Alternative Investment

This Little Known REIT Has Produced Double Digit Annual Returns For The Past Five Years

Alternative investors and institutional funds have long preferred real estate investment trusts (REITs) as a means of building wealth and earning passive income. These funds use investor capital to purchase real estate assets that aim to generate income and appreciate in value before being sold. In addition to giving investors two shots at making money, participation in REITs also affords them some serious tax benefits.

Unfortunately, there is a popular misconception that the best-performing REITs are either publicly traded or restricted to accredited investors or institutional funds. The Growth REIT from Fundrise turns that misconception on its ear. This little-known, high-performing REIT has generated double digit returns for five straight years. It’s also open to any U.S.-based investor with a minimum contribution of only $5,000. 

What is Fundrise Growth REIT?

REITs use different investment styles. Some strictly acquire stabilized, Class-A multi-family or industrial developments that may have limited upside but offer high rent revenue. Fundrise’s Growth REIT is a more opportunistic fund that focuses on undervalued commercial assets that have long-term upside in rents and appreciation value at the end of the investment life. 

Specifically, the Growth REIT looks for institutional quality multi-family real estate opportunities that have lower unit counts than most institutional funds prefer. This focus on small- to medium-sized assets allows the Growth REIT to acquire assets with high earning potential at a significant discount on their replacement value. This tactic, known as “value investing,” is an important part of how the Growth REIT generates returns for investors. 

What Other Criteria Does the Growth REIT Use to Evaluate Assets?

Aside from its value-investing tactics, the Growth REIT looks at two other important criteria in selecting assets. It purchases assets where it can secure long-term fixed financing. Some funds operate differently, using the leverage of shorter term or adjustable rate loans to buy more assets. However, the problem with this model is that if interest rates go up, the debt service bites large chunks out of investor profits. 

The Growth REIT model, by contrast, allows the fund to stabilize its assets more quickly because of fixed-rate financing. At the end of the stabilization process, the potential of solid revenue combined with long-term loan stability makes Growth REIT assets attractive to purchasers. In the meantime, Growth REIT investors should enjoy solid, cost-controlled, passive income from an appreciating asset.

Another important aspect of the Growth REITs success is where it looks for opportunities. The fund targets areas with growing populations and a shortage of affordable housing for everyday workers. By focusing on these opportunities, the Growth REIT offers the affordability that people value while most newer developments in these areas are building higher-end rentals. The high demand for affordable housing can make Growth REIT assets appreciate more quickly than their luxury counterparts. 

How Much is it to Invest in the Growth REIT?

Individual shares of the Growth REIT are available for $20.75 per share. This offering is listed in Fundrise’s “core” investor category, which means you make a minimum contribution of $5,000 to become a shareholder in the Growth REIT. Yes, $5,000 is a lot of money, but considering that many other competing funds and offerings have minimums of $25,000 or more, the Growth REIT is a great investment value. 

Growth REIT Asset Breakdown

Currently, the Growth REIT portfolio holds 11 assets. It’s a mix of multi-family assets and one single family home. Of those holdings, 55.1% of the Growth REIT’s assets are in the value-add category, with 40% in core plus and 3.9% in fixed income. Overall, it’s a diverse spread that offers investors a solid combination of revenue, stability and appreciation. 

Growth REIT Performance

Here’s a simple truth about REITs. Although there may be many different REITS with a lot of different investment strategies, the destination is more important than the road traveled. Performance is what matters. This is where the Growth REIT shines brightest. The annual returns on the Growth REIT for the last five years are as follows:

  • 2017 – 17%
  • 2018 – 18.4%
  • 2019 – 20%
  • 2020 – 12.8%
  • 2021 – 43%

If you’d put $10,000 into the Growth REIT in 2016, it would be worth nearly $28,000 today. That kind of performance is nothing to sneeze at. However, past performance is not an indicator of continued success. If the Growth REIT can continue delivering like this, it could be a valuable addition to your portfolio. 

Final Thoughts on the Fundrise Growth REIT

One of the reasons multi-family real estate is such a strong asset is necessity. Everyone needs a place to live, and most workers need an affordable place to live. This is especially true in cities with growing populations, where the lack of affordable housing can dampen economic growth. 

The Fundrise Growth REIT has done a great job of positioning itself by acquiring assets that both serve the needs of renters and the end goal of real estate investors. Perhaps that’s why it has performed so well over the last half-decade. The Growth REIT’s affordable buy-in and availability to non-accredited investors is just the icing on what looks to be a tasty slice of wealth-building cake. 

Create a Fundrise account to access the Growth REIT or view other offerings.

Photo by dadao on Shutterstock

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