Have you ever played a game of Monopoly and thought about how you could play it in real life? Today, that thought is reality. The rules change a bit in real-life Monopoly, but the principles stay the same. Passing “Go” means collecting your salary. Instead of landing on a property, you can choose from a number of properties to invest in from the start of the game. Instead of investing in the whole property, you can invest in fractions of it. And lastly, instead of waiting for someone to land on your property, you collect rent every month. These are the basic principles of investments offered by Ark7.
Who/what is Ark7? Ark7 is a growing company based in San Francisco, CA that invests in individual properties. In turn, Ark7 offers accredited investors the opportunity to invest in the properties that they are interested in. The beauty of this investment is that it is completely hands-off. Ark7 handles all of the management of the property including leasing, financing, legal, and reporting responsibilities. Additionally, Ark7 investments offer stable monthly income at affordable share prices, with shares of properties offered for as little as $5.40, allowing you to diversify as you see fit.
How Is Ark7 Different Than Other Hands-Off Real Estate Investing Platforms?
There are effectively four ways to invest in real estate equity without buying a whole investment property yourself. Those options are to invest in/with a:
- Real Estate Investment Trust (REIT)
- Private Equity Fund
- Crowdfunding Platform (CrowdStreet, Fundrise, Etc.)
So, what’s the difference between these platforms? The best way to describe their differences is with the graphic below.
REITs are long-term holders of real estate and offer consistent income, much like Ark7 investments. However, when you invest in a REIT you invest in an established portfolio of properties. With Ark7 you are able to invest in the properties that you find most attractive.
REITs come in a number of varieties but for the sake of simplicity, can be distilled down to two, public and private. Public REITs are those that are listed on the stock exchange while private REITs are not.
Publicly traded REITs often offer lower income than Ark7 investments. For example, if you were to invest $100 in a REIT index fund such as Vanguard Real Estate Index Fund ETF (VNQ) on December 14, 2020, you would get paid $4.20 per year. In comparison, many of the properties Ark7 offers would pay over $6.00 for that same $100 investment.
A large reason for the income discrepancy is what is called liquidity, or the ability to sell your investment for cash. With a publicly-traded REIT, you can sell your investment almost instantly at a known price. For now, Ark7 will buy back your investment at 95% of what you paid for it within the first 12 months of Berkeley property ownership. After that and within the first 24 months, Ark7 will buy back your investment for 100% of what you paid for it. In time, as the platform grows, Ark7 will create a marketplace where you will be able to offer your shares to other investors, much like the stock market.
Private REITs are illiquid, meaning that they cannot be instantly sold for cash. Selling Private REITs varies by company and may be limited or non-existent depending on the REIT. Again, Ark7 has created a solution to this problem whereby you can sell your shares back to Ark7 for cash.
There are two benefits to investing in Private REITs. The first is that when you invest you may be able to earn additional income for the illiquidity. The second is that Private REITs are not subject to stock market volatility, like their publicly traded REIT counterparts. Ark7 investments share both of those benefits.
In short, when you invest in REITs you invest in an established portfolio of properties. With Ark7, you are able to invest in individual properties and create your own portfolio.
Additionally, Public REITs offer liquidity but often offer lower income as a result, while Private REITs are illiquid but have the potential to earn additional income. Ark7 investments are like Private REITs in the sense that you can earn additional income but have liquidity as you can sell your investment back to the company or other investors. Lastly, Public REITs are subject to stock market volatility while Private REITs and Ark7 investments are not.
Private Equity Funds
Private equity funds are typically short-term holders of real estate. Think of them as residential fix-and-flippers or home builders but on a larger scale and with options to invest in other property types such as office, retail, or industrial. As an example of what they do, imagine a rundown apartment building in a decent area of town. A private equity fund would purchase that property, fix the exterior of the building, renovate the units, raise the rents, and sell for a profit over a period of 2-10 years depending on how big the apartment building and how extensive the work to be done.
Some private equity funds allow you to choose which properties you invest in, similar to Ark7, while others give you a general description of the types of properties they will invest in. It depends on the fund.
Generally, the downside to a private equity fund is that there is a high dollar commitment needed to invest. Many funds require a minimum of $10,000 or more per investment. With Ark7, you can invest in properties for as low as $5.40. However, the upside to private equity funds is you can earn higher returns, although you will likely be taking on more risk to do so. For example, let us assume that the fund wants to invest in a piece of land to develop into an apartment building. Given the extensive work that needs to be done, there are a number of factors that could go wrong, such as having to change building plans, contractors taking longer than anticipated, or problems leasing the building. In contrast, Ark7 offers opportunities to invest in existing properties with tenants in place.
Lastly, private equity funds typically don’t offer a lot of income while your investment is in place. This is because that cash is needed to reinvest in the property to complete the development or renovation, meaning that most of your return is achieved on the sale of the property. In contrast, Ark7 offers stable monthly income, the main benefit of a long-term hold period.
To summarize, private equity funds require a high dollar commitment needed to invest and typically don’t offer a lot of income during the hold period as most of the money is made on the sale. In contrast, with Ark7 you can invest in properties with no minimum investment and receive a stable monthly income in excess of comparable private equity funds.
Crowdfunding platforms and private equity funds are similar investments in nature. The only difference is that crowdfunding platforms are intermediaries that bring together real estate investors and private equity funds in one place. Think of them as malls that bring retailers (private equity funds) and customers (investors like yourself) under one roof.
Crowdfunding investments come in a number of flavors. You can invest in a group of properties for as little as $500 or you can invest in individual properties for as little as $10,000. Again, much like the private equity funds, crowdfunding platforms provide investments that are short-term in nature. Your investment typically goes towards buying a property, building or fixing it, collecting or raising rents, and then selling for a profit after 2-10 years. This is in contrast to an Ark7 investment that can be held indefinitely.
Generally, the downside to crowdfunding investments is either a lack of choice on the properties that interest you the most or a high dollar commitment needed to invest. Additionally, there is typically limited income during the tenure of your investment as the cash is tied up in renovating or building the property. Lastly, liquidity can be an issue as well given that many crowdfunding platforms don’t offer you a way to sell your investment before the designated hold period is complete.
In summary, crowdfunding investments typically have short-term hold periods with limited income until the sale of the property while Ark7 investments have long-term hold periods and stable monthly income.
Is Ark7 Right for Me?
Ark7 invests in individual properties and offers you the opportunity to choose which of those properties you want to invest in. There is a low dollar commitment with the ability to purchase an interest in a property for as little as $5.40. This low dollar commitment allows you to diversify your real estate investments as you see fit. For example, continue investing in a property you already own or purchase an interest in another property available on Ark7.
When you invest in these properties, you receive a stable monthly income in excess of many other real estate investing platforms. The investments are low risk in nature given that they are pre-vetted by real estate professionals, already have tenants in place, and have a long-term hold period. In summary, if you’re looking for a low-risk, long-term real estate investment with stable income and the ability to choose which, as well as how much, of a property you invest in, then Ark7 is right for you.
No commission, no hidden fees, and the sign-up is free. Easily browse available properties and details. Sign up at www.ark7.com.