Arrived a rental/real estate profit sharing anyone hear of this before?

[Heroes821]

I've been ignoring these forums for way too long.

I recently heard about this website arrived.com they basically buy single family homes as rental properties and you can put as little as $100 into the purchase price and then you get monthly dividends when it's rented out based on the rent. 

I have yet to find anyone I know that has put anything into this.  It feels like lending club all over again, and ethically like a bad idea to have these faceless corporations owning rentals, but I threw a $100 at it to see how it goes.

Has anyone played with this yet? 

[Boll weevil]

I’ve thought about it a few times but never followed through.

I’ve been wanting to expand into real estate syndications to provide some passive/hands off investment diversification, but have taken almost no action to follow through.

I did some googling for comparisons between Arrived.com and syndications and the few that I found recommended syndications, so that’s the path I’m currently procrastinating on.

[MustacheAndaHalf]

Their team is mostly software engineers, not experts in real estate.  They mention total returns of 6 to 10%/year, of which 3 to 5% is cash.  For an illiquid investment, where your money is tied up 5-7 years, that seems a bit low to me.  And I'm surprised at how few details they provide on the fees, but I'm not an expert.

If they pay $4/year on $100 invested, and pay back the principal and appreciation in the last year, I get an "internal rate of return" (IRR) of 7.45%.  In dozens of hedge fund offerings I've seen, none of them have ever offered an IRR that low.  It looks awful.  Maybe I miscalculated something, but that brings me back to an earlier point: they aren't describing this investment with enough detail.

People who know better recommended the book "Investing in Real Estate Private Equity".
https://www.amazon.com/gp/product/B01IW0G0S0/

[Rob_bob]

I find it more liquid and diverse to invest in housing REITs, and other sector REITs.

[MrGreen]

After having a little skin in the game when RealtyShares collapsed, I will never again invest in a crowd sourced real estate platform. The protections are almost nonexistent if and when things start going bad. Earning 6-10% for that level of risk is pretty poor. It should be near double that. The returns on RealtyShares investments were in the low-to-mid teens when they were small and that felt like an appropriate rate for the risk. As they got bigger and their popularity made it easy to raise funds the ROI dropped into the single digits and I stopped investing because the risk wasn't worth it. Now crowd funded real estate is more well known.

[Dicey]

Nah. I have enough RE exposure in my portfolio.

Speaking of REITs, I'm not really a fan. It seems like they raise the money, then have to do something with it. That something can be ill advised. This is especially true for brick-and-mortar stores. I'm seeing Walgreens, Rite-aid, CVS, etc. stores closing down and nothing taking their place. In Palm Springs, an entire shopping center closed down. Commercial RE is a total crapshoot right now, IMO.

I like to have more control, which one gives up completely in ventures such as these.

[Metalcat]

We had a few of these in Canada who were buying up priorities like crazy during the pandemic. After some went bankrupt, a lot of investigative journalism uncovered that they're essentially a borderline ponzi scheme.

Not an actual ponzi scheme in that they're not illegal at all, but shades of a ponzi scheme in that they entirely depend on perpetually bringing in more investment money as their main growth mechanism for the company, but the properties they're buying for the investors don't necessarily match sound investment principles.

I was up against these investment companies, which we're making massive over-asking offers with no inspection for properties that VERY MUCH required inspections. But they need to get the cash out the door and into property equity so fast that they can't actually afford to take the time and due diligence to secure good investment properties at sane prices.

This may not be the case for this company in particular, but these practices were commonplace in the Canadian companies with similar business models.

Basically, I personally wouldn't feel confident investing with one of these companies after seeing how some of them were buying and what happened in the aftermath here.

I'm sure the model can be done well, I just saw it done so poorly first hand, it wouldn't be my first choice for investing in real estate.

Here's a news story covering what happened in 2022 to one of these companies, which was buying rental properties in the same area that I was in 2021.

https://ca.news.yahoo.com/real-estate-company-collapses-500-080000734.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAEpe8KHw1eD7xjstZ04rCTs33PSVlZxxxuLe-N4iU8rHywQ1W83VXaI5hzRLdVh0mKBzCNiurgE1qagOs8KQFD3BnwIyn4iXbPc71vyMOzYWj_kGyUM6O5rHc3fwJdPBZlEt16UYPwKlW8J3zZjdlZIqrYpmfscFPKhWcDx3RQD3

[AJDZee]

I find it fascinating you concluded it's unethical and yet 'threw $100 in to see how it goes' anyway
I say this not really from a judging standpoint, more from an observer of human behaviour. (but also from a little bit of judging too, tbh  haha)

[Heroes821]

Thanks for the responses!  I remember the lending club disaster and figured most of these things will eventually end up the same way. 

To AJDZee, a few of my buddies raised the ethical question and while I can agree with it.  I figured it could be an interesting experiment for a few hundred dollars.  I can't see me putting more than $500 in over time.  I feel like one of the best options for real estate is to be a good landlord if you want to rent properties out, I just need the wife on board.

[ChpBstrd]

Their team is mostly software engineers, not experts in real estate.  They mention total returns of 6 to 10%/year, of which 3 to 5% is cash.  For an illiquid investment, where your money is tied up 5-7 years, that seems a bit low to me.  And I'm surprised at how few details they provide on the fees, but I'm not an expert.

If they pay $4/year on $100 invested, and pay back the principal and appreciation in the last year, I get an "internal rate of return" (IRR) of 7.45%. 

As a comparison investment in the real estate industry, consider MAA-PRI which are preferred shares for the Mid-America Apartments REIT, which owns thousands of residential apartment units. These $56.11 shares yield 7.69% at today's price.

As another comparison, INN-PRF, which are preferred shares for Summit Hotel Properties. These $19.04 shares yield 7.87%.

I'd argue that either established company is a historically safer bet than real estate crowdfunding, for about the same expected return. RE crowdfunding seems like a product squarely aimed at the FOMO crowd who watched others get rich on real estate during the latest bubble, does not currently own because they live in a HCOL area, feels they cannot get on "the property ladder", and sees this as a substitute for actual equity in a property.

[MustacheAndaHalf]

Their team is mostly software engineers, not experts in real estate.  They mention total returns of 6 to 10%/year, of which 3 to 5% is cash.  For an illiquid investment, where your money is tied up 5-7 years, that seems a bit low to me.  And I'm surprised at how few details they provide on the fees, but I'm not an expert.

If they pay $4/year on $100 invested, and pay back the principal and appreciation in the last year, I get an "internal rate of return" (IRR) of 7.45%. 

As a comparison investment in the real estate industry, consider MAA-PRI which are preferred shares for the Mid-America Apartments REIT, which owns thousands of residential apartment units. These $56.11 shares yield 7.69% at today's price.

As another comparison, INN-PRF, which are preferred shares for Summit Hotel Properties. These $19.04 shares yield 7.87%.

I'd argue that either established company is a historically safer bet than real estate crowdfunding, for about the same expected return. RE crowdfunding seems like a product squarely aimed at the FOMO crowd who watched others get rich on real estate during the latest bubble, does not currently own because they live in a HCOL area, feels they cannot get on "the property ladder", and sees this as a substitute for actual equity in a property.

KKR is a private equity firm that was founded about 50 years ago.  I've invested in one of their real estate funds, although it is probably a better tactic to simply buy the company's stock, which has gone up +400% in the past 5 years.

[ChpBstrd]

As I think more about it, the main difference between these RE crowdfunding platforms and a simple REIT or RE hedge fund is that the crowdfunders tend to assign your investment to a particular property. Instead of faceless shares representing a diluted-beyond-imagination share in a company that owns thousands of properties, you get to see a picture of the one apartment complex or skyscraper that you own a slice of.

The psychological gimmick is that you then feel like you own real estate instead of just shares. In reality, they're both shares. The crowdfunding platform has tricked you into being less diversified, and in return given you a feeling like you own actual real estate. That feeling matters to people who cannot afford to buy their own RE.

But there's also a difference in buying into a RE project, as a novice, at its riskiest point, compared to buying into an REIT that has been managing the same buildings for over a decade. Most RE crowdfunding I've seen has been for the former. So in that situation, investors choosing the crowdfunding over the REIT are reducing diversification and increasing risk at the same time. It's the equivalent of selling VTI to go all-in on a meme stock.