Are alternative investments good for your portfolio?

Alternative investments, or “alts”, can add diversification to your portfolio, which reduces your investment risk. They don’t have to be complex, though they certainly can be!

Key takeaways:

– Alternatives include any investments outside the traditional stocks, bonds, cash, and mutual funds. They include private equity, hedge funds, real estate, etc.

– They provide diversification since they do not perform the same way as the traditional asset classes do.

– Most individual investors can have 10-20% of their portfolio invested in alternatives.

– Real estate is a good alternative for many people. You can own actual property. Or, you can invest in Real Estate Investment Trusts (REITs), which act like mutual funds.

What are alternative investments?

The traditional investing universe is comprised of stocks, bonds, cash, and the mutual funds that invest in them. Real estate and REITs (Real Estate Investment Trusts, which are basically mutual funds for real estate investing) are considered alternatives. Hedge funds, commodities, futures, and private equity funds are also examples of alternatives.

What is Modern Portfolio Theory (MPT)?

Given your risk tolerance, you can build an optimal portfolio providing the highest return using a mix of assets. Correlation is a measure of how strongly asset returns are related to each other. Noncorrelated assets create a more diversified portfolio, reducing risk. If one asset class isn’t performing well, a different one may be doing better. After a point, adding more assets doesn’t give you any more risk reduction.

Think about a one-asset portfolio. Let’s say the asset is Google stock. This is a very risky portfolio, because if anything happens to Google, you could lose all your money.

Now add a second asset, such as Apple stock. A two asset portfolio is more diversified, because if something happens to Google specifically, the price of Apple may not change. However, Apple and Google are both large tech stocks. If one experiences a price decline, the other might as well. They’re highly correlated to each other.

Instead of adding Apple as a second stock, let’s add Ford instead. With this two-asset portfolio, if Google experiences a price decline, it’s less likely that Ford will too. They’re in different segments of the economy. Since both are large company stocks, they are still somewhat correlated. If investors stop buying large company stocks for some reason, they’ll both experience the decline.

We can diversify further. Investment grade bonds aren’t particularly correlated with any stock. Below investment grade, known as junk, bonds are correlated with the stock market.

Let’s add a bond in for a three asset portfolio. Now there’s a portion of the portfolio that doesn’t move in tandem with the stocks.

Even when the stock market declines, your bonds will keep you afloat. They don’t provide as much capital appreciation as stocks do, so the total return will not be as high as the two-stock portfolio. Bonds lower the investing risk, but with low interest rates don’t provide much return.

It’s a trade-off between risk and return. The more risk you can take, the lower your bond exposure, and the higher your return. But you’ll experience a lot of ups and downs in the portfolio as a consequence.

Asset allocation

Having a mix of assets optimizes this risk/return tradeoff. Someone who is a conservative investor will have more bonds in their portfolio compared to a more aggressive one. Stocks need to be diversified as well. Small companies, mid-sized companies, and international ones are all somewhat uncorrelated with each other, and with large cap stocks.

Adding in alternative investments to the mix, in addition to the stocks and/or bonds, further diversifies the portfolio and may increase the return as well. They’re not intended to replace stocks and bonds in the allocation, but to enhance it.

How much should be invested in alternatives?

Allocations vary from investor to investor, of course. Shifting 5% of the portfolio to alts isn’t going to make much difference to the portfolio either way. You need at least 10%.

If you’re not as familiar with these investments, you can start by allocating 10%. Experienced investors might want to increase the percentage to around 20%. Institutional investors will often invest much more of their portfolios in alts. However, they have different investment goals and an infinite time horizon, which individuals don’t have.

You don’t need to sell off stocks or bonds to invest in alts. Use the cash you have, if any. If you’re making periodic deposits into your account, you can invest them in alts instead until you reach the allocation you want.

Should I use real estate for my alternatives portion of the portfolio?

Real estate is an excellent alternative for many investors. Many people understand real estate basics, so the investment doesn’t have a significant learning curve. Some of the other alternative strategies are more complex, and their risk/return characteristics may not be as clear.

Real estate in general is uncorrelated with either stocks or bonds. Owning real property has historically been a wealth generator for Americans, though of course real estate values fluctuate just as stocks do.

REITs in particular make good diversifiers for a portfolio. They typically collect rent from the properties they own. They’re required to distribute 90% of their income back to shareholders. Many distribute all of it. Not only do shareholders earn income, but often the funds provide some capital appreciation as well.

In other words, REITs provide income, some capital appreciation, and uncorrelated performance. They’re a great tool, especially for those newer to investing.

 

Value Add Multifamily Real Estate Investing is a Great Idea. Here’s Why…

Finding a real estate investment can be an intimidating step in expanding an investment portfolio. However, real estate investments can have numerous options, bringing opportunities for both the novice and experienced investor.

For many investors, multifamily real estate investments can prove very lucrative, yielding returns not possible with single family residential properties. In today’s economy, it would be a mistake to not consider a real estate investment as you seek to create wealth.

Value add is a real estate investment segment of that can be very profitable for the right investors.

What is a value add real estate investment?

They are properties, like an apartment building, that have a cash flow set up in the form of income producing units but are not producing to their full potential. So, the opportunistic investor will purchase the property and make improvements to the asset that will increase the cash flow generated from the property.

Improvements can come in many forms. They could be in the form of renovations, upgrades, improving the management of the property, seeking quality tenants, lowering operating expenses, or anything that will contribute to the ability to command higher rents and reduce vacancy.

Once the “value” is added and the property is producing at its full potential, the investor can sell the asset for the new appreciated value, making a substantial profit.

It is a more secure strategy

The economy is booming right now, unemployment numbers are dropping every quarter and the stock market remains strong, but things are forecasted to shift. As we saw earlier this year, the volatile stock market can change at any moment.

The real estate market can experience volatility as well. But, by investing in value add real estate investments, the investor is not just “riding the wave,” so to speak, of the real estate cycle in which values rise and increase based on numerous factors affecting the market.

To put things in perspective, multifamily property prices increased 11% this past year, compared to the 6.5% increase experienced in single family home market.

In adding real value to the asset, the property will not only benefit from any upswing in the market, but more stable growth in the long term is realized through the appreciation because of the improvements.

Identifying the assets

The most important part of value add investing is finding a property with the potential for a substantial increase in cash flow. As stated earlier, this will come in the form of increased rental rates and occupancy and/or a decrease in operating expenses.

The assets offering the greatest potential are ones that have deficiencies which are contributing to the unrealized profit. Typical properties ripe for value add investing will have an occupancy rate of 50-80%. The investor will determine the cause for the vacancies and develop a cost-effective plan to rectify while evaluating the feasibility. The deficiencies could be an outdated lobby, ugly exterior, outdated units, or poor property management.

If the reason for the low occupancy is remedied, and demand for the property goes up, increased rents will be possible for the remaining units as well.

The demand for multifamily real estate will remain high

The largest generation in the United States’ workforce right now are the millennials. Their power in the consumer market has increased over the last decade and they are now entering the real estate market in high numbers. Many in this demographic are moving out of their parent’s home for the first time and are looking for housing in urban environments, where multifamily real estate is in high demand.

As the sluggish economy in the past prevented many from going out their own, they now represent a substantial percentage of the job market and carry enormous spending power in all financial sectors.

The strong desire to live in the urban environments near employment and entertainment will continue to fuel demand as more and more of the younger generations seek housing. The cost of living in these metropolitan areas make it almost impossible for many to purchase a home, leaving renting in multifamily housing the only option.

Supply is not keeping up with demand

According to the National Apartment Association, the United States market will see the demand for an additional 4.6 million housing units by 2030, meaning an additional 328,000 new units will need to be constructed every year. At present, 225,000 units are being added to the market every year. The deficit will keep demand higher than supply, which will increase rent prices and contribute to the appreciation of the multifamily units.

Innovative ways to enter the market

A relatively new approach to real estate investing is crowdfunding to raise capital for investments. Aggregating the dollars allows regular investors to access the lucrative real estate market with relatively small amounts of money–something that was never an option for average Americans in the past.

With DiversyFund’s Growth Fund, investors are able to immediately diversify their portfolio with one investment. The diversification through the access to numerous projects is a huge benefit as the investor can grow their real estate investments while reducing some of their risk.

By adding multifamily real estate to your investment portfolio through DiversyFund’s platform you can reap the benefits without having to fork over high broker fees. With secure payment portals and easily navigable dashboards, tracking performance could not be easier.  

As you seek to increase your wealth and live like the 1%, don’t underestimate the potential in value add real estate investments.

Create a free account today to learn more about the Growth Fund.

Millennials and investing in real estate has been a hot topic for a while now. You hear jokes like….Millionaire to millennials: Lay off the avocado toast if you want a house.

Millennials tend to get a bad rep. The common perception of the Millennial generation, which refers to people that were born between the years 1982 to 2000, is that they are entitled, spoiled, lazy, obsessed with social media and lack a strong work ethic… The list goes on. But is it accurate?

U.S. Millennials are now the largest age group in the United States. There are millions of intelligent hard working Millennials that are changing the world. More and Millennials are getting great jobs and gaining financial stability every single day.

1 in 6 Millenials now have savings of $100,000 or more according to a new Bank of America survey.

Contrary to popular belief, Millennials aren’t as lacking with ther money management skills as you might think. This generation loves to find a good deal and invest in something that they really believe in. It makes a lot of sense that Millennials are becoming increasingly interested in Real Estate. In fact, recent research from Fannie Mae found that 85% of Millennials agree that real estate is a good investment. The Millennial generation is also more likely to value real estate more highly over other types of asset classes. This has a lot to do with the Great Recession of 2008 that many Millennials lived through.

One thing is for sure, Millennials these days are definitely open to investing in Real Estate. This trend is only going to continue in the future.

Is it really true that most Millennials can’t afford to invest in real estate?

According to a recent Pew Research Center analysis of U.S. Census Bureau data, more than 1 in every 3 working Americans are Millennials. That means that the Millennial generation is gaining wealth from their employers and looking for great investment opportunities.

In 2017, millennials made up the largest group of homebuyers (34 percent of the total buying pool) and of all millennial homebuyers, 66 percent were first timers.

Millennials can indeed afford to invest in real estate. Their generation will soon make up the vast majority of all real estate buyers in the US. Homeownership is on the rise in the United States, and the real estate sector is flourishing. It’s safe to say that the rise has something to do with Millennials and their willingness to invest in Real Estate.

One common conception about Millennials has some real truth behind it. It’s fair to say that most Millennials are very adept with technology. The rise of social media, the internet, smartphones, and more has placed technology directly into the hands of millions. Real estate has become increasingly integrated with technology as well. Applications like AirBnb allow you to rent out and manage an investment property directly from your smartphone. These advances in technology are driving the real estate market forward and creating lots of new opportunities for savvy real estate professionals and Millennials alike.

Since Millennials are great with technology, they are more willing to consider these newer investment options. Providing the opportunity for Millennials to Invest in real estate in more modern ways is something that can’t be ignored. That’s where real estate crowdfunding comes into play.

Investing in Real Estate Online

Real Estate investing online via crowdfunding allows Millennials (and anyone else for that matter) to invest in Real Estate without a large initial investment, and without the hassle of being a landlord. It’s easy to choose which specific real estate investment they want to put their money in with Crowdfunding. Some fintech platforms like DiversyFund, offers the option to invest in funds which allows regular investors to Make a single investment and immediately own a portfolio of diversified real estate assets. The flexibility, variety, and low costs that real estate investing via crowdfunding offers makes it extremely attractive to Millennials.

See how DiversyFund can help yu build wealth through real estate. Check out our investment opportunities by creating a free account today.

When the stock market goes up one day, and then goes down for the next few days, then up again, and down…you get the picture…that’s what you call stock market volatility. If you don’t have the stomach for it, real estate investing is an option you might want to explore.

What can you do about it?

One thing even new investors understand about a portfolio is the concept of diversification — blending a variety of asset classes to reduce exposure to risk. There are different forms of diversification and at some point further diversification within an asset doesn’t really eliminate that much more risk. For example, diversifying not just among different stocks, but utilizing different types of assets, is how an investor can mitigate risk. Even with a well-diversified stock portfolio, an individual is still exposed to market risk which cannot be reduced by adding additional stocks.

The goal is to find assets that are not correlated with stocks – meaning its less influenced by the stock market’s volatility.

Asset correlation is a measure of how investments move in relation to one another and when. If two assets are considered to be non-correlated, the price movement of one asset has no effect on the price movement of the other asset.

There are many alternative investments to choose from, but real estate is undoubtedly a significant element of asset allocation, and for centuries, real estate ownership has been the hallmark of the elite in most societies and continue to be the asset class of choice for the wealthy.

Real Estate, like any investment, can go up and down in value, but it never goes to zero value, unlike an investment in stocks where a company can go out of business and the stock becomes worthless.

If you’re thinking about diversifying away froms stocks and considering if real estate investing better for you, there are many benefits to the latter, especially in the new alternative form of investing in the form of crowdfunding.

Benefits of Real Estate Investing Via Crowdfunding

A study by the Harvard Business Review in 2013 entitled “Crowdfunding’s Big-Bang Moment” noted that the “JOBS Act was the catalyst needed in order to democratize commercial real estate investing and open new doors of opportunity.”

According to a recent article in Forbes, less than 10 years from now the real estate crowdfunding industry is expected to be valued at more than $300 billion…a nearly ten-fold increase from today’s industry value of just over $34 billion.

That’s an explosive amount of growth over a very short period of time!

Here are some of the reasons by so many people are investing so much money in real estate crowdfunding:

1. Participate in large, high-quality real estate investments with small amounts of capital

2. Choose specific properties to invest in thanks to the transparency of crowdfunding or…

3. Select from funds that match individual investment strategies such as income, growth, or more aggressive venture capital portfolios

4. Balanced blend of both active and passive investment allows investors to analyze individual opportunities while leaving the buying, managing, and selling to experienced real estate professionals

5. Crowdfunding allows deals to be executed quickly resulting in increased opportunities for real estate investors

If you’re thinking of diversifying away from the stock market roller coaster and exploring real estate investing, check out how we can help you grow wealth.

 

Ever since we were kids we were told that saving money should be a priority. Work for want you want, and save. And although saving money is a great habit, investing your hard earned money is an even better one. Investing is essential to good money management because it plays  a big role in your financial security. Not only can you end up with more money in the bank, you end up with another income stream.

Saving Money vs. Investing. What’s the difference?

While they are related, saving money and investing are entirely different things. They have different purposes, and play different roles in your financial strategy. The one thing they do have in common is how important they both are in securing our financial future.

Saving Money:

Putting money aside gradually, typically into a bank account where you can get to it when you need it. People usually save toward a short-term goal like planning a vacation, putting a deposit on a house, or preparing for any emergencies that might come up. While the money you save may earn interest, rates tend to be very low. The trade-off is that your money is accessible.

Investing:

Taking some of your money with the intention of making it grow, by buying assets that you think will increase in value, such as stocks, property, or shares in a mutual fund.

Are you ready to invest?

You may want to consider starting your investment strategy after you do the following:

Build your emergency savings. Savings should come first. Before investing, try to make sure you have an emergency fund you can use to cover expenses for unforeseen events like if your car needs new tires, the pipes in your house burst during a deep freeze, etc.

Pay off high-interest debt. By paying off high-interest debt in full, you’ll reduce the total amount you owe faster, and free up money to put toward savings or investing.

Max out your 401(k) and IRA. If you’re offered a 401(k) or other employer-sponsored retirement plan and your company kicks in matching contributions, you should take full advantage of those first. That’s an automatic 100% return on your investment. If your long-term goals include a comfortable retirement and you’re already contributing the maximum amount to your retirement accounts, it may be an appropriate time to explore additional investment types.

Investing in Real Estate:

Investing can help you reach big financial goals. If your investment is earning a higher rate of return than a savings account, you will be earning more money both in the long term.

Property investments have proven to be successful for the richest men and women around the world. The wealthy focus on investing in high quality, top tier commercial assets.  When you purchase a property and it increases in value over time, you get to reap the rewards.

If you have any questions about getting started in investing in real estate, or if you want to sign up for our online investment platform, we would love to chat with you! Here at DiversyFund, we are striving to fundamentally change the real estate investment industry for small and medium – sized projects across North America. We are determined to help everyone build wealth through online real estate investing and believe that saving money  is good, but investing is SO much better.

Similar articles:

https://diversyfund.com/investing-in-real-estate/real-estate-investing-vs-stocks-one-better/

https://diversyfund.com/investing-in-real-estate/4-ways-make-extra-money-real-estate-investing/

 

Quarterly Investment Update (Q2 2018)

Goshen- Investment Update Q2 2018

Vacation rentals are underway at all three Goshen units but the vacancy rate is still higher than it should be in order to attract a buyer for the property.  The property manager expects that the rentals will be stabilized soon as renters continue to post positive reviews online. Also, we have strong interest from student renters looking for a 9 month lease in September which will create the annual rent roll of an attractive investment property when coupled with the summer vacation rentals. The condo mapping process with the City is underway, as mentioned last update round, in order to maximize upside potential for the sale as an investment property.

Project Stage:  Completed and Cash flowing.

Costebelle- Investment Update Q2 2018

Costebelle is finally on the market and looks fantastic.  We hosted a San Diego Association of Realtors event the first week and received overwhelmingly positive feedback about the property and its ocean views.  Our realtor team, Eric Iantorno and Brett Dickinson from Pacific Sotheby’s hold several price records including San Diego’s highest sales price ever ($24 million) so we are confident we have the right team in place.

Project Stage:  Completed and on Market.

Felspar Investment Update Q2 2018

Felspar is completed and looking phenomenal. A neighborhood BBQ was hosted by the listing agents last week to build awareness about the property. The feedback from the neighborhood has been extremely positive, with many neighbors stopping in to congratulate and thank us for the project we have built in the neighborhood. The word has been getting out on the project completion and we are hoping to have these two great properties sold soon.

Project Stage:  Completed and on Market.

Park Blvd Investment Update Q2 2018

We just celebrated a major milestone for Park Blvd last week as we received 1 out of the 2 permits we will need to build the project! The foundation and parking structure permit was approved on July 12th and we are currently working on the wood frame permit submittal. The process of securing a construction lending partner has begun and we are looking forward to breaking ground as soon as the wood frame permit is received. We are also down to four general contractors in the vetting process.

Project Stage:  Pre-Construction. Foundation Building Permit Obtained.

Granito Investment Update Q2 2018

The foundation subcontractor continues the tedious process of drilling shoring piles and setting the steel beams on the property that will anchor the extensive concrete and steel foundation to the hillside.  We have also been working with over ten sub-consultants and over 50 sub-contractors to get the best bids possible on the remainder of the project.

Project Stage:  Construction.

DiversyFund Income Fund Q2 Investment Update:

As you know, the DiversyFund Income Fund makes loans to the properties under development by DiversyFund, some of which are now on the market.  Please see the project updates for details on the underlying properties.

DiversyFund Growth Fund Q2 Investment Update:

The Growth Fund has made several preferred equity investments such as our Park Blvd multi-family project, Goshen (student housing) and Felspar (Pacific Beach condos), along with a small investment in Granito Drive.  We are currently performing due diligence on a new multi-family value add deal.

New investors often assume that investing is strictly limited to the stock market. But there is a whole galaxy of alternative investments beyond the more typical stocks and bonds that everyone talks about.

As your net worth grows, you might want to take your portfolio up a notch and diversify your portfolio. A properly diversified portfolio includes different types of stocks and bonds—international stocks, for example—and it also includes something called alternative investments.

Why Buy Alternative Investments?

There many reasons for buying alternative investments. The main reason for using alternative investments is to help spread out your risk by giving your portfolio an extra layer of diversification. Alternative investments are seen as a way to diversify against potential downturns in the valuations of traditional investments. Other reasons include the following:

– To lower correlation to traditional stock and bond markets

– To invest capital for a longer timeframe in exchange for higher return potential

– To hedge a portfolio against inflation or rising interest rates

Questions to ask

Should you invest in alternatives? Unfortunately, there is no one-size-fits-all answer. It all depends on your current situation, financial goals, and the resources at your disposal.

There are countless alternative investment strategies being applied in the marketplace today, and simply conducting research and due-diligence on all of them to determine their risk and reward characteristics can get tedious.  But, here are a few questions you should ask yourself when considering your options:

 – Am I investing for a long time horizon?

– Does my portfolio need additional diversification beyond typical stock and bond asset classes?

– Is there a chance I will need to access this money in the near term?

– Is my risk tolerance sufficient for these opaque and lightly regulated investments?

– Do I have a trusted professional helping me find the right investment options?

Historically, access to alternatives was limited to institutional and high-net-worth investors. However as their popularity has increased, they have become more widely available. A good example of an alternative investment that is now made widely available is real estate through crowdfunding.

Real Estate crowdfunding as an alternative investment

Real estate crowdfunding has disrupted the status quo of real estate investing with online platforms that put new opportunities that were previously exclusive to the ultra wealthy into the hands of everyday investors.

According to a recent article in Forbes, less than 10 years from now the real estate crowdfunding industry is expected to be valued at more than $300 billion…a nearly ten-fold increase from today’s industry value of just over $34 billion.

Here are some of the reasons by so many people are investing so much money in real estate crowdfunding:

– They are able to participate in large, high-quality real estate investments with small amounts of capital.

– They can choose specific properties to invest in thanks to the transparency of crowdfunding or select from funds that match individual investment strategies such as income, growth, or more aggressive venture capital portfolios.

– They get a balanced blend of both active and passive investment allows investors to analyze individual opportunities while leaving the buying, managing, and selling to experienced real estate professionals.

– Crowdfunding allows deals to be executed quickly resulting in increased opportunities for real estate investors.

With so many benefits to alternative investments, it’s no wonder they continue to grow at rapid rates. As investors realize the benefits of higher returns and lower risks that many of these alternative investments have, we expect this growth to continue well into the future.

If you’d like to learn more about real estate crowdfunding, read our favorite posts:

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DiversyFund’s crowdfunding platform is dedicated to offering everyone the opportunity to diversify their portfolio. We are opening up what used to be exclusive wealth building opportunities to everyone. Crowdfunding allows us to aggregate dollars to purchase real estate, we develop it manage it, receive the cash flow, and then divide the profits.

We combined our decades of real estate expertise with technology to make investing even more cost-effective for people like you. Now, you don’t need to be a millionaire or an expert to invest in real estate. Multi-million dollar investment opportunities can be shared for as little as $5,000, and everyone can join in.

 

It’s an age old question– which is better: real estate investing or stocks?

Each option provides a unique opportunity to gain immense wealth and financial freedom, and there isn’t a simple answer because both have their advantages and disadvantages. Trying to figure out if real estate investing or stocks is better is like asking someone which ice cream flavor is better, chocolate or vanilla? It all comes down to your own unique personal preferences. We truly hope this article provides you with all of the information you need to decide which investment option is best for you.

Investing in Stocks – The Benefits

Buying a share of stock is buying a stake in a company. You are purchasing the opportunity to own a portion of a business or corporation and experience all of the ups and downs that it goes through. The stock market offers seemingly unlimited options in terms of the types of companies you can purchase. You can easily diversify your investment portfolio by purchasing a mutual fund or shares in different industries and companies. This is a big advantage.

Another plus with investing in stocks is the ease in which you can make stock transactions. All you need to buy and sell stocks is a connection to the internet and a brokerage account. The transaction costs for buying and selling stocks are typically minimal, particularly when compared to the costs of real estate investing. Another advantage is the liquidity that stocks provide. When the market is open, you can sell the entirety of your holdings with the simple click of a mouse.

Finally, perhaps the most intriguing benefit of investing in stocks is that successful companies will provide shareholders with share price increases as well as increases in cash dividends. That means you are earning money on your shares as well is through the increases in residual dividend income that your shares provide.

Stock Investments – Some Disadvantages

As you can see, investing in stocks provides quite a few benefits. However, this investment option is not without it’s faults. It’s time to take a look at some of the disadvantages that come with investing in stocks.

Perhaps the biggest disadvantage to stocks and a major deterrent for those who fall on the more risk averse side when it comes to investing is the fact that the price of stocks can experience dramatic fluctuations both in the short-term and over the long-term. You can own stock in a company that doubles in value one month and is worthless the next. Anything is possible with stocks. That’s why it’s absolutely crucial to invest in companies that you truly believe in and have thoroughly researched.

Another downside to stocks is the emotional aspect. To be successful with stock investing, you have to have an iron will and be devoted to your investment strategy, even if the world appears to be crashing down on you. Lots of people end up losing a ton of money in the stock market because they let their emotions get the best of them.

Finally, another disadvantage in stock investing is the capital gains taxes you will have to pay if the sale of your stock is considered a short-term. You can wind up with a very large tax bill at the end of the year if you are making significant gains on short term holdings.

Real Estate Investing – The Benefits

When you are investing in real estate, you are buying physical land or property. It’s a tangible investment, versus stocks, which are intangible investments. Lots of people would consider that to be a big advantage. Real estate investments can also provide consistent monthly income if you are renting it out.

Perhaps one of the main benefits from real estate investing is that it allows you to easily leverage other people’s money. Whenever you purchase real estate, an investor is typically required to put down 10%-30% of the total value of the real estate as a down payment. The rest of the money is provided by a lending institution like a bank. There aren’t many investment opportunities that allow you to buy something for a fraction of its total cost. In general, it’s typically much safer to make leveraged real estate purchases rather than buying stocks on margin.

Additionally, when you purchase a property and it increases in value over time, you get to reap the rewards. Any property has the potential to appreciate in value. Real estate investing also provides lots of tax related advantages. This is particularly advantageous if you have a knowledgeable accountant.

Real Estate Investing – Some Disadvantages

One of the main downsides to real estate investing is it’s lack of liquidity. Your money will be tied up in a real estate investment, and if you ever need the cash quickly, it might present a real challenge. You can’t buy and sell real estate as easily as you can with stocks.

Additionally, investing in real estate will require a lot of your time. The process of purchasing real estate can be complicated and lengthy. Another con of real estate investing is that if you aren’t careful, your investment can end up costing money on a monthly basis. For example, if you purchased office space real estate and do not have any tenants, you will lose money on the monthly property fees, maintenance, utilities, and taxes on the property.

Finally, another big con related to real estate is that success can be difficult to achieve. Being successful in the real estate game means hard work, doing your research, and being willing to deal with emergencies at any time. For some people, the responsibility is too big of a burden to bear.

But in recent years, an alternative has emerged in the form of crowdfunding which takes away many of the disadvantages of traditional real estate investing.

Real Estate Investing of the Future

We’ve gone over a lot of the disadvantages that come with real estate investing, but what if there was a way to invest in real estate while avoiding the disadvantages? Enter real estate crowdfunding.

This is a dynamic and revolutionary form of investing that allows people to diversify their portfolio with real estate without having to be a millionaire or an expert. This option allows you to invest in different types of real estate with much smaller amounts of money than usual. Low entry fees, or in the case of DiversyFund, zero-fee investments for investors make creating a diversified real estate portfolio without the normal private equity requirements a reality.

When considering real estate crowdfunding, look for a company with an experienced team that understands the markets they operate in. As with any investment, it pays to take the time to choose the right crowdfunding site for you. For today’s investor, crowdfunding can be a great way to invest in real estate and generate income.

 

 

 

When looking for options to diversify your portfolio, did you ever look into real estate, or real estate crowdfunding?

Real Estate is often considered to be one of the best asset classes to make an investment in. The numerous benefits that come along with investing in real estate make it attractive to those who are able to afford it. However, some of the downsides are too big for many investors to overcome. Traditionally, it costs a significant amount of money up front to invest in real estate. This can be a huge deterrent for potential investors. However, there is a new trend in the investment world that provides investors with access to the real estate market using much smaller amounts of money. It’s a revolutionary concept that has gained a lot of momentum in recent years. Let’s talk about real estate crowdfunding and why this investment opportunity is a great option to explore.

What is Crowdfunding?

To understand how real estate crowdfunding works, it’s important to understand the basic concept of crowdfunding. Crowdfunding is essentially raising money through the collective effort of friends, family, acquaintances, customers, and investors. It’s putting together capital from a large pool of individuals and using their networks to grow the cause. Typically, social media and online campaigns drive the success of a crowdfunding campaign. We are living in a digital world, and this has created countless new opportunities in entrepreneurship and business.

Historically, access to investing in high quality alternatives to the public stock market such as multi-million dollar private market real estate has been limited to super-wealthy investors who get the attention of wall street or large developers.  But real estate crowdfunding has changed things in a big way. With the passage of the JOBS Act,  accredited and non-accredited investors now have a new way to gain entry to this asset class.

Real Estate Crowdfunding Explained

Crowdfunding and real estate is a match made in heaven. There are lots of opportunities for investors to make lucrative financial returns with real estate crowdfunding. As mentioned earlier, one of the major benefits related to real estate crowdfunding is that more investors are able to gain access to real estate market investments with smaller amounts of money.  Real estate crowdfunding platforms act as online peer-to-peer marketplaces that match investors with borrowers, often under better financial terms than what they can get through traditional lending institutions, such as banks.

There are two basic ways to invest in crowdfunding property deals:

Equity investments – with equity investments, Investors make investments in commercial or residential properties and In exchange, the investor receives an equity stake in the property. Returns are realized in the form of a share of the rental income the property generates, less any service fees paid to the crowdfunding platform. Investors may also be paid out a share of any appreciation value if the property is sold.

Debt investments- this means investing in a mortgage loan associated with a particular property. As the loan is repaid, the investor receives a share of the interest. The loan is secured by the property itself and investors receive a fixed rate of return that’s determined by the interest rate on the loan and how much they have invested.

Finding Success in Real Estate Crowdfunding

So, you find yourself intrigued with the concept of real estate crowdfunding. It’s a truly unique opportunity to invest in real estate on your own terms. However, there are a few things to keep in mind in order to achieve success with real estate crowdfunding. Doing your due diligence is absolutely crucial with any real estate investment, and crowdfunding is no different.

There are many real estate crowdfunding sites to choose from. But many suffer from poor investor protections, inadequate volume and/or hidden fees.  So how do you find the best platform for you, and avoid making an expensive mistake?

Finding the best real estate crowdfunding platform for you can be a challenge, particularly if you are a new investor.  

When looking at your options, take a look at the founders and the senior management of the crowdfunding firm or platform. Compare and contrast a few different real estate crowdfunding companies before making any decisions. You want to make sure you are working with an established, well-capitalized company that will survive over the long term. Seek out crowdfunding platforms that clearly acknowledge the risks of investing with them. When in doubt, go with your gut and invest with someone you trust.

What makes DiversyFund different from other Real Estate Crowdfunding Platforms

DiversyFund is only vertically integrated real estate crowdfunding platform, which means that we own all of the assets and properties that are being developed. Unlike other online platforms that function as a broker, matching investors with different third party projects, we offer real estate investments where we are the developer and sponsor, and we manage each investment on our platform. So with DiversyFund, you get an investment partner with skin in the game. Say goodbye to brokers and middleman fees.

Crowdfunding allows us to aggregate dollars to purchase real estate, we develop it manage it, receive the cash flow, and then divide the profits. Everything is done online, so we cut out the middlemen and unnecessary costs like bank fees, document prep fees, storage, and additional operational salaries that are usually passed on to investors.