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This post is sponsored by Streitwise. All opinions are my own.
When you’re evaluating different investment possibilities there are a lot of things to keep in mind. But two attractive qualities from an investment are diversification and the ability to generate passive income. Real estate can be an excellent choice because as an alternative investment it provides diversification for those who are primarily investing in stocks and bonds, and also because rental properties will provide passive income on an ongoing basis.
While there are a lot of things to love about owning rental properties, there are also a lot of headaches that come with being a landlord. On top of that, you’ll need to save up and invest a significant amount of money in order to purchase a property.
Fortunately, there are other ways to invest in real estate and get the perks without being a landlord, and without needing a lot of money to get started.
One of the best options is to invest in a real estate investment trust (REIT), like the one offered by Streitwise. REITs are companies that own income-producing real estate, and investors like you and me can own shares to get the benefits of real estate investing without the need to actually manage the property. REITs come in several different varieties, but Streitwise is a private REIT that invests in commercial real estate.
What is a Private REIT?
Unlike publically traded REITs, private REITs are not traded on an exchange and are therefore less liquid.
Private REITs are usually considered to be higher risk than public REITs, but they also typically produce better returns, which has been the case so far with Streitwise. Like public non-traded REITs, private REITs do not offer complete liquidity and you may be limited in terms of when you will be able to get your investment back.
But despite the downsides, private REITs can still be a great investment, and if you’re looking to maximize your earning potential, a private REIT gives you more upside than a public REIT, in general.
Although Streitwise is private, it is regulated by the SEC under Regulation A+ of the JOBS Act.
Now that we’ve looked at some general details about REITs, let’s take a look at Streitwise to see if it may be the right investment for you.
Streitwise invests in commercial properties through its 1st Streit Office, which is the REIT that is currently available to investors. They are focusing on non-gateway markets, which means the properties owned by the REIT may be in great locations, but they may not be the biggest cities or places where you would expect real estate investors to flock to. Cities like St. Lous, MO and Carmel, IN have exactly what Streitwise is looking for. Streitwise is currently pursuing ideal locations and properties throughout the U.S.
One of the first things you need to know about Streitwise is that it is open to accredited and non-accredit investors alike. In the past, owning a piece of commercial real estate was only an option for the very wealthy, but thanks to a platform like Streitwise, even average investors can get involved.
The minimum investment with Streitwise is $1,000, and after that, you can invest in $500 increments. As an investor, you’ll be eligible to earn quarterly dividends. While there is no guarantee that dividends will be paid, Streitwise has a track record of paying 10% annualized dividends each quarter since the 2nd quarter of 2017. In addition to the quarterly dividends, investors have the possibility to benefit from long-term equity appreciation (update: as of January 2020, Streitwise has adjusted the target dividend for 2020 to 8-9%).
Streitwise currently allows investments from individuals, companies, trusts, and self-directed IRAs or 401(k)s.
As far as passive income is concerned, the quarterly dividends are paid out by check or bank transfer, or you can elect to have your dividends reinvested.
As with all other types of investments, you’ll need to consider the fees when you’re evaluating a REIT. Streitwise investments are subject to a 3% upfront fee. This charge doesn’t reduce the number of shares you purchase, but is used to reimburse Streitwise for organization and offering expenses. For example, if you invest the minimum of 100 shares at $1,000, $30 is reimbursed to Streitwise, and $970 of proceeds goes to the REIT. Your ownership is still 100 shares.
There is also a 2% annual management fee. While these fees seem high compared to some types of investments, the fees on REITs are usually high, and in fact, the fees from Streitwise are below average for private REITs.
It’s also important to note that the 10% historical returns are after the fees have been deducted, so you’re actually earning 10% on your money.
Private REITs are generally not liquid investments. When you invest with Streitwise, you won’t be able to get your money out for the 1st year. After the one-year lockout, you’ll be able to cashout quarterly through shareholder redemption.
Investing in a REIT, as well as other types of real estate investments, should be a part of a long-term approach. It’s not an ideal investment if you are going to need the money quickly.
Another thing to keep in mind is that the upfront fee will be more significant if you invest for a shorter period of time. You’ll pay the same upfront fee regardless of whether you hold the investment for one year or 20 years (this is only in reference to the upfront fee, not the annual management fee). As a result, this is best for long-term investors.
Pros of Streitwise
Let’s take a look at some of the best aspects of the investment opportunity offered by Streitwise:
Open to Accredited and Non-Accredited Investors
Traditionally, this type of investment in commercial real estate has been unattainable for the average investor. Streitwise is not limited to accredited investors, so anyone can participate. You don’t need to have a million-dollar net worth in order to diversify your portfolio.
Strong Historical Performance
Streitwise is still relatively new, but since the 2nd quarter of 2017, they have paid dividends of 10% annualized. That’s nine straight quarters of hitting the target. Although the past does not guarantee anything for the future, a strong track record is obviously a good sign when you’re evaluating an investment opportunity.
Possibility for Passive Income
If passive income is your goal, Streitwise may be exactly what you are looking for. You can take quarterly dividends in cash and use it for living expenses or whatever you want. Of course, if you don’t need the income and you opt to have dividends reinvested, your money will grow faster. If you living off dividends is your goal, this is the type of investment that can get you there.
Streitwise seems to have a very specific plan with the 1st Streit office REIT. They are looking for a certain type of property in certain types of locations, and so far the results have been very good.
Relatively Low Minimum Investment
The $1,000 minimum investment to get started is pretty low compared to some other types of real estate investments and other alternative investments. While there are some other platforms that allow you to get started with real estate investing for less than $1,000, there are others with minimums that are much higher.
Cons of Streitwise
Any investment will have some cons. The key is to make sure that the cons don’t impact your plans with the investment (for example, duration) or that they are outweighed by the pros.
Lack of Liquidity
Real estate investing, in general, does not offer liquidity. You should not invest with Streitwise, or other real estate platforms, if you think that you may need the money in the short-term. Plan on investing for a few years at a minimum.
Streitwise does not allow you to get your money back for one year. After that, you’ll be able to cash out quarterly. That liquidity is actually better than many other REITs (aside from publically-traded REITs) and other types of real estate investments. This is an ideal option for long-term investors.
Higher Fees Than Other Types of Investments
Streitwise and other REITs involve fees that seem higher than what you will pay with many other types of investments. That being said, the historical return of 10% after fees is quite good. And compared to other private REITs, stREITwise’s fees are pretty good.
Only Two Properties Currently Owned
Currently, the 1st Streit Office REIT only owns two properties: the Panera Bread headquarters in St. Louis, and an office building in Carmel, IN. Having more properties within the REIT, which is part of the long-term plan, would help to lower the risk.
How to Get Started
Before making any investment, I recommend that you do your own due diligence to make sure that you feel comfortable with the investment. If you’re ready to move forward with Streitwise, you can click on the “start investing” link on the Streitwise website and it will take you through the process of opening an account in just a few minutes. See the offering circular here.