How To Invest In Real Estate For As Little As $5

Global markets are volatile due in part to changing market structure and fundamental drivers like the COVID-19 coronavirus.

Typically, risk-off assets like cash,are the go-to during uncertain times, but with recent improvements in technology and regulation, alternative investments have witnessed a boon.

Alongside this movement to alternative assets, Ark7, a tool to buy shares of hard assets like real estate, launched an investment platform.

As part of the development, Ark7’s cofounder and CEO Andy Zhao spoke with Benzinga.

Why: According to Zhao, mainstream investments — stocks and bonds — are volatile and offer little certainty regarding future returns.

At the same time, homeownership among young American adults is falling, as barriers to entry include high upfront costs and liquidity.

“Housing, which is a major part of everyday life, can offer steady returns with cash flows and appreciation,” Zhao said in a discussion on real estate offering peace of mind.

“Existing options to invest in real estate have their own problems, though.”

After conversations with peers, the founder, who previously built at innovative companies like Alphabet Inc-owned GOOGL GOOG, Microsoft Corporation-owned MSFT LinkedIn, Twitter Inc TWTR, and Uber Technologies Inc UBER, was inspired to break down traditional barriers to diversified real estate investing.

About: Founded in 2018, Ark7 is a Regulation A+ issuer that allows all investors, no matter how big or small, to diversify their wealth across transparent and personalized real estate portfolios.

For as little as $5, members can have fractionalized exposure to rental income in the form of dividends, as well as upside in the underlying real estate.

How It Works: Investors are shown professionally vetted properties initially owned by Ark7; they can see prices, cash flow and appreciation return estimates.

After deciding on how many shares of real estate to buy, on the backend, Ark7 takes care of all the property management, accounting and taxes.

The firm’s online portal can be used to confirm ownership, accept dividends, monitor returns and make educated decisions about whether to add or subtract from investments.

“When they want to exit, they sell their shares at the price they think is reasonable,” Zhao said. “They can even download their tax documents online.”

Graphic: Ark7's marketplace.

Growth: Ark7 takes the proceeds from its real estate offerings to acquire new properties.

Once acquired, the firm combines the purchase price, expenses, and cash reserves dedicated to maintenance, among other metrics, to derive a property’s market cap. This is the number used when issuing shares and determining the price to offer investors.

“When investors want to switch to other properties or exit, they can list their shares with a sell-order,” the founder explained. “If I want to buy, then that translates into a transaction.”

Benzinga asked about liquidity and the ease with which one can enter and exit investments.

“Ultimately, investors bear the risk of the market,” Zhao responded. “If property values decline, that impacts share prices.”

If there is not another investor willing to take on shares, Ark7 may step in.

Visions: In onboarding more users and accelerating growth, the company is looking to further streamline its registration process, increase transparency and add ways to learn about investing, as well as acquire properties in big cities like Denver, Seattle, Austin, and Phoenix.

“We’re shooting for 10 cities by next year, maybe 30 in the upcoming four years,” Zhao ended on offering more properties on a mobile app set to launch this August. “We’re going to launch an iOS app and, within several months, we will support retirement plans so investors can use their IRA funds to invest in Ark7.”