The Largest Asset Class
Real estate is huge.
To get a grasp on just how huge it is: the global equity market capitalization is valued at $70.1 trillion. The global bond market is topping out at $92.2 trillion. Real estate is a whopping $217 trillion — making it the world’s most important asset class. In fact, global real estate is a more valuable asset class than all the stocks, shares and bonds combined.
Why so much value?
A hard asset like real estate is very stable.
It holds value even in tough market conditions. While other financial assets can go to zero, or even in some cases, negative, real estate always holds some positive value.
When the economy grows, real estate values grow.
Tied to GDP, real estate can be hedged against inflation. Rents and sale prices tend to keep pace with inflation, maintaining the buying power of the invested capital.
The price keeps rising.
There’s a limited amount and the value is going up everywhere. Historically, the value of real estate in the U.S. has consistently grown over time.
Real Estate produces passive income.
While the value of real estate is constantly rising, so is the demand for housing. This means the total cost of a mortgage and other operating expenses are often lower than what can be charged for rent. We see this in the market now and private equity investors are taking advantage of it, not only boxing out new homebuyers but also charging them higher and higher rent.
How can you invest in real estate?
There are many different vehicles, each with different levels of risks.
Investment Properties — Rentals
This strategy allows for investors to make money while the property appreciates. While there can be a lot of upside, it requires a significant cash outlay, the hassles of the underwriting, approval and closing process, property taxes, insurance and maintenance. Oh, and get ready for those 1am calls about broken pipes and the added risk of cash flow interruptions if and when properties sit idle.
Fix & Flip
Every HGTV show is based upon this premise. Buy low, sell it high. However it’s not that easy. While buying homes, remodeling and resting them can provide a good return, there is a large element of risk. Flipping requires accurate estimates about the cost of updates and how long they will take. With supply chain and rising costs of materials, these estimates are becoming tighter and tighter.
Real Estate Investment Trusts (REITs)
REITs are typically a trust of commercial real estate assets like office buildings, apartments and hotels. Investors have no control over their return or performance. They often pay dividends to investors, making them popular for retirement investments. All around a pretty boring investment.
BUT WAIT, THE REAL ESTATE MARKET IS STILL GROWING. YOU CAN STILL GET IN.
Yes, the housing market seems crazy. First there’s the risk, large amounts of capital needed, high carry costs, taxes, insurance and more that it takes to get started. Then there’s the fact that prices are at an all time high. Is NOW the time to invest?
Well — it looks like a yes. The housing market is growing and growing and growing and going up up up. The S&P CoreLogic Case-Shiller U.S. National Home Price Index just reported its highest one-year gain in history, up nearly 19% through the end of June. And before you say it — there are many indicators this is not another housing bubble and structural and market forces are providing plenty of room for prices to continue to rise. Low interest rates, a constrained supply from a lack of homebuilding during the crash, a pandemic that encouraged people to buy homes and the largest generation (millennials) ready to buy combined with less and less homes being built each year is driving prices up.
Diversification and a new way to invest in real estate.
You’ve heard it before, it’s the idea behind mutual funds: Diversification is the act of spreading investment dollars across a range of assets to reduce investment risk. Now you can add real estate to the ways you diversify. By choosing not to put all of your eggs in one basket, you protect your portfolio from market volatility. With ROOK you can begin to diversify your portfolio with real estate investment. You don’t need to carry all the overhead of owning a home and you don’t need to outlay a bajillion dollars for down payments.
Currently, we allow accredited investors the opportunity to invest as little as $100 in single-family homes and build a diversified portfolio as we expand throughout the country. Investors can act as the “rich uncle” helping individuals access new homes. We believe this will lead to stronger communities where those who work in the community can live there as well. As these new homeowners build their families and careers, investors and occupant will all be aligned to grow equity and wealth together.
Rook will also enable traditional finance and crypto investors to come together and participate in real estate investing. The convergence of TradFi and DeFi will happen, and Rook will be at the forefront of this inevitable convergence. And we are going to take our investor participants along for this amazing ride.
As people become more accustomed to investing in fractional stocks, trade cryptos, there has never been a better time to re-imagine how investors can get exposure to real estate. Rook allows investors to build a diverse basket of single-family homes and participate in the wealth accretion that occurs in the real estate asset class.