Single-Asset Real Estate Investing Is Riding A Wave Of Innovation

Investors looking for diversification and consistent returns are turning to real estate.

But like most investments, you must know the playing field and, more importantly, the rules of the game. 

The good news about real estate investing is that you place your bets on something secure, often with stable cash flows in the form of long-term leases, like a commercial office building, multifamily or industrial building. As an opportunity to grow capital, real estate investing is one of the less risky and is somewhat inflation adverse. But finding the right option for you is a much larger task, with pros and cons.

Here’s an overview of three forms of real estate investing options: 

Crowdfunding

Crowdfunding pools investor money to fund a real estate project or investment and is performed by targeting either a single asset or a portfolio of properties, with some platforms giving access to private development projects.

Most crowdfunding investors hold a large percentage of ownership interest, are passive owners and are usually only liable for the amount of money they put in. They also require sizeable minimum investment entrees, more extended holding periods, are illiquid and often have accreditation requirements. 

Crowdfunding, which offers two classes of equity, is an increasingly popular real estate investment option, but there are decisions to make. 

The good news is that crowdfunding for syndication investors means that the passivity of the deal does not require self-employment taxes and can come with healthy depreciation deductions. It also has some advantageous long-term capital gains rates with potentially higher returns.

Risks to consider are that transferability of membership interests in syndications can have restrictions laid out in the operating agreement for the entity and U.S. federal and state securities laws. This means that often, investors cannot sell or transfer their syndication interests for as long as five years, waiting for the disposition of the property.

With crowdfunding, passive ownership means you don’t control the day-to-day operations. 

While a reasonably safe bet, real estate is also subject to market volatility. You can also plan on more arduous tax reporting and a net investment income surcharge.

REITs

Like a typical stock, REIT shares can be bought on a major stock exchange, but you are actually putting money into the real estate itself or associated mortgages. While you can avoid any corporate taxes, REIT dividends are usually taxed at a higher rate than other types of investments.

REITs are most advantageous for new real estate investors seeking less volatile cash flows from highly diversified properties.

Some of the significant advantages of REITs that make them an increasingly popular real estate investment include no federal corporate tax, the ability to declare capital gain dividends, liquidity and ease of purchase. 

On the negative side, REITs have several restrictions and requirements that must be satisfied before investment and are not as flexible as investing in typical corporations or partnerships. Also, a REIT cannot pass losses through to its shareholders, and many states now impose taxes on your dividends.

Single-Asset Real Estate Stocks 

Some traditional commercial real estate opportunities fall into direct investment, which requires a substantial minimum capital commitment and sometimes requires the investor to manage the property. 

Private fund investments and limited partnership structures, which are primarily illiquid, require lengthy investment hold periods and are only open to accredited investors, requiring high minimum investment thresholds.

Publicly traded REITs, while providing access to institutional-quality real estate and mainly managed by institutional asset managers, can also be volatile when equity and fixed-income markets fluctuate. The volatility in REIT shares is the tradeoff for the liquidity they provide.

But single-asset real estate stocks like those offered by LEX Markets incorporate the best features of commercial real estate investing, resulting in advantages for investors. LEX’s platform offers advantages over:

Crowdfunding: LEX offers a lower minimum investment than other direct commercial real estate investments, and its secondary market provides options for liquidity without lockups or holds and can be held in any brokerage account.

REITs: LEX investments offer less fluctuation and more control over assets. Investors can hand select their publicly traded partnership units, meaning they become an owner. In doing so, they sit side-by-side with the majority owners, receiving an equal share of distributions. They also potentially enjoy more tax advantages.

LEX securities investments are open to all U.S. investors with no investor accreditation requirements, lockups or minimum holds. For more information, visit www.lex-markets.com. 

Photo by Scott Graham on Unsplash
 

This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.