Diversifying your investments can be a daunting task at times, but with the eREIT's platform, you can diversify in minutes. With diversification opportunities available in almost every major market across the country, you are sure to find something perfect for your portfolio.
eREITs are real estate investment trusts that use traditional and cutting-edge investment strategies to generate income for investors by purchasing or acquiring commercial and residential properties that are then leased and eventually sold (after some time in the portfolio).
Due to their investment strategy eREIT's are able to distribute their net income to investors in the form of dividends on a quarterly basis. This provides investors with a consistent income stream without all the hassle of property management. The best part about eREITs is that they are also relatively easy to diversify through without having an extensive knowledge of real estate.
Are eREITs better than traditional publicly traded REITs?
While publicly traded reits are in more variety, in more sectors, and there's more to choose from, they have much higher operating costs due to being publicly listed and all the expenses that entails. eREITs don't have those expenses which makes them leaner structures that can maneuver better in bad times, and make more in good times.
A perfect example of this is when you observe the dividend yield for these securities. Over the past 10 years, eREIT's have averaged around 8% in dividend yield, while traditional publicly traded REITs have been averaging around 5.5%.
And with the explosive growth of eREITs there has been a lot of diversification opportunities for investors in recent years, nearly as many as publicly traded reits offer.
Diversifying Your Portfolio with eREITs
The number one thing you want to look for when investing in an eREIT is diversification. Remember that by investing in one single market you are putting your eggs all in one basket. By spreading your investment across multiple properties you are reducing your risk and increasing your reward potential.
The second thing to look for is when an eREIT has a good track record and reputation. You want to find a company that isn't just new and looking to cash in. Look for an eREIT with experience who has a track record of success over the last 10 years, 5 years, or at the very least 2-3 years. A good eREIT should also have an annual dividend growth of 8% or more which proves they are not just a flash in the pan but have real substance in their strategy.
What eREITs are the best currently?
Historically diversyfund has been the best performing eREIT, but more recently fundrise has begun outperforming them over the long-term. Ultimately you'd be best off going to a website that compares the two eREITs such as Greenery Financial to figure out which is currently the best eREIT for your personal portfolio goals and needs.
We asked Zachary from Greenery Financial and he told us that "it's best to compare different eREITs and find the one that's best for you, as some charge early withdrawal penalties but perform slightly better in the long-term, while others have no early withdrawal penalties but only perform slightly better than publicly-traded REITs."
When asked about which platform he prefers he told us that he prefer(s) Fundrise over other platforms due to the larger amount of funds available to invest in and geographic specific funds that is unique to them, but that this may not be the case in the future as the platforms continue to compete against one another.
How much of your portfolio should be in eREITs?
Well we aren't financial advisors here at Urban Splatter, but we would say that eREITs should probably still be a minor part of your overall portfolio, unless you just want hands-off exposure to real estate without any of the fuss.
However this is up to you, and you can decide how much. But remember that by diversifying your investments it lowers your risk and increases both the amount of income you receive from dividends as well as your capital gains over time.
Conclusion
Overall eREITs are a great addition to any investor's portfolio, and it allows you access to the real estate market without all the hassle and headache of owning actual real estate.
If you find the idea of owning real estate attractive but find that it's too much of a hassle, then eREITs are perfect for you. With lower operating costs, performance on par with public REITs, and high dividend yields they are a great way to diversify your portfolio while still being involved in the market.
Make sure to check out all the eREIT platforms before committing to one though -- Fundrise, Streitwise, Diversyfund, and realtymogul are all well known in the space and worth looking into, as they each have unique offerings that might be better suited for you than the others.
Tags:financial, future, invest, investing
