How to value your Arrived investment.
Arrived Property Share Prices allow you to track the appreciation of your property investments over time, similar to how you track your stock portfolio. Share Prices for all Arrived investments start at $10/share when a property is initially funded. 6-months after the IPO date for a property, we’ll use 3rd party estimates to update the values for each property. Then we’ll continue to update the share values each quarter.
It is important to note of course that tracking share prices is only part of the way you can build wealth with Arrived. The rental income paid out quarterly is separate from this topic and not included in share prices.
Visit your Portfolio Page today to track that long term property value appreciation along with the cash dividends portion of your overall returns.
You’ll also be able to view the most recent Share Price and annualized dividends for every property in the Arrived portfolio on our Historical Performance page!
Keep in mind that Share Prices are intended to reflect the current value of the property. While real estate prices have tended to appreciate consistently over the long term, they may fluctuate more in the short term depending on the local housing markets. Read on to see how Share Prices are calculated and our initial findings from the first set of new values.
Below you can find a deepdive into how share prices are calculated along with a few key insights and learnings that we have found.
How are Share Prices calculated?
Share Prices are reflective of the overall value of your investment. As a reminder, when you invest in a property on Arrived, you buy shares in an LLC that owns the property. The Share Price values include the value of all the assets and liabilities owned by the LLC.
Our Investments team uses 3rd party property value estimates to approximate the property’s current value. These professional data sources estimate the home’s value, and then our investments team does a manual review to ensure there are no extreme outliers in the data.
That new property value is added to the balance sheet for the LLC. The biggest asset the LLC owns is the property, but there are other valuable assets like the cash reserve. We also factor in the liabilities, such as the loan balance and accrued property taxes. The result estimates the total equity investors own in the LLC.
We also make some adjustments for the upfront fees involved in the investment. This includes the Closing, Offering, and Holding costs, plus the Arrived sourcing fee that are meant to be for an investment period of at least 5 years. Accordingly, we pro-rate these costs so that the share price reflects only the prorated fees up through that point in time.
Appreciation Takes Time
One of the biggest factors in appreciation is purely the amount of time since the property’s IPO. This makes logical sense – If you purchased a property last week, it’s unreasonable to think that the value of the underlying real estate has changed dramatically.
It takes time for a neighborhood to see noticeable changes in property values. Unlike the stock market, the real estate market doesn’t see big daily, weekly, or monthly swings. That lack of volatility is a huge reason that investors love real estate, particularly compared to the stock market.
The housing market tends to move slowly and steadily but upward over the long term. As such, the first Share Prices for Arrived properties will usually be at or just above $10 per share – the initial starting value for all Arrived Property Shares. That, along with wanting our share prices to catch up to upfront fees, is also why we wait for 6-months from IPO to start re-valuing the shares.
As time goes on, property values will continue to change with the market. If a neighborhood appreciates significantly over several quarters, that will start to be reflected in the share prices.
Long-term investors tend to see the best returns! Continually investing each month and being patient is our favorite strategy for investing in real estate.
You can view the Share Prices for all properties on our Historical Performance page.
Importance of diversification
When you analyze the Share Prices for the first 51 Arrived properties, it’s clear they have been appreciating nicely! Some homes are up big, and some homes are seeing more moderate growth. We’ll continue to post the new Share Prices each quarter so investors can monitor the performance.
It’s also clear in analyzing the results that diversifying is a must for investors! As of Q2 of 2022, 50 of the 51 properties were at or above the initial $10/share price. If you had randomly picked properties, you’d have done quite well! Rather than selectively investing in 1 property, it’s certainly beneficial to diversify across a host of properties so that you don’t have all your eggs in one basket.
Learn more about The Importance of Diversification.
It’s hard to pick the “best” property from any given property launch. Instead, it’s better to focus on building a diversified portfolio. Of course, it’s still early to truly analyze the appreciation results, particularly for more recent IPOs, but the importance of diversifying is evident.
Different markets have different return profiles
Location, location, location! Everybody knows that location is a major key to a property’s performance.
Rental homes earn from income and appreciation, but it isn’t always a 50/50 split. Some markets will have most of the financial returns come from dividends, and some will have most returns come from appreciation.
With the introduction of Share Prices, investors can track that unrealized appreciation to monitor investment performance. Before this feature, we were only showcasing the dividend amounts, which didn’t paint the full picture of returns on properties and markets in good areas that have appreciated over time.
What if my share price is negative?
There are a few potential causes for a share price dropping below the initial $10 value.
- Lower Cash Reserves: Given that the share price is calculated using all the assets and liabilities owned by the LLC if the cash reserves have become reduced, the share price will be reduced as well. The cash reserves can be affected by things like servicing loans, vacancy while the property is initially being marketed to investors or repairs and maintenance costs.
- Lower Property Value: The property value has decreased per a 3rd party valuation estimate. These professional 3rd party data sources estimate the home’s value, and then our investments team does a manual review to ensure no extreme outliers in the data. If the property value is estimated to be lower than the purchase price, the share price will reflect that and be reduced.
- Pro-rated Upfront Fees: The share prices also include adjustments for the upfront fees involved in the investment. The Arrived sourcing fee and the other upfront investment costs are meant to be for an investment period of at least 5 years. Accordingly, we structure these costs so that the share price reflects only the prorated fees up through that time
While share prices react to the current market in the short term, we maintain that real estate performs best as a long-term investment all while investors continue earning dividends through rental income.