The cornerstone of healthy finances is having a good spending plan, aka “budget.” But you can’t grow your wealth solely through smart spending and frugal habits. If you want to build a secure financial future, it’s crucial to invest.
That doesn’t necessarily mean playing the stock market or stockpiling gold, though. “Alternative” investment platforms can also provide steady growth. One such alternative option is the real estate investment trust or REIT. Created in 1960 by Congress, these trusts allow individuals to buy into diversified real estate portfolios.
Why buy a REIT? They’re less volatile than a typical stock, and REITs tend to pay large dividends. In fact, REITs are required to pay 90% of their taxable income out to the investors. No wonder they’re a big favorite among people who want a steady income stream.
Unfortunately, the typical REIT has been open only to “accredited” investors, i.e., those with a net worth of more than $1 million (minus home value) or income of at least $200,000 annually ($300,000 for couples). In other words, people who are willing – and able – to invest large sums without worry.
Times are changing, though. “Crowdfunded real estate investment sites” are a new type of REIT, one which accepts non-accredited investors. One such company is DiversyFund, which lets you invest like the 1% for as little as $500.
That’s the reason CEO Craig Cecilio started laying the groundwork for DiversyFund back in 2016. (The SEC qualified the company in 2018.) In an interview with Fred Leamnson of The Money Mix, he said he wanted to “democratize” the industry.
“I didn’t understand why wealth-building opportunities were exclusive to the already wealthy,” Cecilio said.
Does that mean a REIT is right for you? Let’s find out.
DiversyFund: How it Works
The DiversyFund Growth REIT focuses solely on multifamily apartment buildings. The company “invests” by buying up complexes that are inefficiently managed and/or need some refurbishing. But because the units are already rented, the trust is earning even as it’s spending to renovate.
Once the buildings are upgraded and management issues have been corrected, they are worth more (a concept known as “forced appreciation”). DiversyFund monitors the commercial real estate market and sells the buildings when their value is highest (“natural appreciation”).
The profits go back into the trust and are used to buy more apartment buildings, to build more value, to earn more profits. Call it “the great cycle of REIT.” After five years, the investors get their returns. Because there are no platform fees, ever, this means more cashback to you.
That is if the REIT performs as hoped. As with most forms of investing, there are no guarantees.
The Pros of Investing with DiversyFund
The key is accessibility: You don’t have to be one of the 1% to invest in a REIT.
Cecilio himself didn’t come from money: His father worked in retail, and his mother was a teacher. The founder grew up hearing his dad talk about opportunities that rich people had, but working-class people couldn’t get near.
In an interview with Your Money Geek, the founder said his goal for DiversyFund is to “make it easier to go up the wealth ladder.”
That means it’s particularly accessible to women and some minority investors, who tend to earn less than men. For example, women’s earnings are 82% of men’s, according to the U.S. Bureau of Labor Statistics, and black and Hispanic workers earn as much as 43% less than whites and Asians.
(Not-so-fun fact: Only 16% of financial advisors are female, and women make up only 23% of the certified financial planner profession. Latinxs and African-Americans comprise just 3.5% of the certified financial planner profession in this country.)
Financial service companies have tended to market to the easiest, lowest-cost demographic, Cecilio said: “A white male between 35 and 55.” Reaching out to women and minorities hasn’t been a priority, which he calls “a barrier to entry” for those groups when it comes to investing.
“We want to get the information out there to everyone,” he says.
In addition to the low initial buy-in, DiversyFund has another kind of accessibility: the anonymity of the Internet. You don’t have to make an appointment with an investment advisor or go into a bank and talk to a wealth-building expert. Some people are intimidated by that kind of interaction. But DiversyFund’s online-only setup has no preconceived notions about what a client should look like.
“Does the website ask you what race you are, what gender you are, what’s your net worth? It doesn’t. It’s not going to discriminate against you,” Cecilio said.
Other advantages of DiversyFund:
- It’s open to all U.S. residents aged 18 and over.
- You can invest online in as little as five minutes.
- No real-estate experience is needed.
- As a passive landlord, you’ll never have to call a plumber or run background checks on your tenants.
The Cons of Investing with DiversyFund
Your Money Geek is not trying to blow smoke here! DiversyFund is very cool, but it is by no means an instant income-producer that’s 100% guaranteed. Keep the following points in mind when determining whether it’s a good fit for you.
Your money is locked in. As noted above, the DiversyFund Growth REIT has a five-year term. If you put in $1,000 and then suddenly needed the money back, you wouldn’t be able to get it until the end of the term. (Quick aside: Never invest in anything to the point where you have no cash assets!)
Potential risk. Banks and credit unions are insured against loss. Like stocks and other investment options, DiversyFund is not guaranteed.
New model, no history. This kind of REIT is still young. No one knows how it might perform in the event of a serious real estate decline.
If you truly want to build wealth, you can’t do it without investing. Otherwise, the numbers simply aren’t there, given low-interest rates on savings accounts and CDs. Even though some online banks are disrupting things, we’re talking about current interest rates of under 2% – not exactly a quick road to riches.
Some people are disillusioned with stocks, or wary of getting into the market. Other investing options, such as private equity or tax lien certificates, require major expertise (and major moola). Typical real estate investing can be quite lucrative, but it takes a lot of work to be a landlord or a flipper.
No one’s suggesting you put your life savings into REITs (or stocks, or anything else). But when it comes to investing, you must be willing to assume some level of risk for the possibility of reward. Only you can determine how much risk is too much risk.
Some people don’t want any risk at all, which means their money remains in low-interest accounts. That’s their prerogative – but it also pretty much guarantees very low returns.
Thanks to sites like Vanguard, you can start investing with a relatively small way. And now, with DiversyFund, you can become part of a REIT without needing to hand over hundreds of thousands of dollars.
After all, investing doesn’t mean putting all your eggs in one basket. If you’d like to diversify your money plan, DiversyFund is a simple, inexpensive way to do that.
And if you haven’t started investing yet? Just $500 could get you started on building your financial future. That savings account is fine for your emergency fund and some liquid cash, but it will take more than that to ensure a comfortable financial future.
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