If you’ve been looking to diversify your investment portfolio into a “hard asset”, you should take a close look at stREITwise.
It’s not a real estate crowdfunding platform – which tend to be higher risk – but a public, non-traded real estate investment trust that provides high dividends, plus the potential for capital appreciation.
The returns on the REIT thus far are comparable to those provided by the S&P 500 over the long-term. This makes it a perfect diversification if you’re looking to move beyond stocks, and add commercial real estate to the equity portion of your portfolio.
Commercial real estate often performs in different cycles then stocks, and can provide healthy returns when stocks are sinking.
Who Is stREITwise?
stREITwise is an online real estate company, that sponsors a real estate investment trust (REIT). It is not to be confused with the many real estate crowdfunding platforms, which primarily solicit investments from individual investors in specific real estate projects, using either equity or loans investments.
When you invest with stREITwise you’re investing in an equity REIT. This type of investment has several advantages over both real estate crowdfunding platforms and direct investments in real estate itself. As an equity investor, you not only get the benefit of a steady stream of dividends paid by the underlying investments, but you also participate in capital appreciation when the properties are ultimately sold. That gives you potential to increase the profit from your investment. And unlike owning real estate outright, you don’t need to manage the property or get your hands dirty.
A REIT itself has many advantages over other asset classes. It essentially operates as a mutual fund, except that it includes commercial properties instead of securities. Properties included can be office buildings, retail space, warehouses, hotels, and large apartment complexes, as just a few examples. Since they hold multiple properties, they’re often geographically diversified across many different markets. Properties are primarily income generating real estate.
There are tax advantages to REITs as well. By law, they must return a minimum of 90% of their taxable income as dividends to shareholders. Typically, at least part of the dividend income is offset by depreciation expense, which is a paper expense that reduces the taxable income. Meanwhile, as pass-through deductions, REIT investors can deduct up to 20% of their dividend income. And when the underlying properties are sold, investors get the benefit of lower long-term capital gains tax rates.
stREITwise is a relative newcomer, having begun operations in 2017. It’s REIT is non-listed, which means it doesn’t trade on any exchanges. All properties held in the trust are directly owned by the REIT. By owning shares in the REIT, you have indirect ownership of the properties held in it.
Investing With stREITwise
When you invest with stREITwise you’ll purchase shares of the trust’s common stock. The stock price is currently set at $10.11* (*Number changes quarterly). That means with a minimum investment of $1,000, you’ll own around 98.9 shares in the REIT.
The REIT currently holds two large commercial properties, and has been paying an annualized dividend of 10% since the trust was launched. Dividends are paid on a quarterly basis, and are net of fees. The dividend alone is comparable to the long-term performance of the S&P 500, and well above interest rates paid on fixed income investments, like bonds and CDs.
stREITwise fees: stREITwise has two fees. The first is a 3% upfront fee when you purchase your shares, followed by a 2% annual management fee. Once again, the dividends paid thus far are net of the 2% annual fee.
stREITwise investor requirements: One of the issues with many online real estate investment platforms is the accredited investor requirement. It requires participating investors to meet one of the following requirements;
- Have earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expect the same for the current year, OR
- Have a net worth over $1 million, either alone or together with your spouse (excluding the value of your primary residence).
When you invest with stREITwise you don’t need to be an accredited investor as long as your investment in the REIT doesn’t exceed the greater of either 10% of your individual or joint net worth (excluding the equity in your primary residence), or 10% of your individual or joint income for the most recent two years. If your investment exceeds these numbers, you will be required to be an accredited investor.
REIT redemption policy: stREITwise REIT has a one-year “lockout”, during which you cannot redeem your shares. After that, you’ll have a quarterly option to participate in the stREITwise Stockholder Redemption Plan. The redemption plan enables you to redeem 90% of the net asset value of your position after one year, rising in gradual increments to 100% after five years, subject to certain restrictions as detailed in the offering documents.
Read full detail sin the offering circular.
stREITwise Investment Methodology
stREITwise is led by its three founders, with a combined 40 years of experience in real estate investing, worth more than $5.4 billion worth of properties. But the founders not only manage the REIT, they also have direct ownership in each investment. That gives them the all-important “skin in the game” that leads to more careful investment management. They currently have $5 million invested in the REIT.
Their investment strategy involves looking for properties that meet the following requirements:
- Value oriented investments – considers strategic location, nearby amenities, established employment, quality construction and sustain occupancy.
- Creditworthy tenants – usually larger, better established tenants, like Wells Fargo, IBM, Edward Jones, and Verizon.
- Non-gateway markets – stREITwise avoids the high-priced coastal markets, favoring more moderately priced cities that provide higher dividend returns.
- Modest leverage – high leverage equals high risk, so stREITwise favors properties with lower leverage. The company targets a leverage range of between 40% and 60% of the value of each property.
When stREITwise invested in commercial property, they generally expect to retain the investments for about 10 years. More specifically, the property will be held until the value reaches what management believes to be an optimal level. Once that point is reached, the property will be sold. When that happens, the proceeds will either be distributed to investors, or invested in a new property.
The stREITwise REIT currently holds two commercial properties, but regularly considers adding others. The two properties held in the REIT are described below:
In total, the company has $28 million invested for active investors. Tryperion Partners has previously invested in properties in San Antonio, Texas, Minneapolis, Cleveland, and Tempe and Chandler, Arizona.
stREITwise investments are regulated by the Securities and Exchange Commission (SEC), under Regulation A of the JOBS Act.
stREITwise Features and Benefits
Minimum initial investment: $1,000. Additional investments can be made in $500 increments.
Available account types: The stREITwise REIT can be held by individuals or in corporations, LLCs, trusts, and self-directed IRAs or 401(k)s.
Dividend reinvestment: stREITwise offers a dividend reinvestment plan (DRIP) where you can elect to have your dividends used to purchase additional shares in the REIT.
Customer service: Contact is available by email and live chat. Phone contact is available at (310) 907-5527, Monday through Friday from 9:00 am to 5:00 pm, Pacific time.
Platform security: All investment documents are processed electronically through stock transfer agent services. The services are provided by FundAmerica and Computershare, both of which are secure SEC-compliant platforms.
How to Sign Up with stREITwise
stREITwise is available to both US citizens and legal residents, as well as non-US customers. However, non-US customers must open an account over the phone, with wireless payments enabled.
US-based customers must provide the following information:
- Full name.
- Email address.
- Indicate that you are investing as an individual.
- Indicate if you’re investing jointly.
- The dollar amount you plan to invest.
- Street address.
- Email address.
- Telephone number.
- Social Security number.
- Date of birth.
- Indicate if you are an accredited investor or a non-accredited investor. In either case, you will have to confirm your income and net worth information.
You will then need to complete an ACH Authorization Form to connect your bank account. You’ll need to supply the name on the account, as well as both the routing number and account number, then indicate what type of account it is (business or personal, checking or savings).
Finally, you’ll need to electronically sign the Subscription Agreement. Once you’ve completed and submitted that form, you will receive a confirmation of the dollar amount transferred from your bank account.
When you purchase actual shares of the stREITwise REIT, you can do so through the Computershare Investor Center, where you can also log in to see your portfolio and get access to statements online. You can even set up dividend reinvestment there.
stREITwise Pros & Cons
- stREITwise is available to both accredited and non-accredited investors. Accredited status will be required only for larger investments.
- You can make an investment with as little as $1,000.
- stREITwise REIT can be held in either self-directed IRAs or self-directed 401(k)s. Since real estate is an excellent long-term investment, it’s perfectly suited to retirement plans.
- The current dividend yield of 10% matches the long-term return on the S&P 500. This makes the stREITwise REIT an excellent diversification to add to a portfolio of stocks and bonds.
- stREITwise uses a fundamentally sound investment strategy in selecting investment properties. This includes purchasing investments in lower-cost markets that offer higher potential dividend yields.
- As an equity REIT, stREITwise offers investors an opportunity to earn regular high dividends, as well as participate in capital appreciation upon the sale of investment holdings.
- The managing partners are also invested in the REIT, giving them greater incentive to manage the trust responsibly and profitably.
- High liquidity. The stREITwise Stockholder Redemption Plan gives you an opportunity to redeem your stock for 90% or more of its value after just one year. By contrast, real estate crowdfunding platforms typically require you to remain fully invested until the underlying investment has been disposed of. That can take several years.
- The company charges an upfront fee of 3% which is allocated to operations. The fee is lower, however, than the upfront fee charged by most real estate crowdfunding platforms.
- The current offering is a single real estate investment trust, holding two investment properties. This represents a limited diversification.
- stREITwise is a new platform, having been launched only in 2017, making the track record just two years.
- As is typical with real estate investments, you’ll have limited liquidity. However, with stREITwise you can redeem most of your investment value after as little as one year.
Should You Sign Up with stREITwise?
With the stock market trading at all-time highs, now is an excellent time to consider diversifying your equity portfolio into other asset classes. Commercial real estate is an excellent choice because it offers returns comparable to the long-term rates on the S&P 500. What’s more, commercial real estate often performs well even when the stock market is in a bear market cycle.
Commercial real estate also offers you an opportunity to add an all-important hard asset to your portfolio. When you invest in the stREITwise REIT, you’re investing directly in commercial real estate. That gives you an opportunity to earn steady dividends from the rental income, as well as participate in capital appreciation upon the sale of the underlying properties.
REIT investments also have solid tax incentives, like the 20% pass-through deduction, and depreciation expense, which is a paper expense that lowers your taxable income. Finally, you can get the benefit of lower long-term capital gains tax rates when REIT properties are sold.
The stREITwise REIT enables you to invest in a sophisticated investment like commercial real estate for as little as $1,000. stREITwise investments offer lower risk and potentially higher returns than most commercial real estate investments. They do this by investing in lower-priced markets that offer higher dividend yields. But they also maintain lower leverage levels, invest in properties with creditworthy tenants, and are well located, being close to transportation, amenities, and employment.
stREITwise offers another significant advantage that most online real estate platforms don’t, and that’s a high level of liquidity. With most platforms, you’re required to tie your money up for several years. That can be a real problem if your personal financial situation changes suddenly and radically. But one of the major features that separates stREITwise from the competition is that you can redeem 90% or more of your investment after holding your position for at least one year. That’s far greater liquidity than typically comes with any commercial real estate investment.
If you’d like more information, or you’d like to sign up for the service, check out the stREITwise website.
Minimum investment requirement10.0/10
Accredited investor requirement10.0/10
- High, consistent returns
- Low minimum initial investment
- Solid investment selection methodology
- Excellent balance between risk and reward
- Better liquidity than most commercial real estate investments
- Up front fee of 3%
- REIT currently holds only two properties
- stREITwise is just two years old