Diversify Your Real Estate Investments with Lofty

Balancing Your Real Estate Portfolio

As important as it is to diversify into real estate investing, it is just as important to diversify within your real estate investments.

A balanced investment portfolio consists of both higher yield and higher risk assets alongside lower yield and lower risk assets.

Since launching Lofty in May of 2021, the majority of sellers on our marketplace were listing higher yield and higher risk properties in tertiary markets like Cleveland, Akron, and Memphis.

These properties tend to have the highest yields of any rental properties that you’ll find, and can lead to 20%+ yearly returns in some cases. But, with higher yields comes higher risk.

These types of rental properties often have more maintenance issues and higher delinquency rates than properties with lower yields.

These issues are caused by a number of factors. Higher yielding rental properties tend to be older builds and have fewer renovations. Also, such properties typically have existing tenants who were not vetted by the property manager selected by Lofty investors, often resulting in a higher rate of rent delinquency.

Based on feedback from Lofty users, it has become clear that most want to diversify into more stable, lower risk properties.

Because of this, all future properties listed by sellers on the Lofty marketplace will meet new criteria:

• Class B Single Family Homes (5-7% Cap Rate)
• Vacant at launch (seller will provide full rent-credit for 2 months)
• Located in HomeRiver Group’s markets
  

We will walk through each of these criteria below in more detail.

Class B Single Family Homes

Class B Single Family Homes tend to be newer builds in mature neighborhoods with monthly rents ranging from $1,500 - $2,500. They are often located in growing secondary markets like Charlotte, Atlanta, and Huntsville, and have high employment rates alongside above-average income levels and low crime rates. Because these properties are often newer builds and recently renovated, they will typically have fewer maintenance issues over time.

You can view an example of a Class B property in Huntsville, Alabama here. The tenants occupying these properties tend to have high credit scores and low delinquency rates. Class B properties typically have a 5-7% Cap Rate and will often see higher yearly rent increases than properties in slower growing markets.

Properties will be vacant at launch

All properties will be vacant at launch moving forward, instead of being occupied with existing tenants. Lofty investors will still begin receiving daily rental income on the same day an investment is made, via a full rent credit provided by the seller. This rent credit will last for two months in order to give the Property Manager, selected by Lofty property owners, ample time to find a quality tenant.

While occupied properties de-risk the potential of not being able to find a tenant for an extended period, there are a number of benefits of launching vacant properties over occupied properties:

• When a property is vacant, all tenants are vetted by the Property Managers, who are themselves selected by and voted on by Lofty investors. When a property is vacant at launch, this allows the Property Manager to vet and choose a high quality tenant according to their strict criteria. Occupied properties, on the other hand, have not been approved by PMs hired by Lofty investors and have only been vetted by the previous seller/property manager.
• Vacant properties will tend to have higher rental rates once occupied. Currently, rents are as high as they’ve ever been in history. Because of this, Property Managers are currently able to advertise vacant properties at these higher rents, resulting in a higher annual rent return once occupied. An occupied property, on the other hand, may have a tenant that signed a lease 6 months ago, which was likely at a lower rental rate, since the market rents were lower at that time. You would then have to wait until the tenant’s lease renews or they vacate in order to increase rents to the market rate. Once the tenant moves out, this also leads to additional maintenance costs to repair the unit before it can be made rent-ready again.

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Located in HomeRiver Group’s markets

HomeRiver Group is the largest third-party property management company in the United States for single family and small multifamily homes. They manage over 35,000 homes in 30 states.

Based on feedback through multiple governance votes as well as general community communication, HomeRiver Group has delivered the highest satisfaction to investors on Lofty, which prompted the new national partnership with HomeRiver Group.

This partnership gives Lofty property owners the opportunity to greatly improve returns and reduce property management headaches. The partnership cuts the traditional 10% management fee to just 5.7%, and eliminates markup to contracting fees done in-house.

HomeRiver Group will use their local expertise to provide recommendations and analysis for all properties prior to listing on the Lofty marketplace.

Should HomeRiver Group not perform in an adequate manner as deemed by investors on Lofty, investors can vote to switch to a different PM through a governance vote as they have done many times before, without any penalties.