There are several great reasons to add real estate to your investment portfolio. Real estate can provide consistent income, it has the potential for high returns and it can be less volatile than stocks. However, many real estate investment opportunities require a considerable amount of capital and being a landlord can become more of a job than an investment.
Fortunately, there are a growing number of options available for passive investors to add real estate assets to their portfolio with a low minimum investment and no property management responsibilities. One of the newest and most exciting opportunities is Arrived Homes, a real estate crowdfunding platform that allows accredited and non-accredited investors to buy shares of rental properties for only $100.
How The Investment Platform Works: Arrived Homes finds and acquires profitable residential rental properties, then offers shares of the properties to investors through its online platform. Investors can browse available offerings and choose the ones in which they want to invest. They can also reserve shares of upcoming properties that aren’t yet available for investment.
The company handles the operational headaches involved with managing rental properties while investors collect their share of the cash flow in the form of quarterly dividends and wait for the property to appreciate in value over time.
After the target hold period of five to seven years, Arrived Homes sells the property and distributes the equity to each investor according to the number of shares they own. Assuming the property increases in value, the investors earn a return through the profits from the sale in addition to the dividends they’ve received.
Returns On Rental Properties: Investors earn returns with rental properties in three ways:
The returns earned through appreciation and increased equity are difficult to predict since it depends on the condition of the real estate market when the properties are eventually sold, but the company chooses to invest in properties in markets that have a high potential for significant appreciation.
As far as cash flow, the quarterly dividends Arrived Homes has paid to investors have resulted in an annual rate of return between 5.21% and 6.42%. Dividends can also increase over time as rental prices continue to rise.
Should You Invest In Rentals? Real estate comes with several benefits, but rental properties aren’t for everyone. It’s important to note that real estate is an illiquid investment.
You won’t be able to simply cash out of your shares at any point if you need access to your money. Rental properties also come with vacancy risks. While property managers are typically able to fill vacant properties within 30 to 60 days, any periods of vacancy will cut into your cash flow for the quarter.
If you’re comfortable committing to an investment term of five to seven years and can handle potential dips in cash flow if a property loses a tenant, investing in rental properties is a great way to earn passive income and build equity.
See also: BEST CHEAP SHORT TERM RENTERS INSURANCE
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