Arrived Homes Allows Investors To Buy Fractions of Rental Properties
Arrived Homes is an investment platform that allows investors to invest passively in single-family houses. The minimum investment is currently $100, and there are options for accredited and non-accredited investors.
Arrived offers an alternative to individually investing 100% of a single-family home. The crowdfunding approach allows investors to earn rental income with flexible investment amounts.
How Safe Is Arrived?
Because Arrived is a reasonably new business, questioning its safety is a valid concern. Questioning a company's security is also a valid concern for businesses that have been in operation for a long time.
Arrived has done several things right from a safety perspective. First, they employ a well-documented investment strategy of buying and holding single-family homes for rental purposes. Second, they set up their investments in a Series LLC, giving the ownership to the investors. If Arrived were to go out of business, the Series LLC could elect a different asset management company and continue to execute on the original business model.
Is Arrived a Good Investment?
The performance of individual assets within your portfolio on Arrived will depend on both the quality of the property management Arrived selects and the underlying market conditions for that particular house.
For instance, if you invest in a house in a growing market like Memphis and there is a significant market gain, it will positively affect the value of your return. If you were to invest in a market with job losses and negative migration, the property's market value would decrease and negatively affect the value of your return.
One benefit of Arrived is that you can research and underwrite each single-family house using your criteria. In this regard, it requires more active management than a fund but substantially less active management than directly investing in single-family housing.
According to data that Arrived published in October 2023 on their historical performance, the average annualized return for properties held longer than 12 months is 10.62%. The bulk of this growth comes from price appreciation, an unrealized number based on a third-party algorithmic valuation. The average annual rental return for the same properties is 4.18%.
Since Arrived is a new company and has yet to complete any investment cycles, we cannot compare its actual results to its projected results to determine their accuracy.
Does Arrived Use Leverage?
Arrived will use leverage for an investment on a case-by-case basis. It only utilizes leverage if the projection is for positive leverage on cash flow.
“The factors that determine if we use financing or not may include considerations such as the yield for that property, the interest rate at the time, or the predicted volatility of earnings,” said Bret Neuman, Head of Brand and Content, Arrived.
When browsing currently available investments, they were not utilizing leverage. The lack of properties utilizing leverage is consistent with their policy. The market rate for debt compared to the cash flow did not provide a large enough spread to warrant the additional risk.
How Does Arrived Make Money?
Arrived charges an acquisition fee, agent rebates, and an asset management fee to make money.
Arrived Homes charges a .15% Asset management fee quarterly. Resulting in an annualized .6% fee. This asset management fee “helps cover the preparation of tax forms for investors, the distribution of dividends to all investors, procuring insurance policies and filing claims when applicable, ensuring property taxes and loan payments are paid, overseeing financial accounting for properties, and overseeing the property manager (rental rate competitive analysis, review of property improvements, rehab & turn work, and expense management & approval).” said Korin Hedlund, Head of Investor Relations, Arrived.
Arrived Homes Short-Term Rentals
Arrived Homes also offers investments in short-term vacation rentals. These properties have a different risk profile than Arrived's long-term rental assets. Short-term trends more heavily impact vacation rentals on travel.
Vacation rentals have a chance at a more significant cash flow than long-term rentals. Quoting Arrived Homes: “On average, a full-time vacation rental can generate up to 130% more revenue than a traditional long-term rental.” While not guaranteed and more susceptible to economic fluctuations than long-term rentals, the additional revenue can lead to a higher return.
While the income from vacation rentals is higher than single-family rentals, the expenses are higher, too. The maintenance and property management expenses are also higher. Having to do turnovers between each guest, cleaning, and paying to manage it all can significantly impact the investment return.
Investing in vacation rentals would be considered an advanced technique compared to long-term, single-family rentals. There are many more moving parts, and the markets and underlying assets for a vacation rental usually have more volatility.
Directly investing in vacation rentals on your own can be a daunting task compared to investing in long-term rentals. However, Arrived Homes manages the entire investment process and has partners to assist in making the most of these investments.
Arrived Homes Single-Family Investment Fund
The Arrived Single-Family Residential Investment Fund could mitigate issues with picking individual homes to invest in. Rather than deciding on which properties are worth investing in, their fund manager selects them for the fund.
While their exact criteria are internal and not public, they discuss what they seek in a market and investment property. They are looking primarily for markets with above-average job growth predictions that institutional investors do not already crowd the landscape.
One benefit of the Single-Family Investment Fund over investing in individual homes on the Arrived platform is that there is a redemption plan for liquidity. It is still at the fund manager's discretion, but they offer a way to sell the shares back to the fund after an initial 6-month hold.
Does Arrived Make Homeownership More Unaffordable?
In today’s political climate, the affordability of single-family housing is a hot topic. We are concerned about factors of investment beyond just the bottom line. At first glance, it would seem that an investment company buying up single-family houses to offer to individual investors would increase the cost to individual homeowners. However, increased homeownership costs are likely not the long-term effect of this business model.
The current investments being offered by arrived are new construction build-to-rent houses. Contracting to purchase these houses from builders adds stability and predictability to the market, where instability is traditionally one of the most significant risks. Most builders' production schedules are cyclical and must react to market conditions. If additional orders for houses from an investment company like Arrived allow builders to smooth out their production schedule, a net positive amount of homes will be available in the market.
The business model of the investments Arrived makes is typically to buy them new and then sell them at 5-7 years. The end buyer may be a homeowner. One way of looking at it is that Arrived is buying up housing stock, making it harder for Americans to buy a home. Another way to look at it is that they are a patron of the housing industry, paying for housing production and then later selling it to the market well before the asset is deprecated.
Arrived Homes vs. Fundrise
The primary difference between Arrived and Fundrise is the type of investments offered. Where Arrived focuses on offering partial single-family properties and pools of them, Fundrise offers many different investment options. They offer commercial, industrial, multifamily, and single-family investment funds. They currently offer private credit and venture capital funds outside of real estate offerings.
Arrived offers the ability to individually pick which underlying single-family property you are investing in, allowing you to have a more active role in the investment process. You can develop your strategy for determining which markets to invest in. It is a personal choice whether this level of control is positive or negative.
Arrived Homes vs. Roofstock
Roofstock used to offer Roofstock One, which allowed investors to invest in either single-family or a pool of single-family properties. Roofstock no longer offers this option on its website, and Roofstock’s focus has pivoted to providing investor services.
Their website has a marketplace for buying whole single-family properties, but they no longer offer fractional options with full-service management.
Investing With Arrived Home
In short, Arrived Homes presents a unique opportunity for investors to invest passively in single-family houses. It offers flexibility with a minimum investment of $100. Consider adding it to your portfolio for a diversified and potentially rewarding investment experience.
This article originally appeared on Wealth of Geeks.
Tyler Weaver
Tyler Weaver is a real estate investor and blogger at Relentless Finance. He has flipped over 50 homes and manages a real estate portfolio in the midwest. He strives to help others build wealth and add value to others’ lives through a constant pursuit of growth.
