We hear a lot of first-time investors who are considering whether they should invest in real estate ask this question: 'What is better for a first-time investor: an UPREIT, or buying a property and building from there?' Our immediate answer is the UPREIT, but you may be wondering why.
The reality is that REIT investing is a powerful tool for portfolio growth that easily exceeds the kind of returns investors can expect to see on their own from building one property at a time.
- Properties within an UPREIT structure like the Peak Housing REIT offer superior performance because they have access to better interest rates and insurance terms due to an economy of scale.
- In addition to this benefit, real estate property within the UPREIT comes readily diversified and represents truly passive real estate investing—reducing first-time risks for investors.
- Rather than struggling through so many of the pitfalls of early investing, partners that end up with operating units in private REITs (specifically, an UPREIT structure) end up on the fast track to financial freedom.
However, it's important to understand that of the variety of REITs that exist—such as mortgage REITs (mREITs), equity REITs, or private REITs—not all are equal in value or worth your time. This makes evaluating which Real Estate Investment Trust you choose a crucial element of your research into REIT investing.
Choosing From the Various Types of REITs
We already touched on the existence of these briefly above, but it's worth diving into the various types of REIT in more detail. Many of these are publicly-traded REITs that operate off of a stock-market premise, where investors end up purchasing shares in the REIT and hold REIT stocks.
Equity REITs function off of tangible real estate property they hold. Real estate companies such as these are compelled by the IRS to distribute at least 90% of their income in dividend yields to investors. They earn their returns by leasing properties in their portfolio to renters through residential, retail, or commercial real estate, to name a few options.
These can be privately held or publicly-traded REITs, and they're what people are generally referring to when they talk about REIT investing.
Mortgage REITs (mREITs)
Mortgage REITs primarily earn their income from the interest rates they charge on mortgages they either purchase or originate. They tend to focus on residential or commercial real estate and represent a form of liquidity in the market. While they do not represent the majority of existing REITs, they are nonetheless important. It is currently estimated that, collectively, mREITs finance around 1.8 million homes.
Private REITs (such as the Peak Housing REIT) are reserved for accredited investors only. This provides financially-sophisticated investors with an elite investing experience and has the added effect of reducing risk shared by investors within the UPREIT structure.
Unlike an equity REIT that operates off of purchasing shares, UPREITs first convert contributed portfolio equity into tax-deferred operated units, making them an ideal addition to estate planning strategies. Such units are evaluated on a stepped-up basis when gifted to beneficiaries.
As an additional benefit, private UPREITs often boast higher returns than their counterparts—depending on the property types they chose to focus on. This makes researching where the UPREIT invests their capital just as important as the investigation into REIT type.
Selecting Your UPREIT by Property Type—Wisely
Ultimately, the type of property your UPREIT partner of choice is focusing on will impact the kind of dividend yield you can expect to see. The Peak Housing REIT is focused primarily on bread-and-butter, single-family rental homes because we've detected a tangible, generational shift in demand in housing.
The greatest pool of potential renters (millennials) is rapidly exiting the multi-family housing space in favor of room to grow a family. COVID-19 also slammed multi-family markets (just look at New York and Seattle)—and hit commercial and retail spaces even harder. Work from home is no longer a trend, but rapidly becoming a long-term future for many businesses looking to cut overhead. Guess where that new 'office space' is going to be located? Within a larger, single-family rental home.
Single-family rental holdings are a newer asset class but already performing better than their well-established peers due to the above issues now facing real estate as we move deeper into 2020. This asset class is our specialty here at The Peak Group, and we've been serving investors in single-family properties for years now as builders, property managers, and acquisition specialists.
We know this business—and we are good at what we do. This is why our projected returns are already outclassing established forms of REIT investing.
Working With the Right Partner as a First-Time Investor
If your goal is a superior investing experience, then you need the right partner. You need a partner who has years of experience in the industry and a track record for proven returns: You need The Peak Group.
Allow us to guide you on the benefits of selecting the right UPREIT for first-time investing bliss! Our goal is always to provide elite returns for our investors looking for financial freedom. Get in touch with us to learn more—and about the exciting developments in the Peak Housing REIT!
Posted by The Peak Group on October 15, 2020