Passive income can come in many forms: dividend stocks, high yield saving accounts, and even ebooks. However, one of the most natural ways to make passive income is from real estate.
Wikipedia defines passive income as, “income that requires little to no effort to earn and maintain.” That said, you do have to put in effort or money upfront to set up a passive income stream, but ongoing it should be effortless.
Real estate is the perfect form of passive income because, in theory, when real estate investing goes smoothly, you invest your money and reap the rewards for years to come.
Streitwise is a real estate investment company that can help you take advantage of this real estate passive income stream.
What is Streitwise?
Streitwise is a real estate investment trust (REIT) that helps both accredited investors and non-accredited investors invest in real estate. They seek value-oriented investments that have a high probability of providing consistent dividends to investors (more on their strategy later).
Here’s how the folks at Streitwise describes themselves:
Streitwise is a revolutionary online real estate investing company that combines innovative technology and new federal regulations to make commercial real estate investing accessible to everyone.
One somewhat obvious fact to make clear is that when you invest with Streitwise, you are investing in a REIT. You are not investing in a crowdfunded real estate company, or another form of real estate investing.
Why Real Estate Investing?
Real estate investing is a great way to form a diversified portfolio.
For many index investors, forming a 3 fund portfolio provides enough diversification to help them sleep at night. Between domestic equity, international equity, and bonds, they feel they are covered to weather any storm that might come their way.
Though, some people look for more diversification. Whether it’s gold, art, or in this case, real estate.
With Streitwise, you are investing in real estate through a REIT.
A REIT (which, again, stands for Real Estate Investment Trust) is a tax-advantaged company that owns income-producing properties and distributes the cash flow to investors in the form of dividends.
The difference between Streitwise and a REIT you could buy in your Charles Schwab account is that Streitwise is a “non-traded” REIT. Meaning, it is not as liquid as the “traded” REITs available in brokerage accounts.
In return for being less liquid, non-traded REITs like Streitwise typically offer a higher dividend. Similar to how longer-term CDs will offer better terms than a short-term one, you are rewarded for taking on the risk of having a less-liquid investment.
The Streitwise Strategy: Make Passive Income From Real Estate
Streitwise strives to provide steady returns over the long run. That’s their ultimate goal.
They try to accomplish this goal by aligning their investment strategy to a few pillars:
- Seeking value-oriented investments: Investments with proximity to amenities and in a location with a track record of sustained occupancy
- Focusing on non-gateway markets: Markets that are fairly priced and provide a higher dividend
- Getting creditworthy tenants: Like Panera Bread, New Balance, and Allied Solutions
- Financing with modest leverage: Current offering has a 55% loan-to-cost ratio, balancing flexibility and risk
Streitwise Features and Fees
- Type of Investment: REIT
- Available Account Types: Individual accounts, Solo 401(k)s, IRAs, LLCs, and Trusts
- Minimum Investment: $1,010 (100 Shares)
- Investor Type: Accredited and Non-Accredited Investors accepted
- Up Front Fee: 3%
- Ongoing (Annual) Management Fee: 2%
- Last Dividend: 10% (net of fees)
The current small minimum investment of $1,010 (updated quarterly based on 100 share prices) makes it easy for beginners (non-accredited investors) to get started. Speaking of…
An accredited investor is someone who made more than $200,000 ($300,000 with a spouse) annually each of the past 2 years and/or has over $1 million in net worth (excluding their primary home). Many online real estate companies require that you are an accredited investor. Obviously, this rules out of a ton of people.
Streitwise is open to non-accredited investors, granted that they invest less than 10% of their net worth (excluding their primary home) or less than 10% of their average income (from the past two years). This makes Streitwise available to a much larger number of potential investors.
Streitwise offers transparent and low fees, for a REIT.
The 3% up-front fee is hefty, and the 2% ongoing management fee is literally 100x more than you will pay for some index funds. However, Streitwise has historically returned 10% net of these fees, which are above-average returns.
Should you be skeptical of “above-average” returns?
It can be a good indicator of potential, but it’s no guarantee of future performance.
Getting Started with Streitwise
Gettings started with Streitwise is fairly easy.
The first step is to provide some basic information, including your name, email address, physical address, phone number, date of birth, and social security number. This is all to verify that you a real person who can invest.
From there, you will need to fund your Streitwise account through an ACH transfer, check, or wire payment. Then you can invest in the REIT and purchase shares (as well as select your dividend reinvestment strategy).
Streitwise Current Offering
As of February 2020, Streitwise has a current offering with two investments.
Offering 1: The Panera Bread HQ (Streitwise Plaza)
An office park that features the Panera Bread HQ, New Balance, Wells Fargo, Edward Jones, Nationwide Insurance, and more.
- Property Type: Class A Office Park
- Location: Sunset Hills (St. Louis), Missouri
- Property Size: 3 buildings; 290,000 square feet
- Deal: $44 million (55% loan-to-cost)
Offering 2: Allied Solutions Building
A mixed-use redevelopment in the affluent Indianapolis suburb of Carmel with tenants that include Allied Solutions, LLC (leased until 2030), F.C. Tucker (leased until 2029), Fork+Ale House (leased until 2029), Java Cold Brew Coffee (leased until 2030) and Penn & Beech (leased until 2029).
- Property Type: Class A Office and Retail
- Location: Carmel (Indianapolis), Indiana
- Property Size: Building and Parking Garage; 142,000 square feet
- Deal: $32 million (10-year term senior loan; 55% loan-to-cost)
The Pros and Cons of Streitwise
Streitwise is not your only option to make passive income from real estate, but they are a good one. Here are some of the pros and cons to consider before signing up:
- Minimum Investment: Streitwise has a low minimum investment
- Non-accredited investors: In addition to the minimum investment, being open to non-accredited investors make Streitwise more accessible than most real estate options
- Historical Dividend Yield: The historical dividend yield (net of fees) has been very strong
- Partners Invested: The partners at Streitwise also invest in their deals (over $5 million so far), so they have skin in the game along with all investors who sign up
- Fees: The Streitwise fees are low compared to other real estate platforms and REITs, but are very high compared to most index funds
- Short History: Streitwise has only been around since 2017, it is unknown if they can continue to produce strong returns of 10% or higher for a sustained period of time (2020 returns are estimated to be 8-9% due to amortization of the loan on Streitwise Plaza)
- Diversification: Yes, investing in real estate provides good diversification, but when you invest in Streitwise you invest in a small number of properties
- Liquidity: Your funds are locked for one year, afterward you can start to withdraw your principal as you see fit
Summary: Streitwise Review and How to Make Passive Income from Real Estate
Real estate is a good way to diversify your portfolio and make passive income.
While you can easily invest in real estate through traded REITs, they do not offer the same potential return as a non-traded REIT like Streitwise. For someone who wants to take real estate investing to the next level, and is interested in investing long-term, Streitwise can be a good option to make that happen.