In our last article, we discussed the importance of choosing residential REIT investing over other REIT options due to the impact COVID-19 has had on retail and commercial spaces. Consider that major corporations are refusing to pay their rent while your neighbors continue to make payments on their rental homes consistently. It’s no wonder why you would want to stick with the stability of residential real estate when considering the diversity of your portfolio!
However, while we do recommend turning to rental properties as a form of stable, long-term income, the type of residential REIT structure you choose also matters!
We’ve explored some of the technical and logistic differences between various REIT structures (such as DownREITS vs. UPREITS). Still, there’s more that goes into your choice of REIT than just the level of complication when it comes to investing!
When investors with a sizeable portfolio first consider the transformation of their properties into operating units in an UPREIT, they’re also bombarded with information about the differences between private and public REITs. At The Peak Group, we favor private REIT investing for several reasons, but we’ll get into those shortly. First, we want to address some of the negative press surrounding private REIT investing that you may have encountered during your research.
The Reputation of Private REITs
The trustworthy advisors over at The Motley Fool didn’t cast the first stone, and they did a fair job describing the benefits of private REITs for investors. However, they also pointed many investors away from the powerful return potential of private REIT structures because of some issues that could, frankly, plague other forms of investing as well.
One of the most significant drawbacks they accused private REITs of suffering from was a lack of transparency in investing. At The Peak Group, we agree that a lack of transparency is a serious roadblock to legitimate investing—and to generating any sustainable, long-term wealth. We decided to blow this notion out of the water when we formed our Peak Housing REIT by promising investors best-in-class, transparent reporting every quarter. We’re investors, too, so we know that this happens to be a big deal. You can now check concerns about transparency off the list when considering a move to private REIT investing.
An additional complaint we see too often associated with private REIT structures is that they languish under the effects of bad management. This inadequate approach to managing the collective success of the portfolio seems to stem from the fact that it’s far easier to distance yourself from what you manage when you aren’t personally invested in its success. This is, unfortunately, the typical outcome for private REIT structures that simply sell portions of what they offer to investors rather than being “all in.”
Merely managing an UPREIT isn’t enough to guarantee its profitability—and the kind of returns that only private REITs can provide. This is exactly why more than $3MM of our sponsors’ wealth is invested alongside yours in our Peak Housing REIT. Sharing your financial future with the investors you serve means you’re far more likely to be accountable. It’s a responsibility we take seriously at The Peak Group. It was exactly with the issues mentioned above in mind that we decided to build a better UPREIT.
Now that we’ve handled some of the negative press that trails private REIT investing, we can get into the elements that make it an exciting option for investors looking to trade up their portfolios.
Private UPREIT Perks for Investors
Private REIT structures simply yield better returns than public REITs can offer.
Publicly-traded REITs in peak condition usually expect returns (at most) of 5-6%. At The Peak Group, this is one reason we favor a private UPREIT over a publically-traded REIT. With our strong foundation in exceptional property management, construction, and acquisition, the Peak Housing REIT is already projecting strong yearly cash flows of 6-9%, paid quarterly.
Given that we report and pay quarterly (and manage everything for you), investors who have spent a tense few months watching the stock market waver to the whims of COVID-19 will appreciate the lack of fluctuation that private REITs provide. The value of our operating units is based intrinsically on the value of the properties we hold in our portfolio, sheltering you from severe volatility and yielding reliable, long-term, growth-oriented income.
Private REITs also offer additional benefits over public REIT investing: their management tends to be more hands-on, intimate, and reactive. What this means is that when your administration is sound, the Umbrella Partnership fielding the success of the UPREIT is able to be more responsive. This allows them to make decisions on your behalf to protect and shelter your investments in the REIT.
You Need the Right Guide
While we disagree with The Motley Fool’s stance on private REITs in many ways, one thing they pointed out is (unfortunately) real: you can’t trust every private REIT structure out there to bring you the kind of honest returns you deserve. For this reason and this reason alone, you need the right guide when transitioning your portfolio from physical holdings to operating units in an UPREIT.
This is precisely why we built a better UPREIT structure with our Peak Housing REIT. We are uniquely qualified to guide investors into transforming your rental properties into a high-yield, growth-oriented powerhouse!