Technology has greatly changed over the last few decades and has democratized financial services. Online brokers, robo advisors and crowdfunding sites have helped investors of all backgrounds build diversified portfolios and access opportunities once reserved for the wealthy.
Many wealthy investors diversify their wealth into asset classes that are inversely correlated with public stock markets like private equity and residential real estate. Discover three methods to invest in private equity and residential real estate, even if you aren’t an accredited investor.
Investing in Private Equity
Private equity refers to investing in private companies that are established but don’t trade on major stock exchanges like the New York Stock Exchange or the Nasdaq. Some of the benefits of investing in this asset class include the potential to realize higher gains than more traditional publicly traded stocks.
Standard private equity investments also have higher management fees, up front charges and lockup periods, meaning that you have to invest your money for a specific amount of time. With the methods below, you can gain exposure to this asset class without these higher fees or illiquidity.
Private Equity ETFs
One simple way to invest in this asset for non-accredited investors is via private equity ETFs. These ETFs are publicly traded and invest in a basket of private equity companies.
By investing in multiple companies, this minimizes your risk should one of its holdings greatly decrease. Since they’re publicly traded, you can purchase these funds with traditional online brokers like Fidelity without any additional fees.
One of the more popular private equity ETFs is the Invesco Global Listed Private Equity ETF PSP. This fund has exposure to large, established private equity firms like Blackstone Inc. BX and Carlyle Group Inc. CG. This fund also has a high 12-month trailing yield of 12.47%, which refers to the percent of income that the fund returned over the past 12 months. This metric is the weighted average of the yields of the stocks that comprise the fund.
Like most private equity investments, it has higher-than-average expenses as its expense ratio is 1.44%. To put things in context, passive index ETFs like Vanguard’s Total Stock Market ETF VTI have expense ratios as low as 0.03%.
Invest in Private Equity Stocks
Another simple way to gain private equity exposure without being an accredited investor is to invest in individual companies. Many private equity firms are publicly traded like KKR & Co. Inc. KKR and TPG Capital Group TPG.
One main advantage of investing in these companies as opposed to investing directly in private equity opportunities is greater transparency. These companies are registered with the SEC and have to provide updated financial information via important documents including the 10-K, 10-Q, and prospectus.
Another factor to consider with private equity stocks is that some like KKR have higher-than-normal debt levels since they use leveraged buyouts. Leveraged buyouts mean using debt to acquire companies, often with the intention to turn them private.
Investing in Residential Real Estate With Crowdfunding
Residential real estate refers to single family homes and apartment complexes. Some main advantages of this asset class include tax deductions, having ownership in a tangible asset and higher yields than the typical dividend-yielding stock.
With these platforms, you can invest in residential real estate without needing to come up with thousands of dollars for a down payment.
Browse dozens of available private equity real estate offerings on Benzinga’s Alternative Investments Hub
DiversyFund is a unique real estate crowdfunding site that is accessible to the average investor, since the minimum investment is just $500. The buy-in is much lower than a traditional real estate investment trust’s (REIT’s) minimum investment requirements, which are typically at least $1,000.
DiversyFund has one primary offering in its Growth REIT, which mainly invests in multi-family apartments (each with at least 100 units) throughout the U.S. Each unit targets an internal rate of return (IRR) between 10% and 20%.
While DiversyFund’s REIT isn’t listed on major stock exchanges, it’s registered with the SEC under Regulation A. Each investment goes through strict reporting requirements and annual audits, comparable to those of publicly traded firms.
Like DiversyFund, Arrived Homes is a real estate crowdfunding platform that is accessible to non-accredited investors. Arrived Homes purchases a single home and transfers the ownership to an LLC. The LLC sells these shares, with a minimum buy-in of $100, until the project is funded. Unlike DiversyFund, Arrived Homes mainly focuses on residential single family homes, not apartments.
You can earn income via rental income and property appreciation based on the number of shares you have. One caveat of this platform is that you must stay invested for the entire duration of the holding period, which is on average 5 to 7 years. Typical returns fluctuate between 5% and 7%, but you can also take advantage of tax benefits like deducting mortgage interest and property depreciation.
Like Diversyfund, Arrived Homes offerings aren’t on stock exchanges. However, it hires experienced property scouts who vet the properties and buy them directly from the owner. These property scouts use a rigorous vetting process to ensure these properties are well priced and have room to grow.
Investing has changed, with more average investors piling into the market. Even younger investors including millennials have shown more interest in investing as 31% of that generation started to invest before their 21st birthdays.
Technology has greatly advanced and streamlined the investing process via online brokers, free research and crowdfunding sites. With these tools, even average investors can gain exposure to asset classes once reserved for the wealthy like private equity or residential real estate. These opportunities may help them diversify their portfolios and potentially provide higher yields than more standard investments like mutual funds.
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