Everybody knows it’s important to plan for your financial future. The trick is figuring out how to get the most of the money you can afford to invest. Luckily, thanks to some recent changes in SEC regulations, normal everyday people can now invest in low-risk high-return real estate portfolios that were previously only available to the extremely wealthy. What’s more, there are a number of new online real estate investing platforms that provide high tech tools that make everything way easier than you might think.
Real Estate Investing With Advanced Fintech
Before we get to these online real estate investing platforms, however, we’ve got to clarify what kind of investing we’re talking about. We are not talking about buying so-called “income properties,” or fixing up your basement and renting it out so you can pay your mortgage off faster. Those types of real estate investments make great TV shows, but they’re not the best way to plan for your future.
The type of real estate investing we’re talking about here is a new kind of pooled fund investing for the 21st century, one that slots right into traditional diversified investment portfolios aimed at long-term growth.
Pooled fund investing is when money is collected from many investors and aggregated into one giant investment portfolio. These funds are operated and managed by professional money managers. They allow individual investors to achieve greater growth and stability than they would be able to achieve by investing their own, thanks to economies of scale and the expertise of the firms managing the funds.
The most common types are mutual funds, hedge funds, pension funds, and exchange-traded funds, or ETFs, and regular investors have had access to these for a long time. However, these types of pooled funds are only allowed to invest in publicly traded securities like stocks and bonds. Historically, pooled funds that invested in the private real estate market were only available to institutional investors and high net worth individuals because the minimum investment requirements were so high. And that was unfortunate because the private real estate market typically offers better and more consistent returns than the stock market.
The good news is that recent advancements in computer technology and data science have led to the development of highly advanced crowdfunding platforms. These have opened up a whole new world of possibilities when it comes to raising capital, and the SEC has responded by loosening restrictions and opening up pooled fund real estate investing to everybody.
Today there are a number of new online real estate investing platforms ready to help you add a new highly lucrative asset class to your portfolio. Below we’ll give you a brief rundown of some of the most noteworthy options.
Who Can Join: anyone
Minimum Investment: $500
Historical Annual Returns: 8.7% to 12.4%
Annualized Dividend Yield: 7.75%
Fees: 0.85% annual asset management fee and 0.15% annual investment advisory fee
Fundrise is a simple online real estate investing platform that basically works like an ETF, only instead of investing your money in a portfolio of public stocks and bonds you’re investing it into REITs or eFunds, which are simply portfolios of private real estate assets. These portfolios are handpicked by Fundrise’s real estate experts for their ability to produce revenue, as opposed to merely appreciating over time. They include everything from single-family rental houses to multi-building apartment complexes.
Fundrise offers three types of accounts based on the amount of money you want to invest and your investing experience. They also offer three different investment strategies. The Supplemental Income strategy is designed to maximize quarterly dividends; the Long-Term Growth strategy is designed to maximize total return over many years, and the Balanced Investing strategy splits the difference.
Fundrise investments are intended to be long term and illiquid in nature. Returns are distributed quarterly, in the form of dividends, and at the end of a particular asset’s term. That said, Fundrise does have a redemption option that allows investors to obtain liquidity following a minimum 60-day waiting period.
Who Can Join: anyone
Minimum Investment: $500
Historical Returns: 17.5%
DiversyFund works very much like Fundrise in that you’re investing in a portfolio of private real estate assets managed by investing experts. However, unlike Fundrise, DiversyFund’s REITs all follow the same strategy. They acquire multifamily apartment buildings that already generate revenue. They renovate the buildings within the first year, increasing both the rents and the building’s value in a process called forced appreciation. Then they eventually sell the buildings for a profit.
With DiversyFund, all dividends are automatically reinvested for the duration of your investment term. This term is generally about five years, but the exact length depends on the market. When conditions for a profitable liquidation, assets are sold and investors will receive their principal and returns back.
DiversyFund has a historical return rate of 17.5%. While that might be higher than the rate you can expect from Fundrise, it comes with less diversification and slightly more risk. However, with DiversyFund you also don’t pay any fees.
Who Can Join: accredited investors
Minimum Investment: $500
Historical Annual Returns: 6-9%
Fees: 0.25%-1.00% service fee per asset
PeerStreet is a peer-to-peer investing platform that uses technology popularized by sites like Kickstarter and GoFundMe to create a revolutionary new microlending system. It’s crowdfunding for mortgages that breaks standard real estate loans into smaller pieces that individuals can purchase.
Unlike Fundrise and Diveryfund – which work very much like mutual funds or ETFs in that your investment goes into a pool of capital that is managed by experts – when you invest with PeerStreet you are not putting your money into a pool. Instead, you are buying small pieces of individual mortgages from a pool curated by PeerStreet’s team of real estate experts and data scientists.
With Fundrise and Diveryfund, you are investing in both real estate debt and real estate equity, which comes with a slightly greater risk because real estate equity is subject to major fluctuations. With PeerStreet, you are only investing in real estate debt, which comes with considerably less risk. That said, because PeerStreet gives you complete control over every single investment, this platform is only available to accredited investors, which the SEC defines as individuals with a net worth greater than $1 million or an annual income greater than $200,000.
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