There's an old saying in real estate that the three things that matter most are "location, location, location." Unfortunately, it's not easy for the average person to access the best locations. That's left them sitting on the sidelines, missing out on the upside potential of real estate.
However, that's about to change. Crowdfunding investment platform Republic is partnering with real estate platform Nada to open the door of some of America's top cities to the average person through Cityfunds. Like an exchange-traded fund (ETF), Cityfunds will make it possible for anyone living anywhere to invest in a single city's real estate market.
The 411 on Cityfunds
Republic Real Estate and Nada recently launched the first three Cityfunds. They're starting with the Dallas, Austin, and Miami markets, giving the average person access to some of the fastest-growing cities benefiting from the Sun Belt migration trend. They plan to launch new Cityfunds around the country and eventually take this model abroad.
Each Cityfund will invest in single-family residential real estate in a specific city using two strategies. First, each Cityfund will acquire single-family rental (SFR) homes in its specified city. These investments should generate growing streams of rental income while also benefiting from home price appreciation.
In addition, each Cityfund will make fractional investments in owner-occupied homes via Nada's Homeshares product. Homeshares enable homeowners to unlock the equity in their homes by selling a share of it to investors. That provides them with liquidity without taking on more debt by using another method like a home equity line of credit (HELOC). Homeshares allow Cityfund investors to participate in upside potential as the underlying home appreciates in value. Those unrealized gains accrue until a realization event, such as when the homeowner sells the entire home, refinances their mortgage, or repurchases the Homeshares.
This two-pronged investment strategy aims to provide access to residential real estate investment opportunities in cities with above-average rent growth and home price appreciation. Usually, access like that is only available to those with enough money to cover the down payment and closing costs needed to purchase a home outright. However, Republic Real Estate is offering its Cityfunds at a low minimum investment of $500. Further, you don't have to be an accredited investor -- someone with a net worth (excluding their primary residence) above $1 million or with an annual income of at least $200,000 in each of the last two years ($300,000 if married).
How Cityfunds work
Each Cityfund pools the money from those purchasing shares and uses it to invest in its targeted city. They'll aim to build a portfolio of both SFRs and Homeshares in each metro area. Investors in each Cityfund will benefit from the rental income generated by the SFRs and the unrealized price appreciation of those properties and the homes underlying each Homeshare investment. The funds will realize gains as they sell SFRs and homeowners exit their Homeshares arrangements.
Cityfunds are a long-term investment. However, Republic Real Estate and Nada aim to offer the same level of liquidity found in ETFs by enabling Cityfund shares to trade on a secondary marketplace similar to public stocks. That will allow people to buy and sell Cityfunds freely. Providing a liquid market for Cityfunds will make it even easier for anyone to invest directly in the city of their choice.
An interesting new way to invest in real estate
Many people would love to invest in a booming real estate market, but they often lack access. Republic Real Estate and Nada are working to break down that barrier with Cityfunds. These new investment vehicles will allow anyone to invest in their favorite city from anywhere with a relatively modest minimum investment. That makes them worth a closer look for those seeking a unique opportunity to invest directly in some of the country's hottest real estate markets.