Editor’s Note: Matt and Wayne are presenting this week at an investment conference in NYC called Finovate. They'll be taking the wraps off the latest version of CrowdabilityIQ, the world's first "stock-screener" for private companies. So today, we'll be re-publishing a popular article from the Crowdability archives--an article about a smart way to earn some yield.
It’s a tough time to be searching for yield:
You can accept the 0% to 3% offered by money market funds or low-risk bonds…
Or you can roll the dice with investments like junk bonds or MLPs.
Either option is unappealing.
But today we’ll give you a third option:
It offers cash yields north of 10%...
And total annual returns can be 20% or higher.
Let’s Get Real
The opportunity you’ll learn about today involves real estate…
But it’s a little different from the “traditional” investments you’ve seen.
Let me explain:
Generally speaking, real estate investors like you have three options:
Invest in Publicly-Traded REITs – Publicly-traded REITs let you buy and sell shares of real estate portfolios through a stock exchange like the NYSE. This approach allows you to own multiple properties with a small amount of capital—but if the market drops, so might the value of your REIT.
Invest in Non-Traded REITs – In many ways, this option offers the best of both worlds: you can own multiple properties with a small amount of capital, and the investment doesn’t trade with the market. Unfortunately, the high fees take a big bite out of your returns.
Buy Actual Real Estate – Owning real estate directly can provide higher returns than REITs. And because it’s not highly correlated to the stock market, it can help protect your overall portfolio. Unfortunately, down payments—or minimum investments to become an investor in larger projects—can exceed six figures.
But now there’s a new option…
Special Websites for Private Real Estate
Over the past year or so, a number of special websites have emerged to help investors like you get access to high-quality, private real estate deals.
These deals offer you direct ownership in real estate, but without the high investment minimums.
When you visit these sites, you can browse dozens of real estate projects. And if you find one you like, you can buy a small share in it.
Not only are there no high upfront fees, but on some sites, the minimum investment is as low as $5,000.
Currently, target cash yields for these projects are about 10%, and you also have the potential for capital appreciation—in other words, when the property is sold or refinanced in the future, you can earn an additional gain.
To get a better understanding of how these sites work, let’s look at one of the more popular real estate funding websites: RealCrowd.
RealCrowd offers investors like you institutional-quality real estate investments in multi-family homes, as well as retail, office, and industrial opportunities.
Here’s how it works:
- RealCrowd does rigorous due diligence on private real estate opportunities, and posts the best ones on its website
- The real estate companies pay RealCrowd a technology and advertising fee
- You invest in these opportunities online, and 100% of your money goes into the investment; RealCrowd charges you no fees
And since there are no traditional banks or “middlemen” involved, you get a bigger cut of the returns.
How much bigger?
Currently, a 240-unit apartment community in Richmond, Texas offers a target cash yield of 10.8%. And when you include the potential for capital appreciation, expected annual returns over 5 years are between 17% and 21.5%.
Meanwhile, a retail opportunity in Mobile, Alabama has a target cash yield of 11%, and with capital appreciation, the expected annual returns over six years are 15%.
Those numbers crush the returns of most yield-focused investments…
But is this for real?
Ready for Blast Off
This type of real estate investing has already become a legitimate investment option.
In fact, it’s blasting off like a rocket:
A recent study from research firm Massolution reports that in 2014, investors injected $1 billion into U.S.-based online real estate investments.
By the end of 2015, Massolution says that number should climb to $2.5 billion.
On one of the sites mentioned above, RealtyMogul, more than $70 million has been invested so far—and more than $7.8 million has already been returned to investors.
RealCrowd, too, has proven its legitimacy:
Recently, for example, industry and investment professionals from firms like IBM, KPMG, and Morgan Stanley identified this year’s fifty most promising “financial technology” companies…
They call it the “OnFinance 50 Companies to Watch” list.
And RealCrowd should be proud that it made the list.
To be clear, like any investment, real estate has a certain level of risk…
And by its very nature, real estate is less “liquid” than stocks or bonds.
But if you’re aiming for market-beating yields, it’s worth taking a look.