With uncertainty plaguing the investment market, investors are looking for a strategy to diversify their portfolios. In recent years, Bill Gates, the world’s fifth-wealthiest person, has increased his property investments and become the largest private landowner in the United States.
But it’s not just Gates who has pivoted in this direction. Global corporations, pension funds and crowdfunding platforms are moving toward farmland and general real estate investment as a wealth-building opportunity.
As Andrew Carnegie put it, “Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.”
During a slumping real estate market, the wealthy, private real estate firms and institutional buyers look to diversify their portfolios through real estate investment. As interest rates rise and lending volume decreases, everyday homebuyers are squeezed out of the market while big-money buyers step in to fill the void.
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“Wealthy individuals, family offices and closely held companies took advantage of their smaller debt profiles and lengthier investment horizons to spend a combined $455 billion last year on commercial real estate,” according to a recent Knight Frank real estate report. “They were the most active buyers in the sector annually for the first time.”
Buying property wasn’t limited to the commercial real estate sector. Institutional buyers also looked to the residential property sector as a wealth-building avenue. According to MetLife Investment, institutional investors are projected to control 40% of all U.S. single-family rental homes by the end of the decade.
Of the roughly 50 million rental housing units in the United States, about 41% are owned by individual investor landlords, according to JPMorgan. Individual investors own an average of three rental homes, and according to SmartMove, 45% of them manage their own investment properties. Property management is often costly with the average amount spent on repairs and management falling between $4,600 and $5,400 per unit each year, according to the research organization Brookings Institution.
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Income generated from owned real estate comes in two forms: rents received and an appreciation in value. Fractional real estate investors receive monthly or quarterly dividend payments generated from the rents received. This is passive income that comes without the responsibility of maintaining property and collecting rent. And as the property sits during the designated holding period, its value generally increases, improving investors’ profits at the time of sale.
Depending on the investment strategy, portfolio managers may implement a capitalization project if they think more value can be created with property improvements. This is a strategy often implemented by buyers who see a property in a growing market that has been mismanaged or hasn’t kept pace with the market. Property improvements — especially to the interiors of units — create the opportunity to increase rents.
Because of the initial cost of acquiring an investment property and the expense of managing and maintaining it, investing in real estate typically has a high financial barrier that makes it difficult for average investors to participate. But the advent of fractional real estate investment makes it possible for individual investors without the funds to buy entire properties to add real estate to their portfolios. Through fractional investment, investors can own shares of real estate without the hassle of property management and playing the role of landlord.
Arrived Homes is a platform that offers fractional real estate investments.
“We’re built for people who want to invest in real estate but don’t want to buy a whole home or deal with the operational headaches,” according to the company.
The real estate platform offers shares of single-family rentals for as little $100. Open to accredited and nonaccredited investors alike, Arrived Homes offers fractional ownership in rental properties as well as vacation rentals that get marketed and booked on popular travel websites such as Airbnb and VRBO. With new properties offered on the site weekly, prospective investors can be kept up to date through Benzinga.
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This article Here’s How You Can Invest In Real Estate With $100 originally appeared on Benzinga.com
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