How one company is attempting to democratize real estate investing (2024)
Investing in property has been a focus of Rami Tabbara’s life since he was young. In Dubai, “our parents always tell us that as soon as you make money, you have to put it in property,” he says. At 23 years old, he bought what he could afford: a one-bedroom apartment that was still under construction.
It didn’t go to plan, taking three years for him to get the keys. But that experience taught him “a lesson to focus on ready and income–generating properties,” he says. It ultimately led him to co-found Stake, a company with the goal of making investing in real estate affordable and accountable.
Dubai’s real estate market is booming, with cranes dotting the skyline, new property developments being advertised, and neighborhoods popping up out of the desert. The market is at a high point with no signs of slowing down, says Prathyusha Gurrapu, head of research and advisory at Dubai-based property consultancy Core. The second quarter of this year “has seen the highest amount of residential transactions in Dubai ever, in terms of both number of transactions and combined sales values,” she says. According to the Dubai Land Department, over 43,000 property transactions exceeding $31.3 billion were recorded in the first half of 2022 alone.
This level of activity has led to rental growth in Dubai outpacing that in New York, London, Singapore, and Hong Kong, according to data from Savills. Efforts to broaden Dubai’s visa system have made it increasingly attractive for people to come and live and invest there, but challenges remain for foreign investors. It is difficult for foreigners to bank and get a mortgage in the UAE, so most international investors have to buy properties in cash, says Gurrapu, leaving the opportunity open only to the wealthiest.
Tabbara wants to enable smaller retail investors to get involved in the buoyant Dubai real estate market. He co-founded Stake in 2019 with the goal of lowering the barrier of entry for investors who don’t have access to a large down payment or the full sale price in cash. Using Stake’s app, people around the world can invest in property in Dubai with as little as $136 (AED 500). Investors browse and buy into properties that have been fully vetted by the company. When a property is fully funded, Stake buys it and investors get shares proportionate to their investment. Stake manages the property and investors receive monthly dividends.
Tabbara also hopes to guide new investors. Before founding Stake, he worked in sales for Dubai–based property developers and encountered what he describes as a lack of transparency. “I was seeing retail investors not getting the best deals, putting their life savings and children’s college funds into the wrong property,” he says. To counter this, the company is regulated by the Dubai Financial Services -Authority (DFSA) and worked with graduate students from MIT to develop an algorithm that evaluates the quality of potential real estate deals.
Gurrapu says that there’s a gap in Dubai’s market for retail investors, and that platforms like Stake are quickly gaining popularity as the real estate market soars.
But bringing real estate into the digital space is still a challenge. Although the tradition of real estate investing is strong in Dubai, “the process of investing is clunky, full of hassle, and still mostly done offline,” says Tabbara. He’s hoping a new generation of investors can transform the real estate market from one full of cumbersome bureaucracy to simple, accessible, and completely global.
One example of a fintech company making real estate investing more accessible is Ark7, an online fractional real estate investment app that allows investors to purchase shares of rental properties for as little as $20.
While there are several different types of corporations, S-Corporations are a popular structure for real estate businesses. This is because an S-Corp avoids double-taxation (where a company pays taxes on its profits and its owners/shareholders pay taxes on their income and dividends).
REITs, or real estate investment trusts, are companies that own or finance income-producing real estate across a range of property sectors. These real estate companies have to meet a number of requirements to qualify as REITs. Most REITs trade on major stock exchanges, and they offer a number of benefits to investors.
Core is the most conservative strategy, and might only include properties offering lower-risk and lower potential returns because they exist in well-populated or well-traveled locations.
Real Estate Crowdfunding: This democratises real estate investing by allowing individuals to pool resources and invest in properties they couldn't afford on their own. Online platforms streamline the process, providing access to pre-vetted deals, from residential to commercial projects.
These pillars work together as puzzle pieces, to create one big well-oiled machine that can generate profit. The 4 pillars of real estate include: cash flow, appreciation, amortization and leverage, and tax benefits.
Two other common business entities for real estate investors is the limited liability company (LLC) or limited partnership (LP). The LLC can be formed by either an individual (a single member LLC) or multiple people (a partnership type LLC or LP). The LP, by definition, requires more than one person.
While they aren't listed on stock exchanges, non-traded REITs are required to register with the SEC and are subject to more oversight than private REITs. According to the National Association of Real Estate Investment Trusts (Nareit), non-traded REITs typically require a minimum investment of $1,000 to $2,500.
Opportunistic: Opportunistic assets are the final rung at the top of the risk ladder. These deals are generally extreme turnaround situations. There are major problems to overcome, such as major vacancy, structural issues or financial distress.
Equity investment crowdfunding is a way to source money for a company or project by soliciting many backers, each investing a relatively small amount while typically using an online platform. In return, backers receive equity shares in the company.
Depending on the type of crowdfunding, you could potentially earn returns on your investment via equity (growth in share value) or interest (if using P2P lending), or you might simply receive other perks or benefits.
S corporations possess several distinct advantages over LLCs in the real estate industry. To begin, S corporations are exempt from self-employment tax. Not only are S corps exempt from corporate taxes, but their profits are also exempt from Social Security and Medicare (also known as Self-Employment) tax.
If you earned $100,000 (net) as a sole proprietor real estate agent, you'd pay 15.3% on the full $100,000 ($15,300). But, after forming an S-Corp, you pay yourself a salary of $50,000 and only pay the 15.3% tax on your salary ($7,650). In this example, forming an S-Corp halves your self-employment tax liability.
Fee simple is a legal term used in real estate that means full and irrevocable ownership of land, and any buildings on that land. Fee simple is the highest form of ownership — it means the land is owned outright, without any limitations or restrictions other than local zoning ordinances.
Introduction: My name is Rev. Leonie Wyman, I am a colorful, tasty, splendid, fair, witty, gorgeous, splendid person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
