A version of this article first appeared in the CNBC Property Play newsletter with Diana Orrick. Property Play covers new and evolving opportunities for real estate investors, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large publicly traded companies. Sign up to receive future editions directly to your inbox.
Fractional ownership isn’t a new concept in the real estate world, but one company is taking it to a new level with the help of fresh funding from a big-name investor. It has created what is called a real estate stock market.
Launched in 2021, Arrived is a platform that allows real estate investors to buy and sell equity in rental homes for as little as $100. Rather than investing in a public real estate investment trust, you can build your own real estate portfolio managed by Arrived. Not only does real estate generate rental income, but it can also increase in value over time. The properties are taxed as REITs because they can each be owned by hundreds of investors.
“We spent about a year working with the (Securities and Exchange Commission) to build this framework within the regulations to allow both accredited and non-accredited investors to participate,” said Ryan Frazier, co-founder and CEO of Arrived. “As such, we employ a periodic offering structure to register each property through the SEC and subsequently qualify each property as a REIT.”
Frazier describes this as “unbundling” REITs into individual properties, allowing investors to 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 assets is doubling every year.
Investment platform Roofstock also primarily sells entire investment properties on its site, but there are also fractional ownership opportunities, although the minimum investment amount is much higher.
Arrived is now announcing $27 million in new funding to help launch a secondary market platform that allows investors to trade stocks in private homes across the United States in minutes. This allows you to quickly close out or expand positions, as well as gain valuation and rebalance your portfolio.
“Investors can now buy and sell stocks to each other on Arrived,” Frazier said, noting that in the first three weeks after the option went into effect, investors placed 57,000 buy and sell orders on the market.
“I think this is exciting because we’re really bringing this liquidity into the real estate market, so I think just moving online will drive real estate investment,” he added.
This new funding was led by Neo, a venture capital fund and mentorship community.
“The Arrived team is cracking, and I love the audacity of their vision for a real estate equity market,” Neo CEO Ali Partovi said in a release. “I’m betting they will democratize and digitize access to America’s $50 trillion in residential real estate.”
Forerunner Ventures, Bezos Expeditions and Core also participated. Other existing investors include Salesforce CEO Marc Benioff, Match Group CEO Spencer Rascoff, and Uber CEO Dara Khosrowshahi, bringing total funding to date to $61.7 million.
The company says more than 850,000 investors have collectively invested more than $330 million in Alive Housing since its founding.
This new platform comes at a time when traditional home buying has stagnated and investors are finding it increasingly expensive to buy single-family rentals on their own. Home prices remain historically high and interest rates are significantly higher than they were during the last housing boom just three years ago.
According to Kotality, the proportion of home buyers this year who are investors is at a record high, due in part to a significant decline in the number of owner-occupier buyers.
Frazier said Arrived has become very selective about its markets and has stopped using long-term leverage in its portfolio to protect itself from the downturn in the overall housing market. He said the majority of properties on the Arrived platform are owned by investors with 100% equity, adding that the average interest rate for properties with mortgages is below 4%.
