What if I told you could get started investing in commercial real estate for as little as $1,000? That you’d gain access to a professionally managed portfolio of private real estate assets with some of the lowest fees in the industry – and it’s available to both accredited and non-accredited investors alike.
If you’ve considered dipping your toes into the world of commercial real estate, you might want to give stREITwise a look. Why?
Because that’s what they’re offering. I’m going to show you who stREITwise is, what they offer, and whether they’re worth it.
Let’s get started!
Bird’s Eye View
- 3% upfront, 2% annual
- Office / Retail properties
- Individual, Trusts, self-directed IRAs, and 401(k)s
- Quarterly via check or direct deposit
- Named 2019’s “Best Fees, Top Core-Plus Fund” by the Real Estate Crowdfunding Review
stREITwise has also received praise from reputable sources including WalletHacks, YieldTalk, and National Real Estate Investor.
Who Is stREITwise?
stREITwise is an online real estate investing platform launched in September 2017 by co-founders Eliot Bencuya, Jeffrey Karsh, and Joseph Kessel. Since opening, stREITwise has delivered an annualized 10% dividend return (net of fees) to investors.
They’ve been successful early on thanks to new SEC regulations under Regulation A+ of the JOBS Act. Private companies can now raise up to $50 million from both accredited and non-accredited investors alike. What’s this mean?
Businesses started securing more money through crowdfunding campaigns.
The stREITwise fund currently holds over $76 million. Their shared mission:
To make commercial real estate accessible and fair to everyone, and to always put the interests of our investors first.
They’ve got a solid sponsor in the form of Tryperion Partners LLC who have:
- a 33.1% IRR on realized investments (IRR stands for Internal Rate of Return and is a metric used to determine a project’s expected rate of growth)
- 40 years of combined experience
- $5.4 billion in transaction experience
- Over $5 million of their own money invested (~500,000 shares owned)
The Tryperion partners have collectively underwritten or managed the acquisition, ownership, and disposition of over $1.7 billion of real estate equity investments valued in excess of $5.4 billion.
Other platforms may carry a higher price tag in the form of fees and aren’t catered to everyday investors. stREITwise lets you diversify your portfolio with private, non-traded real estate at a fraction of the cost.
What’s A REIT?
A REIT is a tax-advantaged company who owns income-producing properties and distributes the cash flow to investors in the form of dividends. stREITwise distinguishes themselves because they’re technically not a crowdfunding platform pooling money for a third-party.
Many online real estate providers are middlemen who raise money to invest with 3rd-party real estate operators. stREITwise is different because they have direct ownership of, and operate each investment property.
They’re an equity REIT investing in a portfolio of stabilized commercial office properties. Being an equity REIT means, in addition to receiving dividends generated by the rent from their properties, investors also gain access to a share of capital appreciation from those properties. They liken themselves to being a real estate company first, using technology to make the investment process cheaper, second.
stREITwise doesn’t consider themselves a platform in the vein of other real estate crowdfunding sites because they aren’t investing or “administering investment in properties managed by unaffiliated third-parties.” They also don’t offer the usual bankruptcy protection that may be found on other crowdfunding real estate sites.
stREITwise focuses on non-gateway markets. These markets are reasonably priced at higher capitalization rates (i.e., having a higher rate of return).
They refer to their portfolio offering as “value-oriented’ investments. When evaluating a property, stREITwise looks for:
- Strategically-located properties proximate to transportation, nearby amenities, and a base of established employers or industries.
- A high-quality of construction properties with a track record of sustained occupancy well-positioned to outperform the broader market.
They also take measures to ensure their properties are home to creditworthy tenants who will provide a steady source of growing dividends.
Current tenants renting space in stREITwise properties include Berkshire Hathaway, Wells Fargo, Verizon, Walgreens, and Panera Bread.
stREITwise uses modest leverage (~40%-60% when building their portfolio) of the greater of cost, or fair market value of its assets. Their REIT is labeled a core-plus fund. In this fund, investors will assume low-to-moderate risk (8%-12% historic returns).
REITs typically fall into four investment strategies:
- Core: Low risk; 7%-11% returns
- Core plus: Low to moderate risk; 8%-12% returns
- Value-added: Moderate to high risk; 10%-15% returns
- Opportunistic: High risk; 12% and higher
When you invest with stREITwise, you’ll pay an upfront fee of 3% and then an ongoing annual management fee of 2% after that. Fees are taken out before getting your dividends. So, when they say their yearly current dividend distribution is 10%, that’s after fees have been removed.
Those are the only two fees you pay
This is a strong selling point. Some REITs charge an upfront fee of 15%, along with asset management fees, acquisition fees, disposition fees, financing fees, and waterfalls.
A down and dirty fee summary for real estate investors:
- Performance fee (aka promote or waterfall): This eats away your returns. stREITwise doesn’t have one.
- Acquisition fee: Industry Average is 2%. stREITwise’s is zero.
- Deposit fee (aka upfront fee): Industry average is 2%. stREITwise charges 3%
What’s this mean for investors?
Overall, stREITwise offers a more straightforward and transparent fee structure.
What Do Your Fees Pay For?
The 3% fee is used for offering and organization expenses, while the annual 2% fee is for managing the fund. Investor ownership in the fund is defined by your Net Asset Value (NAV) multiplied by the shares you own – so you’d own 100% of the proceeds.
Per their Stockholder Redemption Plan, there is a one-year lockout when you invest with stREITwise. Your money will be inaccessible during your first year. Think of it as a one-year CD investment.
stREITwise breaks down their Stockholder Redemption Plan like this:
- Less than a year: No redemption allowed (lockout period)
- 1 – 2 years: 90% of your NAV is accessible
- 2 – 3 years: 92.5% of your NAV
- 3 – 4 years: 95% of your NAV
- 4 – 5 years: 97.5% of your NAV
- 5 or more years: 100% of your NAV is available
In the event of your death or total disability (god forbid), you or your beneficiary will have access to 100% of your funds.
So, for example, if you want to liquidate your holdings (and you’re not dead or disabled) after 3.5 years, you’ll pay a 5% fee to get them out (access to only 95% of your money). Investors with a time horizon longer than five years is who stREITwise is best for.
It’s more like a 5-year CD (with better rates) if you want to withdraw your money penalty-free.Tweet This
stREITwise claims that other competitors offering lower fees than theirs (0-1%), usually have hidden fees tacked on that investors don’t realize. These can take many forms, including management waterfall fees that split profits and advisory fees.
stREITwise is structured as a non-traded, real estate investment trust (REIT). Non-traded REITs operate like most companies whose earnings are distributed to investors as dividends.
However, REITs, aren’t taxed at the corporate level like most companies. Meaning they only get taxed once at the personal income tax level. No corporate tax!
REITs avoid double taxation and, because of the 2017 tax bill, REITs qualify for a new 20% deduction on pass-through income (meaning you can deduct 20% of your dividends).
You can also use depreciation to reclassify certain dividends from “ordinary income” to “return of capital” (return of capital works by lowering the amount of dividend income taxed at the personal rate).
REIT Tax Perks Recap:
- Pass-through deduction of 20% of dividends
- Not taxed at the corporate level
- No double taxation of corporate and personal income tax
- Depreciation reclassification available
Dividends are distributed quarterly by check or direct deposit. However, if you prefer to reinvest your earnings, you may set up automatic dividend reinvesting.
Log into your account and head to “Plan Management.” From there, you’ll be prompted to enroll in their Automatic Dividend Reinvestment Plan.
Pro-tip: Enroll in dividend reinvestment. It’s the best way to grow your wealth, and it can be done in a few easy steps. Otherwise, your dividends will cash-out every quarter.
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If you’d like to make recurring deposits to increase your holdings, you’ve got that option too. Head to Plan Management inside your account and follow the steps. It’s fairly straightforward.
Pro-tip: Set your account up for recurring deposits along with automatic dividend re-investments. This will amplify your savings.
How Are Your Dividends Taxed Through stREITwise?
- Return of capital dividends: These aren’t usually taxed. They also lower your tax liability when looking at future capital gains.
- Capital gain dividends: These are taxable at the long-term capital gains rate.
- Dividends from current earnings are taxed at ordinary income rates.
The only time a REIT carries no tax implications is when it’s held in a tax-exempt account. If you do decide to move forward with stREITwise, know how you’ll be taxed!
stREITwise’s current offering consists of one REIT: 1st stREIT Office Inc. holding two properties:
- Panera Bread HQ, an office park located in Sunset Hills (St. Louis), Missouri. It’s a $44 million deal with 55% loan-to-cost (leverage)
- Allied Solutions, an office and retail park located in Carmel (Indianapolis), Indiana. A $32 million deal with 55% loan-to-cost (leverage)
They say they’re in the process of acquiring more properties. Their goal is to obtain a well-diversified portfolio of high-quality office properties.
The minimum investment required for buying this REIT is $1,000. Once invested, you may increase your holdings by $500 increments. Your money goes to the ownership of all currently-held properties as well as any future purchases.
Who Can Invest?
Both accredited and non-accredited investors can invest with stREITwise. There are a couple of guidelines for non-accredited investors (ordinary investors like you and me). You can invest:
- Your individual or joint net-worth (your residence doesn’t count)
- Your individual or joint income from the previous two years or your expected revenue for the current year
Also, you can invest an additional 10% of your net worth’s value.
Is stREITwise Safe?
stREITwise adheres to guidelines established by the Securities and Exchange Commission (SEC) under Regulation A+ of the JOBS Act. They’ve got to adhere to strict reporting requirements and annual financial audits.
Their website processes all investment documents electronically on their website. Stock transfer agent services are provided by FundAmerica and Computershare. Both are established and compliant SEC platforms.
However, like any investment, there is no guarantee of “as advertised” returns. Real estate, like most markets, is cyclical. Past results are no guarantee of future performance. Take everything you read with a grain of salt.
Real Estate: An Inflation Hedge
In addition to the stock market, real estate also serves as a hedge against inflation because people will always need it. Its value usually appreciates.
Inflation is caused when either the value of your dollar drops (monetary devaluation) or, we experience an economic boom. Commodities are good for inflation too because things like wheat and coffee hold value – people need them.
The difference between land (real estate) and other commodities is the commodities don’t usually offer investors a steady stream of cash flow (e.g., rent from a property).
stREITwise defines it this way:
Real estate is widely regarded as a hedge against inflation because it’s a hard asset that holds its intrinsic value over time and produces dividend income to its investors along the way.
The above chart shows how two non-correlated assets (real estate and the S&P 500) performed between 1993 and 2013.
Is stREITwise for You?
Every investor is at different stages in their journey. If you’re just getting started, you might want to consider constructing a portfolio of two or three low-cost index funds or exchange-traded funds (ETFs) as core components of your portfolio; before branching out in real estate.
However, if you’ve got a solid foundation in place, and you think you’d like to make room for another asset class, commercial real estate might be a good fit. There’s plenty of people who’ve made generous amounts of money through real estate investing.
Know the risks involved and do your research. Not all real estate is created equal and stREITwise isn’t your only option. Explore other platforms like Realty Mogul, Rich Uncles, and Fundrise. They have different investment options, fee structures, and minimums.
1% a year
Tax Loss Harvesting:
Assets Under Management:
0.5% of purchase price or $500, whichever is greater.
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Tax Loss Harvesting:
Assets Under Management:
What’s to Like
- $1,000 low minimum investment for commercial, high-quality office properties
- Non-accredited investors are welcome
- Low fees with a simple and transparent fee structure
- An equity REIT with dividend distribution as well as capital appreciation of properties
- Passive income source
What’s Not to Like
- Short company history (opened in 2017)
- Single REIT option with two properties
- One-year lockout
- No mobile app
Historically, real estate has provided investors higher returns than the S&P 500 since 1990 (which is lauded on stREITwise’s website), leaving unaccredited investors unable to capitalize on this high performance.
However, alternative posts like this one show real estate has provided a modest return slightly higher than inflation. Will stREITwise continue to produce 10% returns for investors. Time will tell. Take it with a grain of salt.
Getting started in the world of online real estate investing can feel daunting – especially if you’re new in the game. There are many moving parts in the shape of property types, real estate markets, and varying degrees of investment opportunity.
stREITwise lowers the barrier into the world of private, commercial real estate. The platform isn’t overpriced and carries a simple, transparent fee structure. Their team chooses the properties located in areas with an influx of people, shops, and businesses.
Real estate is a hard asset in comparison to paper assets like stocks and bonds. It’s also not tied to the stock market. If stock prices drop, your real estate portfolio probably won’t.
The question to ask yourself is where are you on your investing journey. Real estate can play a part in your portfolio. That’s the whole idea behind diversification.
stREITwise does offer a generous yield. They have consistently produced 10% annualized returns, in contrast to public bonds (2.78% returns) and public REITs (3.79% returns), which have produced less.
If you’d like to dive further into the world of stREITwise, their offering circular goes into even greater detail about the inner-workings of their company.