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Short term rental (STR) are the fastest growing hospitality segment and have been gaining market share for years. A confluence of factors such as robust travel spending by Americans, growing consumer preference for experiences and remote working is expected to support 11% CAGR growth in the STR market through 2030.
Given the recent growth of STRs, vacation rental investment has become increasingly popular. Historically, however, the only way people could invest in this asset class for steady income and capital appreciation was through the time-consuming and capital-intensive process of buying and managing a single or portfolio of vacation rental homes. In this article, we’ll explore the fundamentals of REIT investing, the benefits of investing in a vacation rental REIT, and Wander REITthe first and only STR REIT that can help you enjoy the benefits of STR investing without the hassle.
How REITs Work
REITs, or Real Estate Investment Trusts, were created by US Congress in 1960 creating an investment vehicle that would allow investors to pool capital and facilitate greater investment in an asset that would otherwise have been out of reach. Since then, REITs have become widely used to access real estate.
REITs are also widely used because they offer tax advantages that benefit the REIT and its investors. Unlike most corporations, REITs do not have to pay corporate-level taxes, which generally allows REITs to reinvest more capital and pay higher distributions to investors who are not subject to to double taxation.
However, REITs must meet strict standards set by the IRS to maintain their classification, including:
- Distribute 90% or more of their taxable income as dividends each year.
- Have at least 75% of its capital invested in real estate assets or cash.
- Get at least 75% of his gross income from real estate assets like rent or interest.
Investing in public REITs can be a great way to gain exposure to real estate, but investors aren’t limited to investing in public companies. There are also private REITs. Private and public REITs are very similar in the way they operate, except that private REITs are not publicly traded on a major exchange, which makes them less susceptible to public market volatility.
While private REITs offer real estate-backed stability, historically strong returns, and the ability to invest in real estate without the hassle of property management, private REITs may be better suited to long-term investors who don’t don’t need immediate access to their invested capital. . In other words, REIT investors need to be comfortable with the lack of cash.
This lack of liquidity compared to public REITs also means that private REITs are generally limited to accredited investors – individuals or couples who meet income or net worth requirements or fall under a special financial employment status such as as defined by the SEC.
Changing the way short-term rental investment works
Historically, the only way to invest or access the short-term rental market would have been to buy a house or a portfolio of houses and rent it out. However, this often comes with the time-consuming and capital-intensive responsibility of driving the occupation, management and maintenance of properties.
With the growth of the STR segment, there has been a growing need for alternative ways to invest in vacation rental homes, and that’s where REITs come in.
As mentioned, REITs have been around for several decades as a common means of financing various types of real estate, from residential to commercial projects. Commercial REITs, for example, pool the assets of investors to buy commercial real estate such as hotels, office buildings, restaurants, etc. in return for a share of the profits to investors in the form of dividends and capital appreciation.
However, REITs, as a means of financing the growth of projects in the STR segment, did not exist – until NOW.
Wander Atlas REIT Inc. (“Wander REIT”) is pioneering a new form of ownership in a new asset class, STRs, as the first and only institutional-grade short-term vacation rental investment product.
Wander REIT: Pioneer of short-term rental investment
Wander REIT is the first vacation rental REIT to allow accredited investors to own a portion of high-end vacation rental homes across the United States
If you are unfamiliar with Wander, it’s an industry-leading vacation rental platform that combines the quality and consistency of a luxury hotel with the privacy, comfort and space of a vacation home. Wander’s carefully selected portfolio of modern upscale vacation homes are set in inspiring locations, appointed with designer furniture and amenities, and equipped with smart home technology, workstations and fitness equipment state-of-the-art, and even a Tesla for customers. . By owning or controlling every link in the chain: homes, management, marketing, property application, booking engine and 24/7 SMS concierge, Wander is uniquely positioned to deliver a superior customer experience.
This year, Wander launched Wander REIT—the first and only institutional-grade vacation rental investment product. Wander REIT is a pioneer in institutionalizing the short-term rental asset class by applying institutional standards to its investment process, portfolio management and capitalization strategies. This sophisticated industry approach allows Wander REIT to effectively manage risk and deliver attractive returns to investors.
Wander REIT offers accredited investors tax-efficient recurring income and diversified exposure to the STR market with exclusive investor benefits. It currently targets an 8% annual dividend, paid quarterly, and a 14% total annual return, including capital appreciation.
Here are some advantages that can help you better understand the product and the investment opportunity:
- Potential for above-market returns relative to other established real estate asset classes. One of the main benefits of investing in a vacation rental REIT is the potential for above-market returns. Since vacation rental properties are typically rented out on a short-term basis, they can generate higher rental income than traditional long-term rentals. This means that investors in vacation rental REITs can potentially earn higher dividend yields than they would with other types of real estate investments.
- Diversification. Another benefit of vacation rental REITs is the diversification they offer. By investing in a portfolio of properties, investors can spread their risk across different geographic locations and property types. This can help reduce the impact of a declining or unoccupied property. Additionally, private REITs like Wander REIT generally have lower correlations to public stocks.
- Recurring income. A third benefit of vacation rental REITs is that they are an excellent source of tax-efficient passive income., so you can keep more of what you earn.
- Capital appreciation. As the value of the properties in the portfolio increases, the value of the REIT also increases. Additionally, if the management company is successful in increasing occupancy and rental rates, this can also lead to higher property valuations and increased returns for investors.
- Inflation protection. Inflation is not only felt at the supermarket or at the gas station. The cost of renting real estate also tends to rise, which can make private REITs an effective way to protect the value of your money against inflation. Income and asset appreciation can also help offset some of the deteriorating effects of inflation.
- Easy to invest. Finally, vacation rental REITs make it easier to invest in STRs. They take the day-to-day hassle out of property management by transferring marketing, maintenance and reservation responsibilities to professional management companies. This can be especially appealing to investors who don’t have the time, expertise, or desire to manage their own properties. Wander REIT goes one step further and makes investing easy with just a few clicks.
To learn more about Wander REIT, visit Wander.com/reitwhere you can review investment documents and see how Wander REIT can fit into your portfolio. You can also find all legal disclosures and risk factors associated with Wander REIT on our website.
Summary of key terms
- Structure: Private unlisted REIT
- Targeted investments: high-end single-family homes to convert into quality vacation rentals Wander
- Price per share: $10
- Minimum investment: $2,500
- Target Annual Dividend: 8%
- Target total return: 14%
- Distributions: Quarterly
- Management fees: 0.65% on GAV
- Investor Suitability: Accredited Investors Only
- Tax reporting: Form 1099-DIV
This article is presented by Wander
Wander is the industry’s leading vacation rental platform. We are now launching Wander REIT, the first and only institutional-grade vacation rental investment product.
Unlock access to this ascending asset class and invest in the best of the best vacation rentals.
Note by BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.