REMARQ for the Investor
With record low fixed income yields and lofty public equity prices, interest in alternative investments is growing and ultimately becoming a strategic imperative for all types of investors in their quest for returns.
Alternative investments generally include asset classes such as private equity, venture capital, hedge funds, commodities, and real estate, which are typically characterized as more complex, challenging to value and typically more illiquid than traditional assets.
Within the real estate class, investors can allocate funds into real estate investment trusts (REITs) and various limited partnership programs, investing in properties directly or in the mortgage loans that finance such properties. Uniquely, the subclasses of real estate made available to investors are limited to commercial and industrial, retail and multi-family residential property. The second largest asset class, at $25 trillion in value, in the United States is single family residential (SFR), yet there are limited ways to invest on a broad and diversified basis. Certain real estate sponsor firms, such as Blackstone, have acquired lower priced SFR portfolios, and have converted them to rentals, offering investor a “current yield opportunity”. However, for those seeking broad exposure to the capital appreciation of SFR properties, there hasn’t been an accessible alternative. Until now.
We believe that SFR investing represents one of most compelling opportunities to currently exist, and in particular, enabled our way. Over time, SFR performance has typically tracked with inflation, i.e., generating a 4.2% annualized return over the last fifty years. True, there have been peaks and troughs during varied economic cycles, but longer term, this has been an attractive investment proposition. Add to this that most SFR investments, including owner-occupied residences, are generally acquired with some level of mortgage debt, thereby providing financial leverage, which can provide double digit equity returns in normalized markets.
But, SFR investing, apart from individual homeownership, has generally been characterized by: (i) all-or-nothing investing, i.e., an investor owns the entire property; (ii) assuming the use of debt, the investor is obligated on the mortgage and its servicing; (iii) either directly or indirectly, the investor requires property management, and assumes landlord responsibility; and (iv) the investor assumes responsibility for property maintenance. Lastly, as the sole owner, upon the disposition of the property, the investor incurs all the friction (sales) costs, which can amount to 4%-6% of the property value.
Welcome to the Next Generation of SFR Investing.
While providing a new form of financing to homebuyers and homeowners, our approach creates a new paradigm of SFR investing. Among the features and benefits:
- Passive Investing:
We focus our investment opportunities on owner-occupied SFR, where a homeowner not only has a direct investment in the property, but resides in the property and is responsible for the maintenance. In essence, investors are co-investing with a party who has ‘skin in the game’, and their investment represents a fractional equity interest.
Rather than allocating investable funds into a single property, which would be subject to specific markets conditions, investors can diversify the same dedicated funds across properties and markets, garnering broader exposure. Much like angel investing, which is highly localized, SFR investing tends to be localized in nature, given investor/owner/landlord responsibilities. REMARQ will constantly review regional markets that offer attractive compelling return opportunities, then offer fractional investing as discussed.
- Leveraged Returns:
As mentioned, most SFR purchases by homebuyers employ some level of mortgage debt financing. This allows for leveraging equity returns for the owners. Further, mortgage debt requires ongoing payments. Within our approach, the debt is the sole responsibility of the owner-occupant, though investor equity is pledged in support of the loan. So investors can benefit from the leverage, with such leveraged being paid for by the owner-occupant-partner.
- Low Correlation:
Real estate, in particular, the SFR subclass has historically demonstrated low correlation to traditional asset classes, which may reduce overall portfolio risk.
- Inflation Hedge:
Real assets, including real estate, have been treated as an inflation hedge, with prices and rents having a tendency to track with underlying inflation rates.
- No carrying costs:
Investing along with an owner-occupant whom is responsible for both mortgage debt and maintenance, eliminates the typical carrying costs of a real estate investment.
- Limited Liability:
We have developed an investment structure that provides for legal remoteness from the underlying property, limiting direct and contingent liability.
- Discretional Liquidity:
Our data-driven REMARQ exchange, coupled with the investment structure we have developed, enables the monetization of investor investment positions, independent of the property being sold or refinance. Simply, our ultimate goal is to enable secondary liquidity at fair market value.
- Reduced Friction Costs:
As selling commissions on SFR property can amount to up to 6% of total property value, such costs can dramatically reduce investor net equity returns. By investing in SFR via REMARQ, friction costs are typically absorbed by the owner-occupant upon sale of the property, though REMARQ does assess certain transaction fees based on the sale of the fractional equity.