It wasn’t too long ago when the best way to invest in real estate was to roll up your sleeves, scout a property, borrow money from a bank, sign legal forms, and find a tenant.
But any ambitious real estate investor would quickly discover that the path to profits is littered with leaky toilets, broken fridges, and bothersome tenants.
A structural industry problem existed. On the one hand, investors with money wanted real estate exposure but, on the other hand, they didn’t want the hassle of doing the legwork.
In recent years, the “lazy” investor who wanted exposure to the real estate sector without the headaches has had a whole world of possibilities open up to them thanks to regulatory changes.
Historically, the best way to invest in real estate without jumping through the hoops of actually owning a property was to buy a REIT or equity in a property company like Simon Properties [SPG].
Simon Property Group is a publicly traded company that is a self-administered and self-managed real estate investment trust. It owns, develops, and manages retail real estate properties, including malls and premium outlets.
For conservative investors, it is an attractive way to diversify risk because Simon Properties owns or holds a stake in over 100 malls and 67 premium outlets, as well as mills and lifestyle centers. But what other investment avenues exist to gain exposure to real estate beyond buying publicly traded REITs?
One possibility is to purchase private REITs. Rich Uncles is an example of a real estate company in the burgeoning private REIT space. With as little as $500, you can buy shares and own a piece of a REIT. The hard work of collecting rent from tenants is shouldered by Rich Uncles, who distributes your share of dividends from tenant rents.
While Rich Uncles has been touted in the press as having a billion dollar valuation and an IPO in the offing, it also has been subject to SEC scrutiny for advertising the sales of securities.
Even Warren Buffett has been subjected to government investigations so an investigation is not a reason to dismiss a company as much as it is a red flag to look further into risks of investing.
While Rich Uncles may need to battle the SEC, it also needs to fight to win market share from a host of competitors. Companies like RealtyShares, Patch of Land, and Roofstock all have their own unique twists on real estate investing.
Some like Roofstock allow you buy property online and handle all the standard complexities for you. But if you don’t like the thought of owning property outright, you could look to a peer real estate crowdfunding portal like Patch of Land, which claims you can earn as much as 12% annually.
Meanwhile RealtyShares claims to have facilitated over 1,000 deals and $500 million in investments. The minimum investment level is $5,000 and the investment term spans from 6 to 120 months.
Unfortunately for many investors keen on the real estate space, RealtyShares is only open to accredited investors, so that means you need to be earning a minimum of $200,000 annually for two consecutive years or have a net worth excluding your primary residence of $1,000,000. If you are a couple then the annual income requirement increases to $300,000.
If you are not an accredited investor, Realty Mogul may be a better fit. It has a lower minimum of $1,000 and an annual fee of 0.30% → 0.50% compared to 1% on equity and up to 2% interest rate on debt at Realty Shares.
Sharestates is yet another online platform that has low minimums of $1,000 and a setup fee of 0 → 2% but like Realty Shares it is only available to accredited investors.
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