Why Invest in Real Estate? 5 Benefits for Accredited Investors
Did you know that there are better ways to make money from real estate – without having to buy and sell your own home, or going through the laborious process of flipping houses?
There are plenty of reasons to invest in real estate, one of the main ones being that these investments can offer steady returns. For accredited investors, investing in real estate becomes even more appealing with access to larger, higher-quality real estate projects, which provide better ROI, along with a whole host of other benefits.
In this article, we'll be going into detail about:
- Why you should consider investing in real estate
- The different real estate investment options available
- The 5 main benefits of real estate investing for accredited investors
Why Invest in Real Estate?
Investing in real estate can often be overlooked because many people only think of traditional methods, like buying a property. However, alternative options like REITs and next-generation platforms are allowing for fractional ownership of real estate assets, which gives more people the ability to invest in the real estate market.
There are plenty of benefits associated with investing in real estate that make it a good choice for investors. Some of those benefits are:
- Steady returns
- Cash flow in the form of rent
- It acts as a hedge against inflation
- The ability to use leverage
- A diversified portfolio
Later in the article, we will go into more depth about the benefits that accredited real estate investors receive.
How to Invest in Real Estate
Today, there are plenty of options available for investors looking to invest in real estate. Here we'll cover some of the most popular options and look at how they differ from accredited real estate investing with Parvis.
Traditional Real Estate Investing (Rental/ Income Properties)
Traditional rental properties are probably the form of real estate investment that comes to mind for most people. Here, investors purchase a property and rent the space out to tenants. This can be in the form of a long-term annual lease or short-term rentals, popularized through rental platforms like Airbnb or VRBO.
With rental properties, investors have to take a more hands-on approach to deal with tenants and maintain the property, or they must be willing to pay the extra cost to have a property management company do so. Investors make their money through rental income and property appreciation.
House flipping is a form of real estate investing that requires a great deal of experience, skill, and capital to be successful. There are two main types of flipping:
Retail: Retail flipping is where an investor purchases a home, renovates, and repairs it to sell it at a profit. To be successful at retail flipping, investors must have the skills and expertise to get the best return. To turn a profit, investors must sell the flipped home at a price higher than the initial purchase price, plus costs incurred through renovation and other expenses. (mortgage, tax, insurance, etc.)
Wholesale: The other form of flipping is wholesale. This type of investing is more straightforward because no renovations need to be done to the home. However, with this comes lower returns. Wholesale flipping is where an investor agrees to purchase a property and then quickly offers it to another investor at a higher price. This method can be risky because if the property is not sold quickly enough, the holding costs can outweigh the potential profit.
Real Estate Investment Trusts (REITs)
A REIT is a type of corporation (or trust) that utilizes investor money to purchase and operate income properties. REITs are modeled after mutual funds ––but instead of a portfolio of stocks, a REIT is a portfolio of real estate assets. Like a mutual fund, shares in REITs are traded on major exchanges.
Investors need to know what type of REIT they are purchasing. There are three different types of REITs:
- Equity REITs: This type of REIT owns buildings making a profit from the rental income.
- Mortgage REITs: Mortgage REITs provide financing for real estate projects and take part in mortgage-backed securities. They make their profits from the interest that is paid.
- Hybrid REITs: These are a combination of equity and mortgage REITs, they own buildings as well as provide financing.
These types of REITs can be classified further into three different categories:
- Publicly traded: Securities-registered and bought and sold on public markets
- Public non-traded: Securities-registered but not traded on public exchanges
- Private: Not securities-registered and not publicly traded, these are typically only available to institutional investors
Investors often confuse next-gen real estate investing platforms like Parvis with REITs, but they are quite different. Unlike a REIT, which allows for fractional ownership of a basket of pre-selected properties, Parvis allows accredited investors to control where their money goes by allowing fractional ownership of specific direct investments. This provides more flexibility and allows investors to make the best decisions for their specific portfolios and financial goals. Furthermore, Parvis also targets better returns by streamlining the investment process and cutting out the fee takers to pass the savings on to investors.
Online Real Estate Investing Platforms
Some real estate investing platforms operate on a crowdfunding model, and allow investors to join others in large real estate deals that they would otherwise not be able to invest in themselves through fractional ownership. This typically works by splitting real estate assets into multiple units, then allowing investors to purchase said units at a specified price point, sometimes as low as $1. Since buy-ins are so low, and often capped, the size and quality of projects available to investors on these platforms are often limited.
Parvis is the next generation of online real estate investing platforms. We bring the benefits of a standard real estate crowdfunding platform, with added advantages. With our pool of accredited investors, industry expertise, and connections, we are better able to fill funds, and attract institutional-level real estate projects that bring investors higher returns.
5 Benefits of Investing in Real Estate for Accredited Investors
Benefit 1: Portfolio Diversification
Investing in real estate is a great way to diversify your investment portfolio. Real estate has a low correlation with many of the other major asset classes, including the stock market, which means adding it to your investment portfolio can help lower its volatility, especially during economic downturns.
Benefit 2: Inflation Hedge
Real estate investments' hedge against inflation is more important than ever, with inflation being at its highest point in over a decade. There are a few different ways that real estate investments protect against inflation:
- Property values historically rise with inflation
- Rent prices on investment properties increase to keep pace with inflation
- The relative amount of monthly mortgage payments will fall over time with a fixed-rate mortgage
Benefit 3: Better Returns
As an accredited investor, you will have access to investments that generally offer better returns. With its investment strategy, Parvis offers accredited investors institutional-level investment opportunities that target returns of up to 27%. In comparison, the Canadian national average rate of return for real estate investment from 1996 - 2020 was 5.7%.
Benefit 4: Control & Transparency
Parvis offers better control and transparency for its accredited investors. Unlike public REITs, where you are making blind investments in pooled offerings, Parvis allows investors to select specific real estate properties for direct investment.
Benefit 5: Accessibility & Liquidity
Through fractional ownership, crowdfunding platforms help to democratize real estate investing by allowing individual investors that may otherwise not be able to afford a full rental property to purchase a piece of one and share in the profits. Accredited investors with Parvis get a leveled-up version of that ––they have access to fractional ownership of larger institutional-level real estate assets with typically higher returns.
Due to a limited pool of buyers and expensive, complicated transactions, real estate is considered an illiquid asset. Parvis has worked to change that for their accredited investors by enabling liquidity through blockchain technology. Investors can buy and sell their position in a real estate investment like stocks on an exchange. It eliminates much of the cost and difficulty associated with transactions through smart contracts.
Accredited Real Estate Investing with Parvis
Parvis is building the next generation of real estate investing. Our state-of-the-art platform utilizes blockchain technology to provide access to quality, institutional-level real estate investment projects to our accredited investors.
Want to learn more? Sign up today and start building your real estate investment portfolio.