Hello folks. Usually I’ve got Karen on here for Q&A with me, but she’s out. So, it’s actually been me in the chat with her uh her face on it. So, I am going to run our Q&A section solo today. So, try not to beat me up too badly. Feel free to keep dropping questions in the chat. Um I only have a couple here that we’ll go with. Um and we’ll kind of see what where we go from there. So, first I want to take on Paul. Um it’s a good clarification question here. If you start with an investment of $100, you know, are you obligated to do that each month? The answer is no. So, each investment on Arrive is a separate investment. You’re not signing up for a subscription. There is no required, you know, you must put in X per month. Um, you make an investment and if you wanted to only invest $100, you would only invest $100. It does not obligate you to do anything beyond that. We do have a recurring investments feature that’s going to be launching this fall. So, if you wanted to invest $100 a month, you know, similar to an auto invest program in, you know, other financial apps, you can just say, “Hey, I want to invest $100 once per month, and it’ll automatically do that for you.” But to be clear, you don’t have to. Um, and right now, um, you would just be going online, evaluating the different properties and funds, and making basically a one-time investment each time. Certainly, the I think way to be the most successful investing in real estate is to continue to invest over time. It’s similar to your 401k. You know, you don’t make one investment in your retirement account and then just walk away and say, “Great, I’m going to be able to retire in 30 years now.” You steadily invest each paycheck. You know, you have those auto contributions uh into the 401k so that over a number of years, you actually do build up a pretty sizable nest egg that can compound, earn returns on itself, and then eventually provide you enough income to support you in retirement. Um really the only other question I have in here was um apologies I’m mixing up the names but um for you Andre on the share sale. So I’ll broaden it a little bit and talk about the two liquidity options on arrived. So the funds have what is called a redemption program and it’s fairly simple. If you hold the shares in the funds and you say that you want to redeem them, you can go through your account and submit a redemption request and then we batch them and we process them once per quarter. So four times per year, we just take all of the redemption requests we’ve gotten for the last three months and then we do the exchange of shares for cash and it really is the fund effectively buying back those shares. So the price that it happens at is a set price. It’s whatever you know new the whatever the price per share of the fund is. You know, we update that value quarterly. It’s the same price that new investors are buying new shares at. If you held your shares for two or three years, you know, you capture the appreciation that’s happened in that time. um and you do that redemption request and you you know sell your shares back to the fund and you get cash out in return. The other liquidity option is the secondary market and that works for all of the individual property investments and that one’s a little bit different because instead of selling your shares back to you know arrive you’re selling your shares to another investor. So it works a lot like the stock market where you have, you know, people that are interested in buying putting in buy orders, people that are interested in selling putting in sell orders. And then transactions only happen if you know the buyer and the seller overlap on price. So the secondary market, you know, you don’t just get a fixed price per share. It depends on what the market is willing to bear. And so sometimes that is, you know, above what life thinks the shares are worth. Sometimes it is below what thinks the shares are worth. Importantly, it’s a little bit more complex than the redemption program because you have to pick how many shares you want to sell and the prices that you want to sell at. And that means you may have to look at the market data to see, hey, where are buyers? You know, where are sellers? And you know, if the the market is here and I price my shares way high, nobody’s going to buy them. So, it takes a little bit more effort in order to sell your shares on the secondary market. But that option runs more frequently. So, we have the secondary market running once per month instead of once every 3 months. And so even if you miss a window where not all your shares get sold, um you have the opportunity the next month to be able to sell as well. And so for for your situation, Andre, it looks like you listed your shares for sale, but they didn’t actually get purchased. So you just said, “Hey, I want to sell my shares for, you know, a certain price, but buyers nobody nobody ended up buying them.” So you still own those shares. um and you will until you end up either selling the shares or if you hold on to the properties long enough eventually arrive will sell the property and then liquidate you know the investment that way. So the secondary market um preandre runs through this Friday. So go ahead and take a look because if you are interested in selling that’s kind of your window to do so otherwise it’ll open up again in early September. And for the rest of you um the secondary market you only get access to it once you’ve been an arrived investor for I think 60 days. So, if you guys make your first investments this week, you should be available um you should be eligible to trade on it come October. And when you do so, it’ll be exciting because you guys are also have access to buy shares on the secondary market. And that means that you’ll have access to buy, you know, any of the properties that we’ve launched over the last 5 years. So, properties that are in markets that we may not have had recently, properties that have kind of a um a full length of operating performance, you know, versus buying a new property where we may not have gotten the first tenant in the property yet. So, it’s a cool way to be able to kind of quickly diversify your portfolio and pick up a couple different shares of properties all across the country. Um, Jackie, is there a way to transfer shares from the property to the fund? So, you do have to sell and reinvest. So, it’s it’s um not particularly efficient. It’s it’s the same thing as kind of selling stocks. You know, you can’t just say, “Hey, I’ve got Apple stock, but instead I want Google stock.” you do have to go through the full process of okay well let me sell my shares here and then let me buy shares on the other side um we do have some um costs of liquidity so for that redemption program there is a um I think it’s 1 or 2% of the share value that um goes as a uh as a fee for the early withdrawal after 3 years it drops off completely to kind of incentivize the long-term holding of real estate assets and the secondary market will have a 2% fee a buy or sell so there definitely are some transactions costs to be aware of just because you know it it um you know none of the money really goes to arrive. It’s just that there’s cost of third parties and legal um setup and frameworks that have to happen in order to facilitate these kinds of liquidity options. So it’s something that we may do in the future to to wave fees or to lower fees if you’re just transferring from one asset type to the other. But right now that isn’t available. Um and so when you do make an investment keep in mind that it is a real estate investment. It’s not meant to be, you know, flipped and day traded, etc. They’re generally meant to say, “Hey, I’m going to put money into real estate, and I’m going to let this sit for a little while.” Um, no different than if you were just going to go and buy a property, a rental property yourself. You wouldn’t buy a rental property, and then try to sell it 6 months later. Um, just because there obviously isn’t going to be that much appreciation in the market, and the transaction cost with your agents and commissions is really going to kind of eat into your equity there.
Leon, if you use a trust fund instead of a bank account, what is the difference between the two? So, um I think we’re mixing up two different concepts here. So, if you have a trust that you want to invest out of, you can totally do that. When you create your arrived account, there’s an option to just select a trust account type and you’ll put in your information and the information for the trust. Um what you’ll do then is you’ll just fund the investments out of that trust’s bank account as opposed to if you sign up as an individual you’ll just use you’ll just link your regular checking account and that’s how you’ll you know put money in in order to make transactions. So I think and clarify me if I’m if I’m misunderstanding. I think separate concepts here that you should have a bank account for your trust and you should have a bank account for your you know individual personal usage and which bank account you use just depends on if you are investing out of your trust or if you’re investing out of your checking account as an individual.
Excellent question Michael. Yes, there are lots of tax benefits for investing in real estate. So number one like you mentioned is depreciation. Um at the end of the day all of the the u the income on the properties is going to get distributed to investors and you’ll basically get a tax form that has your proportional amount of you know what to do due. Most of the time with these single family properties there’s enough depreciation to fully wipe out any taxable income. meaning that you know with the depreciation expense the properties end up having a tax loss which is awesome because it means you receive dividends each month that you’re investing but then when we give you your tax form it’ll have a nice big zero for you know zero taxes zero taxable income and zero taxes due. It’s really one of the the reasons that people love investing in real estate is because you can generate cash flow without having to you know incur a lot of tax burden. Um, and keep in mind, um, the depreciation won’t show up as a separate line item on the form. It’s basically already factored into everything that we’re doing. So, you’ll just get a number and that’s, you know, net of the depreciation after that’s already been factored in. Um, depreciation will obviously only work with the single family investments. So, the individual properties or the single family fund will have um a depreciation benefit. the real estate income fund won’t because you can’t depreciate any part of a loan. So the the um keep that in mind as well that the single family fund is a little bit more tax efficient even though the income is a little bit lower than the real estate income fund. Um the other thing to be mindful here is there’s also what’s called the qualified business income deduction. So, because all of our investments are taxed as REITs, they’re all pass through investments. They qualify for the QBI deduction, which basically gives you a 20% discount on any of the taxable income that you generate. So, say that you I’m going try to do an example in my head. Say that you invest um $100 in the real estate income fund and you earn the 8% um dividend that it’s been paying out. You’d receive $8 in in uh uh um income per year. but you’d only file you’d only recognize um about $6.5 worth of taxable income cuz it’s a pass through investment. Um this was something that was slated to fade out with the Tax Cuts and Jobs Act from 2017, but then they reinstated it. They kept it going, I think, indefinitely um with the current administration. So, another benefit for investors there where the taxes you’ll pay are actually going to be at 20% lower rates than what you would pay on your other ordinary income investments. Those two are going to be the biggest benefits um for investing in real estate. Um the other one I’ll mention as well is that we do do 1031 exchanges. This applies to very few people in general, but if you have a rental property outside of Arrive that you own, um you can actually sell that property and not have any capital gains on it if you reinvest into a new property. So, it’s a a newer product that I’ve been working on. Um, and if you have a rental property that you are considering um, selling, feel free to shoot us an email and I would certainly love to chat with you.
Um, Paul, I’m seeing your same question again about if it would be a monthly deduction from your account. Um, again to clarify, if you make 100 investment today, you’ll see $100 withdrawn from your account as we go to make that first investment, but then the next month there wouldn’t be anything else. It’s not there is there is no um automatic reinvestment etc. We have a feature that’s coming for that if you want it but it will be an opt-in. So it’s not going to ever just say hey we’re suddenly taking money out of your bank account without your permission. And in fact each time right now that you go to make an investment on arrive you actually have to put your you know check the couple boxes and put your initials in on the checkout flow. So it’s it’s fairly difficult to just accidentally make a trade. Um let me know if that answers all of your question. Um, otherwise happy to go through more. I’m running low on questions here, folks. Um, we went through a lot of content in prepared remarks and here, um, what other thoughts you guys have on investing in real estate options. Um, uh, on the 1031, we wouldn’t buy your property. What we’ve been doing is we’ve been um helping facilitate the exchange because there’s a lot of really strict IRS deadlines involved with the 1031 and if you mess those up you end up paying all of the capital gains taxes. And what we’ve really been valuable for investors on is sourcing the new properties. So often happens I’ve got somebody in California who says, “Hey, I want to kind of shift some equity out of California. Maybe have it generate higher income for me. maybe kind of get it out of a state that is tends to skew fairly tenant heavy and you know anti- landlord and so we have our network and we’ve got a you know 60ome different markets that we’re operating in so it’s really easy for us to buy a couple of properties you know all across the US that can help you know fulfill your exchange for most people it’s a really stressful time because you have really limited deadlines on how quickly um or on how long you have to find new properties so we we likely wouldn’t buy your property just cuz we look for very specific things when we’re buying Um, we can help sell it if you want, but you can use your own, you know, realtor of course. Um, but where we really help is kind of helping to facilitate the process, source the new property, due diligence on the new property, acquire it, and then we can help manage it. So, if you end up owning a property that’s 10 states away, we can just manage it, and you’ll be able to see it in your arrive portfolio, like any of your fractional investments.
Um, let’s see here. Oh, I clicked the wrong button. I don’t know if I can get that back up on the screen. Okay, Stephan, I’m not sure if I can get up on the screen cuz I clicked the wrong thing, but um if you start with $100 and let it sit there passively, you withdraw the dividends. Um yes. So, the way it works is say you invest $100. Um and let’s say you’re investing in the real estate income fund. You’re earning that, you know, 8% per year as the as that fund is investing in loans, generating interest. That interest and those dividends each month are being paid out into your arrived account and they’ll be paid out as cash. So, um, if you start with $100 and let’s say you come back a year later, you’ll see, you know, you’ve got $100 still invested in the real estate income fund, you’ll also have about $8 in cash sitting in your cash balance. You can do whatever you want with that $8. So, you can withdraw it and there’s no there’s no penalties or anything for that. It’s just cash sitting in your account the same way that if you have cash sitting in your, you know, Fidelity or Schwab or Erade or brokerage account, you can just withdraw that at any time. Um, or you can say, “Hey, I want to go and make a new investment.” And if you said, I want to invest another $100 in the real estate income fund, you have the option of reinvesting that $8. So you could say, hey, now I’m going to only add $92 and use the other eight that’s sitting in my arrived account and, you know, be able to go pick up more shares. Obviously, that’s what kind of gets the compounding process kicked off because you invest with, you know, $92 that time and then you get, you know, $16 in dividends the next year because you get, you know, the dividends from both of those transactions. So the next year you only have to invest um 92 – 88 86 84 you only have to invest $84 the next year in order to purchase the same you know 10 shares worth um and start generating returns. So that’s that’s kind of where the compounding over time you know really starts to take effect. Um and obviously the larger the initial investment the higher the initial dividends. So instead of $100 say that you invested $1,000 and you earn $80 that first year from the real estate income fund. That means that in year two, you only need to invest $20 out of pocket in order to purchase another $100 in shares or sorry, uh you’d only invest yeah another another $20 to get another hundred. Um so that is generally the strategy we see and that’s really why we are launching this recurring investments feature this fall. Um is that we’ve just seen people say, “Hey, I like the idea and I want to just autorevest my dividends, but I don’t want have to come back and do the clicks every month.” We’ve definitely heard that loud and clear. So, that’s why we’ve got this new recurring investments feature that’s going to be launching later this fall. Um, the team is very excited about it. I think it’s one of the uh bigger things that we’ve launched over the last few years. So, I’m excited to see that come to life.
If we don’t have other questions, we can certainly wrap up early. Um, I mentioned earlier, but yes, you guys will get a copy of this recording later today. So, um, I know we went through a lot of content. Um, we’ve got a lot of different investment products. Um, biggest piece of advice I’d give is just make sure you feel confident before you start investing. We’ve got, we host these webinars regularly. We’ve got lots of content on our blog and in our FAQs and, you know, really just read through the investment pages. There’s a lot of great information about what the strategy is for each investment. Um, we have the address for each individual property, so you can go look it up on Google Maps and kind of check it out in the real world. Um, we’ve got all the information about liquidity on each page. Um, including all the fees for the different based on the different, you know, investment type. So, there’s a lot of information. Um, and you know, want you guys to feel confident before you invest in real estate. It I know is certainly a big leap to go and buy a piece of a property online, but I think increasingly it’s becoming a a more and more common thing and folks are realizing that real estate is a great thing to add to your portfolio. you know, on top of your stocks and bonds and, you know, crypto and all the other kind of asset classes you have, real estate tends to be one that has endured for a long time that sure has a lot of tailwinds behind it. You know, a lot of people that want to buy homes, not a lot of homes being built. You know, we’re not doing a lot of construction. Um, the 2010s, we built the fewest number of new homes of any decade since World War II, so there doesn’t seem to be a a big slowdown coming in the single family market. and there’s a a lot of really strong fundamentals. So, so you know, we’re very bullish on the the market as a whole. Um, and you know, want to be able to kind of have a platform that allows folks like yourself to be able to go through and make investments, kind of participate in that upside.
I’ve rambled as long as I think I can. I’ll give it another minute or two in case there’s any other questions. Um, and if not, then like I said, we’ll have that recording available for you later today. You can always shoot us a note at supportarive.com if you have any follow-up questions. Like I said, want to make sure you guys feel like you are supported and have all the information you need. So, please don’t be a stranger. Our team is happy to help out and answer questions cuz like I said, I know we went through a lot of information over the last 45 minutes and want you guys to feel confident.
How are we finding properties? Good question. So, we have a um a whole acquisitions team that comes from, you know, largely American Homes for Rent, which is the second largest single family REIT in the country. Um and they are masters of pricing. And so they are kind of scouring the market and looking for you know what can we think we can buy the property for and what do we think we can rent the property for and that helps us kind of figure out okay what does this make sense from a cash flow perspective and then we really layer on what’s the kind of appreciation forecast in each particular market. So we do a lot of analysis to narrow those things down to look at you know jobs you know where are companies hiring what does the employment base look like you know you want to avoid investing in places like you know Detroit in 2005 where you just have a super concentration in the auto industry um we generally look for cities that are developing and growing and are kind of expanding where there’s what’s called immigration you know more people moving in than there are people moving out and we look at both the market for sales of you know what’s what kind of inventory is coming online. Um, you know, do you have places like Phoenix where you can just keep going out into the desert and building more houses or you have areas that are constrained on, you know, geographically like where can you even build more housing? Uh, good example being like Salt Lake City. You’ve got mountains on two sides and a lake on the bottom um and the top. So, it’s it’s really constrained and there isn’t a large ability to, you know, increase the supply of homes, but at the same time on the rental market, there’s a lot of people that want to be there and there is diverse employment bases. um you know that want that are attracting people to that particular area. From there we actually look at all sorts of different you know property sources. So we look at properties that are being listed online. Um where we’ve really had a lot of success is buying properties from home builders because you know the homebuilders right now have a lot of homes and a lot of land that they’ve kind of bought over the last couple years and are committed to building on. But as interest rates went up their cost of capital went up. So, we really need to start off selling loading homes, particularly this time of year, cuz I think their fiscal year end is the end of September, if I remember right. Um, and so as they’re trying to sell homes, they’re kind of hitting these headwinds where interest rates are high and so home buyers aren’t as active as they were over the last couple of years. And what that means is that we’ve actually been able to get pretty good discounts on new construction inventory. And we really like that because those new properties are going to have very few kind of repair and maintenance items over the next 5 10 years. You know, you’re not going to need a new roof. You’re not going to need a new HVAC system. And those newer properties are generally going to appeal appeal to higher quality tenants. And they’ll pay a premium in rent for buy, you know, for being able to rent a brand new property that, you know, feels new and doesn’t have that kind of old tired feel. So, we’ve seen a lot of success in buying new construction because those home builders still need to offload that inventory. They’re not in the business of buying and holding properties. They’re in the business of turning land into finished houses. So, we’re now one of the largest, if not the largest buyer of LAR homes across the country. So, as a result, we have kind of a corporate deal that allows us to get a discount on the purchase prices of those properties. And Edge ended up just getting passed off to investors. So, we’ll look at pretty much anything. Um, and we kind of shifted our strategy over time. Early on, we bought properties that were in kind of really cash flow heavy markets. We shifted to some areas that were more focused on appreciation. So, I think you know, Nashville, Phoenix, um, Denver. And then as interest rates went up and kind of the appreciation in the single family market slowed for a little bit, we shifted back toward, you know, properties are in a cash flow in that four to 5% range from, you know, day one. So, that’s kind of been the strategy and we’re kind of always evolving it based on what we see out in the market.
Leon, if I invest $100 today, can I invest more in the next month in the same fund? Absolutely. You can invest $1,000 today and $1,000 tomorrow if you want in the same fund. Um, there’s no real limitation there. Um, you can invest virtually as much as you want in any of the funds. Um, the funds will be available. um it’s those individual properties where once we kind of hit the number that we need to fund that property then that’s kind of all that there is available and then that property is then only available in the secondary market in the future when existing investors are willing to sell their shares. The funds are a little bit different because they could grow you know virtually forever. Um there is a limit on how much they can grow to but we would just create a new fund um and and you know we kind of monitor that as we go. But the way the funds work is basically as new dollars are invested those funds can then go and acquire more assets. So say the single family fund you know owns about I think 55 properties right now and it’s continuing to collect dollars from investors and as it hits enough money it’ll go and it’ll just go out and acquire a new property and it’ll go from having you know 55 properties to having 56 properties. So there’s those funds are are kind of expandable. They can kind of keep growing as there’s more investment dollars in as opposed to those individual properties. you know, we’re only buying the one property, so we don’t need $5 million to buy one single family house. Once we kind of hit the four, five, $600,000 we need, that property is kind of closed for funding from investors. Um, and we just kind of begin operations on that particular property.
Um, do we have a contingency for the company? Um, we’ve got all sorts of contingencies. So uh on the the legal answer is for all the risk factors, you know, take a look at the offering circular which is linked on each of those investment pages and goes through kind of the full set of our plans and details. But we do a lot to reduce risk. So for one, like we just talked about, we’re buying these newer properties. So we’re not buying properties that were built 100 years ago or properties that Joe and his uncle remodeled 30 years ago. Um we like buying these new construction homes cuz you kind of know what you’re getting. You know, not going to be any foundation issues. there’s not going to be anything that that really has a property be a full lemon. Um, and the builders will even warranty those properties for the first year or two. So, there’s kind of a nice little added perk in there. We also in our acquisitions are making sure that we’re not buying properties that are in a flood zone. Um, you’ll notice we don’t have properties that are, you know, on the beach where the shoreline is eroding and there’s hurricanes coming in. Um, and then we have really adequate insurance coverage. So, we insure the properties so that if there anything obviously happens, the insurance will pay out to fix it. Um, we also have, you know, a a a clause you have for landlord insurance. So that if we’ve got a tenant in a property and say that the pipe bursts and the house floods and it’s not livable, well, the insurance company will pay out to fix the property and it’ll pay out for all the lost rent that we didn’t get because the tenant couldn’t live in the property during that time. So, we obviously can’t reduce the risks to zero. You know, these are investments. It’s not just putting money in a bank account. There is risk of loss. There is risk of things happening. There’s risk of tenants don’t pay, of damages happen, of you know, all sorts of negative things can happen, but we really do a lot to, you know, try to protect the downsides on those risks. And in general, single family is an asset class that has tended to be, you know, fairly um fairly consistent over time and isn’t, you know, at the end of the day, you still have a hard asset. So, we’re not looking at something like cryptocurrency that can just bump up and down. even companies in the S&P um and on the stock market. You know, you may have per companies that IPO and then just kind of totally go to zero and get bought out eventually. The end of the day here, there’s kind of a floor to the value of these properties because there is somebody out there who’s willing to buy a single family house that wants a roof over their head and a good place to be able to live. So, we do a lot to to mitigate risk. Um but these are still investments. So, there still is that risk. And so, generally, you know, the way that you can reduce that is by diversifying. And so with these individual properties, obviously if you have $10,000 and you put it into one property, you know, it might be one property that the tenant doesn’t pay rent or we have to do an eviction or there’s a big damage, we have to pause dividends. Um, and so generally it can be smarter to say, “Hey, instead of putting $10,000 into that one property, I’m going to put $1,000 into 10 different individual properties.” Um, and that way you can kind of diversify a little bit and not have all your eggs in one basket. And that’s kind of how we ended up with things like the single family fund where if you invest that first $100 into the single family fund, it’s instantly diversified across the 55 properties that it owns. So that way as there’s normal tenant turnover and churn, you know, the dividends for that fund can be really really consistent because there haven’t been, you know, there there hasn’t been anything that is going to cause, you know, 20% uh vacancy across that whole fund. it’s all kind of staggered and those those um you know the the it’s diversified enough, you know, where there’s enough eggs in that basket that even a an event happening at one or two properties isn’t going to materially impact the overall returns for that particular fund. So that’s a that’s a good little ramble on risks um and things that can go wrong. Again, for the full list, take a look at the offering circular which is linked on the investments pages and you’ll be able to see kind of the full list of all of the the legal jargon and and disclosed risks.
Okay. Well, I’ll give you guys a couple of minutes of time back. Thank you all for joining for the long presentation. Um, and like I said, you’ll get an email recording and feel free to reach us at supportarive.com and happy to continue some of these conversations. I appreciate all the uh the questions coming in and all the feedback from folks. All right, take care. Bye.