This is Part 2 of a 2-Part series on investment opportunities in real estate and neo-investments. For Part 1, click here.
The world is at a crossroads. The stock markets have been flooded with money; real estate markets have gone absolutely bonkers; and interest rates have hit rock bottom with the anticipation of reversing course and moving even higher.
It often feels like there are barely any good investing opportunities out there. There is some truth to this, but a series of emerging technologies and vehicles are offering new and better ways for investors to build real wealth.
Traditionally, yes. Owning real estate has been a key strategy for building intergenerational wealth for over 90% of millionaires. Those of us with the good fortune to own real estate understand just how important having it as a part of your portfolio really is.
The key draw of real estate is that it is a tangible asset that acts simultaneously as a hedge against inflation while increasing in value over time. If it is a secondary property, it may also provide a recurring source of income that can be used to pay off a mortgage, invest in other assets, or even buy additional property.
It is also one of the few high-yield investment opportunities that is easily available to people who do not satisfy the definition of an accredited investor. In short, property ownership was a key driver of social mobility in the United States.
Note the “was.”
As discussed in my prior article Why Are Real Estate Prices So High, and What Should Investors Do About It? (you can read it here if you missed it), a perceived dearth of attractive investment opportunities has led to an influx of capital from institutional investors into the real estate market. Coupled with significant supply pressures, this has led to many families being locked out of real estate and forced to rent for far longer than they should.
Now what?… What can you do as an individual investor when you have been priced out of the best form of long-term wealth generation? I believe that the best way to handle this is to look for emerging investment opportunities, or what I call... neo-investments.
Neo-investment is a term I have coined to describe a basket of investment vehicles, platforms, and technologies that have the potential to significantly disrupt specific fields of investment and help “normal” people access opportunities that have traditionally only been available to big institutional players.
The term is inspired by neobanks, like Revolut or Chime, that have disrupted the financial services industry. These digital banks offer superior services compared to legacy bank accounts and have disrupted the financial services industry. Like neobanks, neo-investment are characterized by the fact they lower the barrier to entry into lucrative opportunities or help remove friction for would-be investors.
For me to classify something as a neo-investment, it needs to check the following boxes:
Using this simple criteria, I’ve identified three examples of neo-investment opportunities that investors locked out of traditional real estate investing may use to grow their portfolio. Some of these ideas aren’t new, but have become significantly more relevant as real estate prices have continued to skyrocket.
1. Crowdinvesting for the Real Estate Sector
While buying entire properties might be out of reach, it is possible for investors to purchase smaller parts of a specific retail property. In my last article, we covered real estate investment trusts (REITs) that offer one way to do this. However, REITs have two main drawbacks: high management fees and low levels of transparency.
This is where real estate investment platforms come in. There are typically two flavors of these platforms: platforms that involve investing in property projects themselves, often in the form of a REIT, and platforms that involve investing in debt instruments.
Fundrise is an interesting example of the former. Unlike a traditional REIT, users are able to see exactly what properties they hold in their portfolio and can tailor their investment strategy accordingly. An investor is entitled to a portion of the income of that property in the form of a dividend.
It should be noted that Fundrise is unsuitable for investors who are looking for long-term investments of 5 years or more, and the assets are not as liquid as investing in a publicly traded REIT. It is also only available to US residents but many countries have their own equivalents.
Debt platforms have also become increasingly popular. Instead of investing in ownership of a real estate plot, you are providing the money for a loan to build a new one. Your investment is paid back, relative to your share of the loan, by the property developer over time. A good example of this sort of platform is PeerStreet.
This option is generally riskier than investing in a REIT-like platform, as there is a chance that the developer may default. However, the repayment periods tend to be lower, and it is possible to minimize risk by diversifying across a wide number of different platforms.
These kinds of platforms aren’t completely upending the real estate game. Instead, they’re making it easier for ordinary investors to participate in early-stage real estate opportunities and benefit from the increased upside.
2. Crowdinvesting in Start-Ups
Speaking of increased upside, do you know why venture capitalists love investing in start-ups?
Because the majority of the gains are made pre-IPO.
When investing in a company before it goes public, you are typically getting the stock at a discount. Pre-IPO investors could be looking at returns of around 25–100% within a matter of months.
The problem is that retail investors are largely locked out of these opportunities by laws that heavily favor institutional investors. Fortunately this has changed over the last decade, and there are a number of solutions that can help give investors exposure to these opportunities.
In the past, I’ve looked at Special Purpose Acquisition Vehicles (SPACs), which are similar to Reverse Takeovers (RTOs). (To read my article SPAC ETFs Don’t Make Sense But I May Have Found the Goldilocks Solution on FNN, click here.) These investment instruments involve a start-up merging with a public company in order to provide a quicker route to listing. However, these can be high-risk and don’t necessarily give the investor as much control as they should.
Crowdinvesting helps to solve those problems. There are a number of crowdinvesting platforms which offer retail investors access to vetted startups at the same stage where venture capitalists (VCs) and institutional investors would normally be involved.
It’s important to note that we’re not talking about crowdfunding platforms like IndieGoGo. These typically allow customers to buy a product and support an idea they like. Instead, we’re only talking about platforms that enable you to get equity for your investment.
There are a number of these online crowd investing platforms. One of the earliest examples is SeedInvest. The platform offers a wide variety of vetted start-ups with minimum investments of usually around $1,000 — although the 2% fee can be a little high for some users.
It should be noted that, like real estate, start-up investing is a long-term investment. It should also be noted that investing in startups is inherently high-risk, so you should avoid investing the majority of your capital in any single project but instead spread it around many projects.
While we’re on the subject of risk, let’s take a look at my final neo-investment example...
3. Altcoins Could Offer the Fastest Route to Wealth
This is an extreme and incredibly lucky example of the kind of potential that altcoins can have to create life-changing gains if you know where to look.
We have previously discussed many of the major cryptocurrencies such as Bitcoin (BTC) or Ethereum (ETH) in the past. However, there are thousands of other cryptocurrencies that offer the opportunity to build real wealth collectively known as altcoins.
These altcoins fall into the following broad categories:
|Smart Contract Platforms||These are designed to operate as a platform for decentralized apps (dApps).|
|dApps||These are specific programs built on Ethereum or other smart contract platform. They use another blockchain in order to process their operations. The most well-known examples are decentralized exchanges like Uniswap (UNI) and PancakeSwap (CAKE).|
|Stablecoins||These are a special class of token that are pegged to a specific asset, usually USD. The most popular stable coins are Tether (USDT), USD Coin (USDC), and Binance USD (BUSD).|
|Utility Tokens||These are cryptocurrencies designed to serve a specific purpose. They function more similarly to a security compared to other cryptocurrencies. They are roughly analogous to investing in a startup or commodity.|
|Non-Fungible-Tokens||These are an emerging variety of cryptocurrency token. They do not have any specific purpose or value beyond entering a piece of information onto a blockchain. They have proven popular as a method of buying and selling digital art.|
|Memecoins||Also called hypecoins, these tokens are akin to buying a lottery ticket. If enough hype builds up around them, clever traders, like the fellow who invested in SHIB, can make big money but they are very high-risk investments that I personally avoid.|
Each of these categories has their own unique dynamics, and they almost function as their own asset class. In the future, we will be doing a deeper dive into the different kinds of altcoins, so subscribe today if you don’t want to miss it.
Altcoins are interesting because they offer huge upside potential with very few barriers to entry. At the moment, anybody can invest in an altcoin, regardless of whether they are an accredited investor or not. An early investment in a project can bring rapid returns within a short period of time.
Even relatively small investments can play out well. If you had invested $1,000 in Cardano (ADA) in October 2020, your stake would be worth +1,856.1% more today, or $19,561. This upside applies to many altcoins available today and makes them a unique opportunity for investors priced out of real estate to build wealth with small capital commitments.
The only real barrier to buying cryptocurrency is a technical one. Buying cryptocurrency can be a bit of a confusing process. Users typically have two options. In the past, many would go to Robinhood or another e-broker. I would personally avoid this approach, as you don’t technically own any of these tokens when purchasing through Robinhood. You will also be unable to access any decentralized exchanges, where the best opportunities are, as you can’t transfer these tokens to a private wallet.
Once you are better acquainted with the cryptocurrency ecosystem, you can attempt to purchase tokens before they are listed on a major crypto exchange. This is typically done using decentralized exchanges like Uniswap or PancakeSwap. This requires some technical knowledge, which we will cover in the future.
Of the three neo-investments here, cryptocurrency is by far the riskiest. It is an experimental technology with very little legal oversight. Investors should not invest large sums of money into a single project and should be prepared to see their investment go to zero. That being said, on the flip-side, crypto could also be by far the most powerful wealth-building tool available to investors today.
The key theme here is that opportunities for investing are more diverse than they’ve ever been before. Real estate, for those who can afford it, will still remain a key source of wealth, but there are now alternatives that almost any investor can access.
Take your time to research these investment options, and start building real wealth today.
Saul Bowden, Contributor
for Investors News Service
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DISCLOSURE: Saul Bowden holds Ethereum, Bitcoin, Uniswap and other crypto assets.
DISCLAIMER: Investing in any securities or cryptocurrencies is highly speculative. Please be sure to always do your own due diligence before making any investment decisions. Read our full disclaimer here.
 an individual with a net worth of at least $1 million, annual income of $200,000, or joint spousal income of $300,000 over a period of two consecutive years