Row of single family homes in Alexandria, Virginia.
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A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and evolving opportunities for the real estate investor, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. Register to receive future editions, straight to your inbox.
Fractional ownership isn’t exactly a new concept in real estate, but one company is taking it to a new level, with the help of new funding from big-name investors. This creates what is called a stock market for real estate.
Arrived, launched in 2021, is a platform for real estate investors to buy and sell shares of rental homes for as little as $100. Rather than investing in a public REIT, they can build their own portfolio of properties, managed by Arrived. Not only do properties generate income through rents, but they can appreciate in value over time. Because the properties can each be owned by hundreds of investors, they are taxed as REITs.
“We spent about a year working with the SEC to create this framework within the regulations so that both accredited and non-accredited investors could participate,” explained Ryan Frazier, co-founder and CEO of Arrived. “So we have a recurring offering structure through the SEC to register each property and then each property to qualify as a REIT.”
Frazier describes it as “unbundling” the REIT into individual properties, so investors can choose what they like. Some properties have more than a thousand investors. So far, Arrived has around 500 properties in 65 cities. The number of its properties doubles every year.
Investment platform Roofstock, which primarily sells entire investment properties on its site, also offers shared ownership opportunities but with a much higher minimum investment.
Arrived is now announcing a new $27 million fundraising round to help launch a secondary market platform, where investors can trade their shares of single-family homes across the United States in minutes. This allows them to quickly exit or expand their positions, as well as capture appreciation and rebalance portfolios.
“Now investors can buy and sell stocks from each other on arrival,” Frazier said, noting that in the first three weeks of the option’s activity, investors submitted 57,000 buy and sell orders to the market.
“I think it’s exciting because we’re really bringing that liquidity to the real estate market, which I think makes it easier to invest in real estate just online,” he added.
The new funding was led by Neo, a venture capital fund and mentoring community.
“The Arrived team is cracking, and I love the audacity of their vision: an exchange for real estate,” Ali Partovi, CEO of Neo, said in a statement. “I’m betting on them to democratize and digitize access to America’s $50 trillion in residential real estate.”
Participation also included Forerunner Ventures, Bezos Expeditions and Core. Other existing investors include Salesforce CEO Marc Benioff, Match Group CEO Spencer Rascoff, and Uber CEO Dara Khosrowshahi, bringing total funding to $61.7 million to date.
Since its inception, more than 850,000 investors have collectively invested more than $330 million in Arrived homes, according to the company.
This new platform comes at a time when traditional home buying is at a standstill and investors are finding it increasingly expensive to purchase single-family rentals on their own. House prices remain historically high and interest rates are significantly higher than they were just three years ago during the last housing boom.
Investors make up the highest share of home buyers on record this year, according to Cotality, but only because the pool of owner-occupied buyers has shrunk significantly.
To protect against weakness in the overall real estate market, Frazier said Arrived became very demanding in its markets and stopped using long-term leverage in its portfolio. The majority of properties on the Arrived platform, he said, are owned by investors with 100% equity, adding that for those with mortgages, the average interest rate is less than 4%.