Advantages of Securitized Real Estate

Access to Institutional Grade Investment Properties

A securitized real estate investment presents the opportunity to join other accredited investors to own investment-grade real estate with financially secure, creditworthy tenants under long-term leases and professional management that none could own individually. Available asset classes include:

  • Multifamily Housing
  • Office Buildings
  • Industrial Complexes and Warehouses
  • Hotels

 

A Truly Passive Investment

Fortitude offers investments that are fully managed and overseen by the sponsor and/or property manager so that you enjoy a truly passive investment. Your only responsibility should be cashing the net rental payment check each month (or arranging for direct deposit), if applicable.

With a securitized real estate offering, you enjoy the service of nationally reputed real estate management companies that structure the property acquisition, maintain and lease the property, collect rent, service the mortgage and eventually sell the property. These management companies have a vested interest in the performance of the property and typically have strong historical track records.

A securitized real estate investment eliminates the headaches and time-consuming burdens of active property management, especially for rental-property investors who wish to retire from the daily burdens and liabilities that come with being a landlord. They are also perfect for active professionals who want to build a well-diversified real estate portfolio with current income and strong appreciation potential. Combined with the 1031 Exchange process, such a portfolio can grow tax-deferred through the course of the investor’s career.

 

Income, Yield and Appreciation Potential

Investment-grade properties typically may enjoy stable cash flow from rental income, which can be paid monthly or quarterly, if applicable. In addition, as the debt is serviced, investor equity increases even if the property value remains constant. There is always the potential for the property value to appreciate at the time of sale.

 

Tax-Sheltered Cash Flow

Unlike income from non-real estate investments, a significant portion of the cash flow from property investments can be tax-sheltered through depreciation pass-through and interest deductions. If an investor has held a property for so long that depreciation deductions have either run out or are about to do so soon, a 1031 Exchange offers the opportunity to restore these deductions in a replacement property. This opportunity arises when the DST /TIC offers a greater amount of debt than the debt on the investor’s relinquished property. The additional debt becomes the new tax basis to the investor, which can provide for greater depreciation expense to shelter rental income from federal and state taxes. Many DST/TIC properties are leveraged with 50% to 75% non-recourse debt financing.

 

Diversification

With minimum investment requirements as low as $25,000 (typically $100,000 for a 1031 Exchange), investors can hedge their risk by diversifying their real estate portfolio to include multiple properties in different geographic locations or different market sectors, such as residential apartment complexes, retail shopping centers, office buildings and industrial parks. One should keep in mind, though, diversification does not guarantee future results.

 

Summary

Given the traditional benefits of real estate and the full disclosure of a security – as well as tax deferral if in the context of a 1031 Exchange – we believe an investment in securitized real estate is an attractive option for those contemplating retirement or wishing to build a diversified investment portfolio.