Oprah's $200M real estate portfolio keeps growing. Here's how you can build one with fractional real estate investing platforms.
Updated Mar 18, 2023
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Of the billionaires that made it to the 2021 Forbes 400 list, including Neil Bluhm of Rush Street Interactive and H. Ross Perot, Jr., 24 of them made the $2.9 billion cutoff thanks to a single asset class. It wasn't flashy investments like luxury watches and expensive cars, but good old real estate that did the trick.
While purchasing property is the most traditional method of real estate investing, there are more ways to gain exposure without breaking the bank on a down payment. Whether you want to see your property value increase or bring in rental income, fractionalized real estate investing is one of the easiest and most accessible paths to reaping the benefits of this asset class.
When it comes to alternative investments, real estate continues to hold promise.
For one thing, real estate investing is a way to hedge against inflation. Housing prices tend to outpace inflation, which means investing in real estate can protect your assets. From July 2021 to July 2022, the Case-Shiller US National Home Price Index increased by 16.1%, while inflation only increased by 8.5% in the same period.
A chart showing the percentage changes of the Consumer Price Index and housing prices.
Another reason Real estate is a promising asset class is that home values tend to appreciate over time. Factors like location, home improvements, and federal interest rates can impact how much and how quickly a property's value appreciates. As of August 2022, the Federal Housing Finance Agency's Housing Price Index increased 17.7% year-over-year, indicating an increase in home values.
And because real estate has a low correlation to the stock market, investors have earned returns despite the S&P 500's bearishness in 2022.
Like any investment, real estate has risks and challenges. Some of the common drawbacks to investing in real estate are:
Fortunately, there's a single solution to most of these challenges: fractional real estate investing.
Fractional investing enables you to purchase a portion of a valuable asset instead of buying the entire thing. By selling shares in assets, investors of all levels get an opportunity to claim a piece of the pie—whether that's part of a prized NFT or equity in a vintage guitar.
Fractional real estate ownership uses the same idea. Traditionally, investors purchase a piece of a property, like buying a unit in a condo building. Even though a condo is smaller than a house, it's still not an easily accessible investment for many people.
This is where fractional real estate investing platforms come in. They use a crowdfunding approach to enable you to share the costs and profits of an investment property. Fractional real estate investments can cost as much as a month of rent or as little as the change you find between your couch cushions.
Low barrier to entry: Fractional investments are often inexpensive and open to all investors.
Hands off: You don't have to handle upkeep or deal with tenant complaints.
Easy diversification: You can spread your investment across many properties or other investments.
Passive income: The platforms do the work while you collect returns
Long-term commitments: These investments are ideally held for 5+ years.
Real estate risks: Value loss, vacant rentals, and market crashes are some of the risks you might face.
Lack of control: You may not be able to influence how your investment is used or how the property is managed.
Real estate investment trusts, or REITs, seem similar to fractional real estate investing because both allow investors to spend less and access a potentially lucrative asset class. But the key difference is that REITs and eREITs are funds that own properties in behalf of real estate investors.
When you invest in a REIT, you're purchasing securities in the real estate fund that owns one or more properties. Fractionalized real estate investing, on the other hand, means you'll be a stakeholder in the property itself.
REITs are often favored for their liquidity, high payout percentage, passive income generation, and for making commercial real estate investing more accessible. They're required to have at least 80% of their holdings in income-generating properties and to give at least 90% of their taxable income to investors as dividends. It's usually easy to sell your shares in a REIT whenever you want because there's no lockup period on your investment.
But REITs have their drawbacks. Publicly traded REITs tend to follow the stock market, which means they're often volatile in the short term and sensitive to market dips and crashes. They also choose investment properties without considering investors' input, so you won't have a voice in how the fund invests, operates, or manages assets.
With fractionalized real estate investments, you'll decide which properties you invest in and how you want to diversify your portfolio. They're also less likely to experience volatility since they tend to be long-term investments.
If you want to invest in real estate without the hassle of house hunting and mortgage payments, fractional real estate investing might be right up your alley. New platforms and apps for alternative real estate investments are always springing up. We rounded up three of our favorites to help you get started.
On a mission to help investors get a piece of the $229 billion rental property market, Arrived offers opportunities to purchase shares in a rental home or vacation property. The company has gathered $135 million in funding as of October 2022. Backers include Jeff Bezos, Marc Benioff (former CEO of Zillow), and the founders of Warby Parker, but they're not exclusive to accredited investors.
Arrived handles acquiring and managing the rental properties, so you can relax and let the returns come to you.
Arrived fast facts:
Arrived was founded in 2019 but has already proved rewarding to some investors. The annualized returns on their properties range from 3% in 2 months to a staggering 94.8% in just 14 months. Shares in that particular property had cost investors about $20 apiece.
The low minimum investment and combined payout of rental income and property appreciation make Arrived an appealing real estate investment platform. But their properties vary widely in value, as the range of annualized returns shows. Also, Arrived's focus on residential properties means investors won't gain exposure to commercial real estate through this platform.
But starting at just $100, even a fairly risk-averse investor can feel comfortable with Arrived.
While fractional real estate investing is usually done through special purpose vehicles (SPV), Lofty is building investment opportunities in web3 with tokenized real estate. Their rental properties are represented on the Algorand blockchain, which has lower fees and faster transactions than Ethereum or Solana.
Investors can purchase $50 tokens representing partial ownership of rental properties, earn rental income daily, and sell their tokens on the Lofty marketplace whenever they want.
Lofty fact facts:
While the daily rental income you can earn from one of Lofty's 100 properties will likely amount to a handful of cents each day, that change will add up over time. Lofty reports that their investors earn 10.66% average annual returns and they've delivered $1 million in rental income to their investors as of October 2022.
Real estate investors on Lofty enjoy more perks of ownership than on other platforms. For instance, they have access to real estate tax deductions like depreciation, which allows homeowners to deduct the costs of improving their property. They can also vote on major property decisions like repairs and rent prices.
While Lofty credits blockchain technology for its efficiency and low minimum investment, the web3 knowledge required to sell tokens on their marketplace may be a hurdle for some investors. You'll need a crypto wallet to make sales, and you should be comfortable with Algorand and possibly Ethereum to take full advantage of Lofty's offerings.
Lofty also focuses on offering fractional real estate ownership with high cap rates, which suggests high returns on investment properties. But these higher returns usually come with higher risks, so you must do your due diligence and learn about a property before investing. Lofty's $50 minimum and no lockup period for fractional property ownership can enable investors of all levels to try their hand at real estate investing.
Though they allow investors to crowdfund various alternative assets, Yieldstreet makes it possible for almost anyone to gain exposure to real estate projects around the U.S.
Yieldstreet reports that users invested $4 billion on the platform and that they've distributed $1.8 billion in payouts. Their real estate investments have yielded 9.61% in net annualized returns.
Yieldstreet fast facts:
The real estate investment offerings on Yieldstreet are curated by professionals who carefully vet every deal they consider and approve less than 10% of them. Their past offerings have included residential, commercial, and mixed-use real estate, and some of their projects have been properties in development.
Yieldstreet offers two ways to invest in real estate: direct equity investments in ownership stakes or property or investments in loans secured by real estate. However, investments in private real estate are only open to accredited investors with a minimum of $5,000.
However, Yieldstreet's Prism Fund is not limited, so anyone with a minimum of $2,500 can use it to invest in a diversified portfolio of real estate and alternative assets. As of June 2022, three of the top five holdings in the fund were real estate holdings with yields of up to 13.23%.
It might be hard to imagine how investing pennies into fractional real estate can pay off, but if you can't buy a house or vacation rental of your own, small investments can go a long way. Here are some tips to help you make the most of your fractional real estate ownership:
While investing a change in your couch cushions won't put you on the Forbes 400 list tomorrow, it's a great way to get your foot in the door.
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