Finding the right mix for your asset portfolio in a low yield environment takes looking outside of the box to maximize your returns. Looking at the standard asset classes, with interest rates raising, REITs in general can yield higher than the stock market.
Any investment has its risks. Generally, people shouldn’t invest unless they’re willing to lose their entire investment. If the investment is your retirement account – be extra cautious. You don’t want all your eggs in one basket.
Perhaps the number one advantage of investing in real estate is that you get the benefits of investing in real estate – income generated from monthly rents, loan payments, and dividends – without the burden of managing the upkeep and maintenance on those properties. You act as a casual investor reaping the rewards of real estate investing without having to manage a property.
When Dividends are Paid Out to Real Estate Investors
One reason to invest in REITs is the favorable tax treatment and dividend payouts. Unlike investing in businesses where you expect to see increasing profits from continued growth, 90% of the profits have to be issued in dividends from investments in REITs. Instead of waiting for a business venture to show profits before receiving a dividend, investors get their share quarterly or annually in regular dividend checks.
With Marketplace lending, investors can expect to receive monthly disbursements throughout the lifetime of the loan. Principal investments are typically returned to investors between 6 months to 24 months, depending on loan payoff dates and loan extensions. Servicing fees vary by marketplace lending platform, but typically range from 1% – 3%, compared to REIT management and servicing fees from 3% – 15%.
REITs vs. Marketplace Lending Yield on Real Estate Investments
At one point, if you put away a million dollars into a general savings account, within a year, that million dollars would produce close to $50K in interest. As Forbes points out, that money will only produce a maximum $500 in a year invested in a typical FDIC backed savings account today.
Investing in REITs results in dividend payments of $5K or more for the same amount of money. Even after the most recent interest rate increase, one of the top REITs on the index (Vanguard) showed yields of more than 10%. The S&P only gained 4% over the same period.
While it is true that investing in real estate can produce higher returns for an experienced REIT investor, marketplace lending allows investors to diversify their portfolio and enjoy returns of 10% up, all without the steep servicing fees.
One of the key differences between investing with REITs and marketplace lending platforms is that the latter allows investors to invest directly into the project, location, borrower, and market that they choose. By putting more power into the investor’s hand, and cutting fees, investors can expect to see returns varying from 8% – 14% on debt projects, and 14% – 20% with equity projects.
Diversified Real Estate Portfolios for Better Returns
Finally, REITs instantly diversify your portfolio resulting in better returns. In one REIT you may be invested in a commercial building, an apartment building, and a couple of warehouse distribution centers. The more diverse the portfolio, the better the returns, and the better the hedge against volatility.
While this style of diversification may work to the benefit of experienced REIT investors, marketplace lending allows portfolio diversification controlled by the investor.
When investing in a marketplace lending loan, investors can expect to perform due diligence on the project by reviewing all public loan documents, borrower project history, platform underwriting score, appraisals, etc.
Platforms like Sharestates.com only present the highest quality loans to its investors. Each Sharestates loan has undergone a 34-point underwriting risk assessment system, is collateralized by the asset, and is secured by the Sponsor’s personal guarantee. This allows for true diversification, because instead of investing into a blind real estate pool, the investor can decide just what property types, markets, and borrowers to invest in.
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