Real estate investing can be a great way to diversify one’s portfolio and take advantage of ever-increasing trends in the housing market. There are many ways to invest in real estate, however, which could include buying and managing a property yourself, buying into a public REIT, or purchasing shares from a company like Arrived.
Notably, each long-term rental property on Arrived is taxed as a REIT. This means that when you invest in an Arrived property, you’re getting the same tax benefits that public REITs are able to pass on to their investors.
Arrived offers investors a unique way to buy shares of rental properties and invest in the real estate market. While similar to a public REIT at first glance, there are a few very important differences that make Arrived a better choice for most investors.
Here’s a look at how Arrived is different from a public REIT and whether this is the right investment to add to your portfolio.
A real estate investment trust, or REIT, is a company that invests in and manages a variety of real estate assets. The REIT passes on tax benefits as well as dividends to its investors, who purchase shares of the REIT the same way they’d buy into a mutual fund or ETF.
The REIT shields investors from any of the day-to-day headaches involved with researching, buying, managing, and even selling property. REIT investors only need to worry about purchasing shares and receiving dividends and appreciation over time rather than finding tenants or fixing plumbing leaks at 2 a.m.
Arrived long-term rental properties are each taxed as a REIT, allowing investors to get the same tax benefits they’d enjoy from a public REIT. This includes passthrough taxation and the Qualified Business Income deduction. And, of course, Arrived investors are able to benefit from the tax deduction of depreciation on the properties. Arrived investors will also receive passive income dividends over time as the individual properties generate a profit or are sold.
NOTE: Vacation rentals are considered ‘active’ income and, therefore, not REIT eligible. Please see your tax advisor for specific investment advice.
Another similarity is that both public REITs and Arrived properties are regulated by the US Securities and Exchange Commission (SEC). This regulatory agency makes sure that both types of investment companies are abiding by the operating procedures outlined in their respective offering circulars. This is great news for investor protection.
Both public REITs and Arrived have a similar operating model. Both purchase properties with the intent to rent it to a tenant to create profits. Both models entail renting the property to generate rental income and holding for long-term appreciation while passing on tax benefits to their investors.
With that said, there are some differences to note when comparing Arrived with public REITs.
Number of Properties
Large REITs can hold thousands of different assets in their portfolios. While these usually fall into the same category (i.e., single-family homes, apartment complexes, or commercial buildings), there are multiple properties in the mix. When investors buy shares, they may have a hard time knowing exactly what they’re buying because there’s such a large pool of assets.
Investors aren’t usually given many details about the properties, either, nor can they choose a specific one that they like. These funds are continually adding new properties and selling existing ones. That means that what you invested in today may be very different from what you actually own tomorrow.
With Arrived, however, each investment represents just one property. You know exactly what you are buying into and have the opportunity to choose the specific properties that interest you.
In this way, Arrived combines the simplicity and security of public REITs with the personalized approach of direct investing.
REITs are traded daily on the public stock market so that share prices can fluctuate wildly throughout the day. When something happens that affects the market as a whole — like the start of the pandemic in March 2020 or changes in interest rates — REIT share prices can drop in response… even if the underlying properties haven’t actually lost any value.
Since Arrived investments aren’t traded daily, there’s less volatility for investors to worry about. This makes Arrived a great option for people who prefer stable investments and don’t want to watch their share values fly up and down wildly.
Liquidity and Dividend Yields
Arrived investments and public REITs also differ in terms of their liquidity and dividend yields.
Shares of public REITs are traded on stock exchanges, meaning that an investor can sell their shares any time the market is open. This near-instant liquidity is great for those looking to jump out of the stock quickly when needed, but it comes with a major downside.
The bonus feature of instant liquidity means more demand for those shares, which results in higher share prices and, correspondingly, lower dividend yields. The public single-family home REITs have dividends that are only around 1-2%.
The worst part about this is that people looking to invest in real estate long-term are effectively paying for a feature they don’t want! If you’re investing with a multi-year time horizon, public REITs are going to give you a lower dividend and liquidity options that you don’t even want.
Arrived shares aren’t traded daily on a public stock exchange. While this does limit their liquidity, it also corresponds to a higher dividend yield. In fact, Arrived properties have historically paid annualized dividends in the 4.7% – 7.9% range.
Arrived investors are also encouraged to hold their shares for the full life of the investment term (around 5-7 years), limiting the need for liquidity in the first place. However, Arrived is also working on redemption and secondary trading programs, which are likely to be launched in 2022.
Purchasing shares of REITs are a great way to invest in real estate without the risk, upfront costs, and operational responsibility that come with owning and managing individual property. To further individualize the experience, investors can turn to companies like Arrived. Here, investors enjoy less volatility, higher dividends, and the ability to choose the exact real estate in which they want to invest.