The Arrived Single Family Residential Fund is redefining the traditional real estate investment trust landscape.
The fund operates as a modern kind of private REIT. We built the Arrived Single Family Residential Fund to give investors the opportunity to quickly diversify their real estate portfolio with always-available investing into a fund offering higher asset transparency and a host of other benefits.
Here’s how it compares to public REITs.
How the Arrived Single Family Fund works
While our range of individual property offerings allows you to make selective investments, the Arrived Single Family Residential Fund will enable you to diversify across multiple homes in multiple real estate markets seamlessly.
What sets the Arrived Single Family Residential Fund apart from larger public REITs? It’s structured as a non-traded, private REIT. As a shareholder, you become part of a well-rounded portfolio of single family homes. Returns come from dividends and the appreciation of homes within the fund. Your diversification grows organically over time as the fund expands.
Private REIT share values are calculated based on the underlying net asset value and real estate prices. Public REIT share prices, on the other hand, are calculated based on the demand/supply of the shares. Simply put, when you invest in a private REIT like the Arrived Single Family Residential Fund, the value of your investment is mainly tied to the actual worth of the properties it owns — essentially removing the impact of public market friction. In contrast, if you invest in a public REIT, the value of your shares can be influenced by how many people want to buy or sell those shares. This demand-and-supply factor can sometimes make the share prices of public REITs go up or down, even if the properties they own haven’t changed in value.
Also, public REITs tend to move in sync with the overall stock market, meaning their prices can be immediately affected by general economic ups and downs. This differs from private real estate investments, which might not be as immediately influenced by short-term market changes, instead absorbing that impact at a slower pace, allowing more time to evaluate and adjust the investment strategy.
What are REITs?
A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-generating real estate. These trusts are designed to allow investors to access real estate markets without directly buying, managing, or financing properties.
The main types of REITs
- Equity REITs: Primarily own and manage income-producing real estate. Revenue is generated from rental properties and capital appreciation.
- Mortgage REITs: Also known as mREITs, these focus on financing real estate by investing in mortgages or mortgage-backed securities. Income comes from the interest on these loans.
- Hybrid REITs: Combining elements of equity and mortgage REITs, hybrid REITs invest in physical properties and mortgages.
Public vs. private REITS
Public and private REITs differ primarily in their accessibility and liquidity. Public REITs are listed on stock exchanges, allowing investors to buy and sell shares. They provide liquidity, as their market prices are readily available. They’re also heavily tied to the stock market and can experience immediate highs and lows as the market fluctuates.
Private REITs are not traded on public exchanges and are typically offered through private placements. Private REITs often involve longer investment horizons and may have less liquidity due to the absence of a secondary market for shares, but are often less impacted by temporary stock market volatility. While public REITs offer the advantage of easy market entry and exit, private REITs may appeal to investors seeking potentially higher returns with a willingness to accept more extended holding periods and lower liquidity.
How REITs work
REITs work by allowing individual investors to pool their funds to invest in a diversified portfolio of income-producing real estate assets. Here’s how they operate:
- Types of real estate: REITs own, operate, or finance income-generating real estate. This can include single family homes, multifamily apartment buildings, office buildings, shopping centers, hotels, and more.
- Income: The primary source of income for REITs comes from the properties they own. Rental income from tenants and capital gains from property sales contribute to the revenue generated by the REIT.
- Dividends: REITs must legally distribute at least 90% of their taxable income to shareholders through regular dividends, providing investors with regular cash flow and passive income.
- Diversification: Individuals gain exposure to a diversified real estate portfolio by investing in REITs. The diversification helps spread risk across different types of properties and geographic locations.
- Management: REITs are managed by professional teams or firms with expertise in real estate. These experts handle property management, acquisitions, and other aspects, aiming to maximize returns for investors.
- Accessibility: REITs make real estate investing accessible to a broader range of investors who might not have the capital or expertise to invest directly in properties. Even with a relatively small investment, individuals can participate in the real estate market through REITs.
- Tax: REITs often receive favorable tax treatment, and their distributions to investors may have tax benefits. However, tax implications can vary and should be confirmed by a tax professional.
How is the Arrived Single Family Residential Fund different?
With the Arrived Single Family Residential Fund, investors can diversify across several properties in multiple markets simultaneously, giving them a seamless option to add real estate to their portfolio. The Arrived Single Family Residential Fund also comes with a host of benefits:
- Closer tracking to real estate values: While public REITs often have share price fluctuations caused by non-real estate events — like different economic indicators, interest rates, and market sentiment — private REITs like the Arrived Single Family Residential Fund more closely follow the underlying real estate asset values.
- High asset transparency: The Fund is designed to offer more transparency in a consumer-friendly way. Each single family residential home in the Fund is showcased along with its address, photographs, and other key features.
- Market coverage and expansion strategy: The Arrived Single Family Residential Fund leverages Arrived’s proprietary operating model, which benefits from established relationships with third-party property managers in dozens of markets. This means the Fund can quickly diversify into the more than 55 markets Arrived currently operates in. Arrived’s operating model is also nimble, allowing Arrived to quickly move into emerging markets as well as purchase single family residential homes in secondary and tertiary markets that may not fit a larger public REIT portfolio, diversifying the Fund even further.
- Modern purchase experience: The Arrived Single Family Residential Fund leverages our modern investing platform to provide investors with real estate investing education, radical transparency of investment assets, post-purchase performance reporting, and consistent quarterly dividend payments. Additionally, by combining the Arrived Single Family Residential Fund with individual properties, investors can build a highly tailored portfolio to match their investment goals.
Public REITs vs private REITS: Which is right for you?
Investing in REITs or real estate funds hinges on various factors influencing your financial goals, risk appetite, and preferences. Here’s what you need to consider:
- Investment goals: If you prioritize regular income, public and private REITs, known for their dividend distributions, may align with your goals.
- Risk tolerance: With their daily market fluctuations, public REITs may suit those comfortable with market volatility. Private REITs might involve longer holding periods, making them more illiquid as an asset class but less tied to market swings.
- Investment horizon: Public REITs provide daily trading flexibility if you seek short-term liquidity and market responsiveness. Private REITs like the Arrived Single Family Fund are designed to appreciate over several years. However, the Arrived Single Family Residential Fund has adopted a redemption plan intended to provide investors with access to liquidity. After six months following a particular investment, an investor may request a redemption of all or any portion of those shares, which, if approved, will be redeemed at the then-current Share Price at the end of the quarter.
- Minimum investment requirements: Both public and private REITs usually have lower entry barriers, making them accessible to a broader range of investors. The Arrived Single Family Residential fund starts at a minimum $100 initial investment.
- Tax efficiency: Both public and private REITs (including the Arrived Single Family Residential Fund) offer tax advantages through dividend distributions.
Arrived offers two avenues to invest in real estate. With the Arrived Single Family Fund, you can invest in a pool of single family residential properties in just a few clicks. Rather build your own portfolio? Arrived also offers a selection of single family residential and vacation rental properties in markets nationwide.
The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. The views reflected in the commentary are subject to change at any time without notice. View Arrived’s disclaimers.
