benefits of real estate investments.
Consistent income: Unlike other investment classes such as common stock of publicly traded companies, real estate prices rarely fluctuate to extreme magnitudes. Thus, if a particular market will bear a rental price for $1,000 a month, you have reasonable assurances that this will not change much, giving you rental income consistency and predictability.
Rising property values: In the above example, not only do you have reasonable assurances that the rent will be $1,000 per month one year later, if any changes occur, they will likely be to the upside. Of course, that’s not always the case. But if you have a property investment in a desirable metropolitan area, chances are, you can expect price appreciation.
Financial security: Among the biggest advantages of real estate holdings is financial security. Because the Earth only has limited habitable areas, owning property essentially gives you land rights. As the global population increases, such land should — all other things being equal — rise in value.
Inheritance: While many financial analysts sounded the warning bell that millennials have not achieved important life milestones relative to older generations, it’s important to keep in mind one fact: the massive amount of wealth that baby boomers accumulated will transfer to someone. Presumably, millennials will become the luckiest demographic in the U.S., highlighting a key attribute of property investing.
The role of tech: During the “analog” days, a major challenge associated with property investment was paperwork. As well, the timing of moving from one area to another and the threat of paying double mortgages loomed heavily. But with tech-based platforms performing much of the grunt work of property-related transactions, it’s never been easier to move in and out.
The Downsides of Real Estate Investments
While real estate investments represent one of the best ways to build wealth, you need to be aware of potential pitfalls.
Market volatility: As mentioned earlier, real estate prices don’t fluctuate nearly as much as other asset categories. However, during once-in-a-blue-moon events, a severe correction can lead to devastating losses. Therefore, perform your due diligence before buying a real estate investment.
Mortgage standards raised: Before the last housing bubble and collapse, NINJA loans (the acronym for “no income, no job, no assets”) began spreading throughout the home lending infrastructure. As a result, government regulators forced mortgage companies to raise their standards. But subsequently, this requirement makes it harder for you to qualify for a loan.
Capital intensive: While you don’t need to be rich, you do need to have some funds to participate in real estate investments. There’s no sugarcoating this. If you don’t have the funds, you should wait and build more rather than stretch yourself to the hilt.
Assistance often required: Not only is this investment category capital intensive, it’s a complex one, requiring much research and investigation. Even after that, you will likely need professional help, such as legal and accounting advice, which is costly.
Benzinga’s Best Real Estate Investment Platforms
While the do-it-yourself industry has taken off over the years, when it comes to property investment deals, you want to make sure to consult only the highest-rated resources. Below is a list of Benzinga’s best real estate investment platforms.
CityVest is a web-based real estate investment platform that was established to give small-to-medium-sized investors access to real estate investment opportunities that typically require 6-figure minimum investments. CityVest does this by pooling multiple investor contributions into 1 bundle large enough to satisfy the minimum investment requirements of the best institutional private equity real estate investment funds.
- Individual investors seeking access to institutional investments
- Experienced investors looking to diversify their portfolio
- Investors seeking investments with strong due diligence and screening
- Access to high-performance institutional funds
- High returns
- Intense vetting of investment opportunities
- Third-party due diligence on all funds
- No registration needed to review investment opportunities
- Quarterly distributions
- Only available to accredited investors
- Not a lot of investor control of fund options
Streitwise is a unique online real estate investing platform that was designed to give investors, both big and small, an equal opportunity to invest in real estate. At its core, Streitwise is a real estate investment trust, but it’s one of the few online real estate investing platforms that is available to non-accredited investors.
- Investors looking to diversify
- Investors with less than $200k in annual income
- Passive traders
- Consistent quarterly dividends
- Low, transparent fees
- Low investment minimum
- Convenient and easy to use
- Limited offerings
Arrived Homes is a real estate investment platform that focuses on building wealth through investing in rental properties. While most real estate platforms and REITs focus on commercial properties, Arrived Homes focuses on single-family homes as its source of rental income.
This focus on smaller properties allows Arrived Homes to sell ownership shares on individual properties to non-accredited investors with buy-ins as low as $100. Learn more about Arrived Homes with Benzinga’s review.
- Small- to medium-sized investors
- Investors interested in rental income
- Investors looking to diversify
- Buy-ins as low as $100
- Open to non-accredited investors
- Offers ownership shares in real property (and all the tax benefits)
- Multiple ways to earn dividends (rental income and property appreciation)
- Great way to diversify portfolio
- Open to self-directed individual retirement accounts (IRAs)
- Long hold periods
- No secondary market to liquidate shares
Crowdstreet is an online real estate investment platform that lets investors choose from a wide range of real estate investment offerings to crowdfund. Crowdstreet investors are free to buy into managed funds, individual buildings or even build a bespoke investment portfolio that includes both kinds of deals.
CrowdStreet’s platform has a diverse range of property types, ranging from multifamily to office, industrial, self-storage and others.
- Accredited investors
- Long-term investors
- Investors looking to diversify from stocks
- User-friendly interface
- Diverse investment offerings
- Great investor resources
- Proven performance history
- Many offerings eligible for inclusion in self-directed IRA
- Accredited investors only
- Most offerings require a $25,000 minimum investment
Yieldstreet is an online investment platform that specializes in alternative investment offerings designed to generate passive income and wealth for investors. The platform offers a 1-stop shop for a range of alternative investments ranging from real estate to structured notes and even art collections.
- Accredited investors looking to diversify
- Alternative investments to stocks and bonds
- Investors looking for passive income
- Easy-to-use platform
- Carefully selected offerings
- Excellent mobile app
- Full spectrum of alternative offerings
- Options for non-accredited investors
- Majority of investments only open to accredited investors
The Ultimate way to Generate Wealth
Although making your first real estate investment is a challenging step, it’s also powerfully rewarding. Not only that, just this one move can put you well ahead of the game as you will spend your time building wealth instead of making someone else rich.
Better yet, anyone can participate in property investments, whether young or senior, individual or business entity. This is a tough market to navigate, even for the professionals. Explore all your options, keep saving for your goals and when you need help, get it.
Frequently Asked Questions
What is the best real estate investment for beginners?
Typically, REITs are the most appropriate for beginners. You can buy REIT stocks like you would any other common stock. Further, you gain access to an enterprise for a fraction of what it would cost if you were to go solo.
What are the four types of real estate?
The four types of real estate are residential, commercial, industrial and vacant lots (land).
Accelerate Your Wealth
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.