Would you take advantage of a high-yield investment in commercial real estate if you could get in for as little as $1,000? You can by investing in the Streitwise REIT.
The trust expected to to pay an annualized dividend of 8-9% in 2021 and did so. The Q4 distribution was $0.21 per share which is 8.4% annualized dividends.
The investment is more liquid than those in most real estate crowdfunding platforms, and you can invest as either an accredited or nonaccredited investor. And perhaps best of all, a Streitwise REIT is a thoroughly passive investment. You’ll invest your money, be paid your dividends, and participate in capital appreciation – without needing to get your hands dirty or even to manage the underlying properties.
Streitwise may just be the perfect investment platform for the small investor to participate in the sophisticated area of commercial real estate.
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Streitwise is based in Los Angeles, California, and began operations in 2017. The company sponsors a real estate investment trusts (REIT) for investment by individual investors.
In contrast to many of the current online real estate investment platforms, Streitwise is a REIT, and not a real estate crowdfunding platform. That offers some advantages over the competition.
The REIT is considered an equity REIT, which means you will also have a share of the capital appreciation on any of the underlying investments, in addition to dividends produced by the net cash flow generated by rent from the properties.
How Streitwise Works
Streitwise is a non-publicly traded real estate investment trust that invests in commercial real estate. Each investment held in the REIT is directly owned by the REIT. Through ownership of shares in the REIT you are an owner of the properties it owns. The current net asset value per share of common stock is $10.19 (as of 2/9/2022).
Streitwise looks for properties with the following characteristics:
- Properties located in “non-gateway markets”. These are more moderately priced markets with higher dividend yields. (Think markets that aren’t located in high-priced coastal regions.)
- Properties located close to transportation, nearby amenities, and a base of established employers and industries.
- High quality construction.
- A record of sustained occupancy well-positioned to outperform the broader market.
The company also employs only modest leverage, to minimize the risk of each individual investment. The target leverage is limited to between 40% and 60% of the greater of cost or fair market value of each property. They focus on properties with creditworthy tenants.
By investing in a Streitwise REIT, you earn income from the distribution of dividends and potential appreciation of the underlying properties. Dividends are paid on a quarterly basis. The company advertises that they’ve delivered a 8%+ annualized dividend since inception, the latest being 8.4% annualized dividends with their Q2 2021 payout. Dividends will be reported on IRS Form 1099-DIV by January 31 of each year.
Since the REIT is an equity investment, there is the risk of losing some or all of your investment. Risks include the inability to find suitable investments, a reduction in cash flow, or big picture events, like disruptions in the financial markets or deteriorating economic conditions, and others. This isn’t specific to Streitwise though, all investments share these risks.
For Accredited Investors
Some crowdfunding real estate platforms are only for accredited investors. Others are directed towards nonaccredited investors, which by default include accredited investors. Streitwise allows both but non-accredited investors have slight limitations.
For unrestricted limits, you must generally be an accredited investor. That comes with the following requirements:
- You (or you and your spouse) must have a minimum net worth at least $1 million, excluding equity in your primary residence, OR
- You must have an individual income in excess of $200,000, or in excess of $300,000 jointly with your spouse, in each of the two most recent years. There must also be a reasonable expectation of attaining the same income level in the current year.
If you are a non-accredited investor, you can still invest. You can invest with Streitwise even if you’re a nonaccredited investor, but your investment cannot exceed 10% of the greater of either your individual or joint income in each of the most recent two years, or 10% of your individual or joint net worth, excluding the value of your home.
Streitwise fees and pricing. There is an annual management fee of 2% of your investment. When they launched, there was a 3% up-front fee but that has now been waived. There are no hidden fees, like advisory, disposition, waterfall, or loan service fees. There are also no commission fees involved in the purchase of your investment in the trust.
Investments held within the Streitwise REIT are held until they reach what management believes will be the optimum value during the expected life of the company. At that point, they’ll consider disposing of the investment. Proceeds will either be distributed to shareholders, or invested in another property that’s expected to produce a higher overall future return. It’s generally expected this process will take approximately 10 years per investment.
The current REIT held several properties, including:
- An office park in suburban St. Louis. The 290,000 square feet Class A office park is currently occupied by the Panera Bread headquarters, New Balance regional headquarters, Wells Fargo, Edward Jones, Nationwide insurance, and other tenants.
- A 142,000 ft.² building and parking garage located in Carmel, Indianapolis. It’s also a Class A space, with 108,000 ft.² leased to Allied Solutions, LLC through 2030, and 15,750 ft.² leased to F.C. Tucker through 2029.
The trust is currently actively pursuing additional properties within the REIT, as it looks to diversify the portfolio by adding other quality office properties. However, it does not disclose potential additional purchases at this time.
Streitwise Features and Benefits
Accounts available: Individual accounts, trusts, and self-directed IRAs. Either type of retirement account must be self-directed, and not an institutional account.
Minimum initial investment: $5,000, which can be increased in increments of $100.
Investment liquidity: As with all real estate crowdfunding platforms, liquidity is limited. There is a one-year lockout within which you will not be able to liquidate your investment. After that, you will have the option, on a quarterly basis, to participate in the Stockholder Redemption Plan. The specific details of that plan will vary based on the investment you hold.
The Stock Redemption Plan works based on the following schedule:
- Investment held less than one year, no redemption allowed.
- One to two years, 90% of net asset value (NAV).
- Two to three years, 92.5% of NAV.
- Three to four years, 95.0% of NAV.
- Four to five years, 97.5% of NAV.
- Five years or more, 100% of NAV.
In the event of a stockholder’s death or complete disability, 100% of NAV will be eligible for redemption under the plan.
Be aware however that stock redemption is not guaranteed. The company limits total redemptions to not more than 5% of the shares outstanding in any given year, or 1.25% per quarter. If redemptions in a given quarter or year exceed those thresholds, redemption will not be possible.
Dividend reinvestment: You can enroll in the dividend reinvestment plan (DRIP), and use your dividend income to increase your investment.
Tax benefits: Since you’re investing in a REIT, you can deduct up to 20% of your dividends from taxable income. The REIT’S taxable income may be reduced by depreciation expense, which is a non-cash expense common with real estate investments.
Streitwise Pros and Cons
- Relatively low minimum initial investment, of just $5,000.
- The current dividend yield on the Streitwise REIT is expected to be 8-9% on an annual basis.
- Available to both accredited and non-accredited investors, but non-accredited investors are subject to some limitations.
- The three founding partners of the company have over $5 million of their own money invested in the REIT. That means their own money is at risk in managing the investments.
- Investments are concentrated in lower-cost markets, renting to credit worthy tenants to generate a higher cash flow than will be available in high cost markets.
- Streitwise limits leverage to the 40% to 60% range, which also minimizes investment risk.
- The current Streitwise REIT is an equity REIT, giving you the benefit of both regular dividend income and capital appreciation upon disposition of the underlying investment.
- Ability to redeem 90% or more of your investment after holding your investment for at least one year under the Stock Repurchase Plan. This is a much more generous redemption policy than is the case with real estate crowdfunding platforms, which typically require you to remain invested for the full duration of the anticipated investment term.
- Plans are available for individual accounts, trusts, and self-directed IRAs. This can be a perfect fit, since real estate is a long-term investment providing higher than average returns.
- The current REIT has only been in existence since September 2017.
- Streitwise currently has only a single REIT option.
There is a 3% upfront fee when you make your initial investment.(waived as of July, 2022)
Should You Invest with Streitwise?
We’ve listed the risks involved in investing in commercial real estate. But in truth, any investment involving equity participation comes with certain risks. But the payoffs with the Streitwise REIT are consistent, double digit dividend returns, plus the potential to participate in capital appreciation.
You can do that with as little as $1,000, which makes this the perfect commercial real estate investment platform for small investors. The quality of the Streitwise REIT – investing in properties located in low-cost markets, to high quality tenants with only modest leverage – makes this investment both lower risk and with higher potential rewards than those available with typical real estate crowdfunding platforms.
The Streitwise REIT is also available for self-directed IRAs. This is highly significant, since commercial real estate is one of the very best long-term investments, making it a perfect choice for retirement investing.
Then there’s the diversification factor. If your current portfolio is dominated by “paper assets”, like stocks and bonds, commercial real estate will add an alternative investment to the mix. This is because commercial real estate is both a “hard asset”, and largely resistant to the market cycles of paper assets, particularly stocks. You may find your Streitwise REIT producing positive returns even when stocks are in a bear market. That’s the kind of investment diversification everyone needs, but most portfolios lack.
If you’d like more information, or you’d like to invest, visit the Streitwise website.
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Tex Ginsburg says
Excellent article. I have studied other similar crowdfunding eREITs like Fundrise and Realty Mogul. The question I have in every case is the same. What is the advantage of this over a “conventional” REIT that I can buy in the stock market, such as Prologis (PLD), or Spirit Realty Capital (SRC) etc. I can quickly get in or out of a REIT with no limit, penalty, or buy in fee. Brokerage trade fees are cheap today, or even free. I have also seen high dividends in conventional REITs, although if too high, I will be wary of the “dividend trap” which, honestly, I am here as well. The opportunity/risk of capital appreciation or loss also applies to any REIT. Do you have any thoughts as to why one would choose this over a “conventional” publicly traded REIT.