FOMO is powerful, we get it.
The allure of trendy investment portfolios filled with celebrity-endorsed SPACs and crypto is exciting and has the potential to be rewarding. However, as evidenced by the past few months, these investments can also be very unstable — and when you wake up to see that your best positions have declined into the red, panic sets in…bear market? You may wish you had diversified more…and that you hadn’t put all your eggs in that electric vehicle company’s basket.
With the unpredictability of the stock market right now, real estate has a number of compelling characteristics that make the asset class a strong allocation in a diversified portfolio. And even though you may not hear about it as much as Elon’s new offspring or the NFT industry, real estate has actually been the most favored investment of Americans for eight years in a row.²
Alright, but why?
- Leverage: Leverage uses borrowed capital to increase the potential return of an investment. This is because the cost of debt financing, such as a bank loan, is usually cheaper than the unleveraged returns a property can generate
- Income: Real estate provides regular income in the form of contractual rent, which helps to manage volatility
- Appreciation: Real estate can offer long-term price appreciation in the form of increased property values and optimization of an asset’s performance through active management
- Tax Shield: The primary tax benefit of investing in real estate is the ability to take depreciation deductions. Depreciation deductions allow real estate investors to reduce taxable income on rental profits
- Low correlation with the market: Real estate returns also tend to have low correlation with the performance of both equity and fixed income investments
- Options: Within these broader investment categories, it is possible to diversify even further – by geography, sector (commercial, retail, residential, vacation), company size, to just name a few
And if you don’t believe us, just take a look at AUM backed stocks like American Homes for Rent ($AM4R) and Invitation Homes ($INVH), compared to tech stocks in recent months:
Inflation concerns? According to Ali Wolfe, Chief Economist at Zonda Housing Market Research, “If you have cash and are expecting inflation, you want to think about where you can put your money so it doesn’t lose value. Housing is commonly looked at as a good inflation hedge”³ So ask yourself, what are you going to do to protect yourself?
- REITs are in: Pension funds are increasingly investing in real estate investment trusts — a vote of confidence in the sector.⁴
- Blackstone is buying up $13 billion in student housing and prepping a record $50 billion vehicle to scoop up even more homes.
- reAlpha is taking an even more innovative approach…
At reAlpha, we are strong advocates of diversification and believe real estate investments can play a critical role in a portfolio. However, we like to think that we add a modern and potentially more lucrative twist to traditional real estate with our focus on the short-term rental vertical. In addition to the broader benefits provided by real estate, there are even more advantages of investing in short-term rentals:
- +70% higher returns: short-term rentals have the potential to generate 70% or higher revenue than long-term rentals*.
- Demand > Supply: There is high demand for short-term rentals – this asset class, and the disruption it is bringing to hospitality and lodging, has been one of the biggest stories in recent real estate history. Airbnb CEO Brian Chesky has said that Airbnb is short millions of hosts.⁵
- Dynamic pricing, quick payment: short-term rentals offer access to diversified renter pools and can provide added security that users will pay their rent in full and on time; given the short-term nature of the leases, owners can adjust rent and stay lengths fluidly in conjunction with demand.
- Income levers: Airbnb has created a hybrid economy between real estate and digital hospitality — future innovation and additional revenue streams from guests is a long term play for reAlpha.
But we aren’t just pursuing this market for ourselves…(*cough* Blackstone)…our mission is to provide everyday investors entry into the short-term rental market. We’re combining the security of real estate with robinhood-like accessibility and the business model of the future: Airbnb. And we are taking that a step further by allowing you to become a shareholder in the company itself. We are raising our Regulation A round so that you have a shot at this emerging market. And with your backing, we will be well positioned to grow our portfolio if and when the pending correction in housing prices takes place.
So, consider adding vacation rental real estate to your diversification strategy. Get in early by investing in reAlpha for as little as $1,000.