Real estate investments make money through appreciation and rental income. Real estate can diversify a portfolio and act as a hedge against inflation, since landlords can pass rising costs to tenants. But the down payment on multifamily investment properties? At least 20%, or 25% to get a better rate.
It’s true that eligible borrowers may use a 0% down U.S. Department of Veterans Affairs (VA) loan for a property with up to four units as long as they live there. But those loans serve a relative few and are considered residential financing. Properties with more than four units are considered commercial.
So how can a cash-poor but curiosity-rich person tap the potential of multifamily properties? By not footing the entire bill themselves.
Can You Buy a Multifamily Property With No Money?
When you buy real estate, you typically have two options: Buy with cash or finance your purchase with a mortgage loan.
There are various types of mortgages. If you take out a home loan, you’ll likely need to pay a portion of the purchase price in cash in the form of a down payment. The minimum down payment you make will depend on the type of mortgage you choose — the average down payment on a house is well under 20% — and it will help determine what terms and interest rates you’ll be offered by lenders.
This money needs to come from somewhere, but it doesn’t necessarily need to come from your own savings account. When investors buy multifamily properties with “no money down,” it just means they are using little to no personal money to cover the upfront costs.
If you don’t have much cash of your own, there are several ways that you can fund the purchase of a multifamily investment property. 💡 Quick Tip: Jumbo mortgage loans are the answer for borrowers who need to borrow more than the conforming loan limit values set by the Federal Housing Finance Agency ($766,550 in most places, or $1,149,825 in many high-cost areas). If you have your eye on a pricier property, a jumbo loan could be a good solution.
6 Ways to Pay for a Multifamily Property
Find a Co-Borrower
If you don’t have the money to front the costs of a property yourself, you may be able to partner with a family member, friend, or business partner. They may have the money to cover the down payment, and you might pull your weight by researching properties or managing them.
When you co-borrow with someone, you’ll each be responsible for the monthly mortgage payments. You’ll also share profits in the form of rents or capital gains if you sell the property.
Give an Equity Share
You may give an equity investor a share in the property to cover the down payment. Say a multifamily property costs $750,000, and you need a 20% down payment. An equity investor could give you $150,000 in exchange for 20% of the monthly rental income and 20% of the profit when the property is sold.
Borrow From a Hard Money Lender
Hard money loans are offered by private lenders or investors, not banks. The mortgage underwriting process tends to be less strict than that of traditional mortgages. Depending on the property you want to buy, no down payment may be required.
These loans (also called bridge loans) have high interest rates and short terms — one to three years is typical — with interest-only payments the norm. For this reason, they may be used by investors who may be looking to flip the property in short order, allowing them to make a profit and pay off the loan quickly.
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
House Hack
House hacking refers to leveraging property you already own to generate income. For example, you might rent out an in-law suite or list your property on Airbnb.
Another option: You could rent out your primary residence and move into one of the units in a multifamily property you buy. This way, you’d probably generate more income than if you had rented out the unit to a tenant.
Finally, you could hop on the ADU bandwagon if you own a single-family home. Accessory dwelling units can take the form of a converted garage, an attached or detached unit, or an interior conversion. The rental income can be sizable. To fund a new ADU, homeowners may tap home equity, look into cash-out refinancing, or even use a personal loan.
Seek Seller Financing
If you don’t have the cash for a down payment on a property, you may be able to forgo financing from a lending institution and get help instead from the seller.
With owner financing, there are no minimum down payment requirements. Several types of seller financing arrangements exist:
• All-inclusive mortgage: The seller extends credit for the entire purchase price of the home, less any down payment.
• Junior mortgage: The buyer finances a portion of the sales price through a lending institution, while the seller finances the difference.
• Land contracts: The buyer and seller share ownership until the buyer makes the final payment on the property and receives the deed.
• Lease purchase: The buyer leases the property from the seller for a set period of time, after which the owner agrees to sell the property at previously agreed-upon terms. Lease payments may count toward the purchase price.
• Assumable mortgage: A buyer may be able to take over a seller’s mortgage if the lender approves and the buyer qualifies. FHA, VA, and USDA loans are assumable mortgages.
Invest Indirectly
Not everyone wants to become a landlord in order to add real estate to their portfolio. Luckily, they can invest indirectly, including through crowdfunding sites and real estate investment trusts (REITs).
The Jumpstart Our Business Startups Act of 2013 allows real estate investors to pool their money through online real estate crowdfunding platforms to buy multifamily and other types of properties. The platforms give average investors access to real estate options that were once only available to the very wealthy.
REITs are companies that own various types of real estate, including apartment buildings. Investors can buy shares on the open market, and the company passes along the profits generated by rent. To qualify as a REIT, the company must pass along at least 90% of its taxable income to shareholders each year.
As investment opportunities go, REITs can be a good choice for passive-income investors. 💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.
The Takeaway
Buying a multifamily property with no money down is possible if you take the roads less traveled, including leveraging other people’s money. And if you have the means to make a down payment on a property, your first step is to research possible home mortgage loans.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
Can I buy a multifamily home with an FHA loan?
It is possible to buy a property with up to four units with a standard mortgage backed by the Federal Housing Administration (FHA) if the buyer plans to live in one of the units for at least a year. The FHA considers homes with up to four units single-family housing. The down payment could be as low as 3.5%. There are loan limits.
A rarer product, an FHA multifamily loan, may be used to buy a property with five or more units. The down payment is higher. You’ll pay mortgage insurance premiums upfront and annually for any FHA loan.
Is a multifamily property considered a commercial property?
Properties with five or more units are generally considered commercial real estate. Commercial real estate loans usually have shorter terms, and higher interest rates and down payment requirements than residential loans. They almost always include a prepayment penalty.
Photo credit: iStock/jsmith
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
In a recent report by Goldman Sachs, a stark warning was issued about the state of office mortgages in the United States, describing them as “living on borrowed time.” This caution comes amidst a backdrop of mounting stress in commercial real estate loans, particularly those tied to office properties, which have emerged as a significant sore point. With delinquencies on the rise, the specter of financial instability continues to haunt the U.S. banking sector, further aggravated by an office market that has seen demand plummet for two consecutive years.
The situation has become increasingly dire, with delinquencies ticking upwards, reflecting the ongoing distress within the office real estate sector. According to Trepp, a leading research firm, about 6.63 percent of all commercial office mortgages were delinquent as of February, marking a 33 basis points increase from January. This rise mirrors the average monthly increase witnessed over the past 12 months, starkly contrasting with the 2.38 percent delinquency rate recorded a year prior. The upsurge in delinquencies underscores an ominous trend in the office market, plagued by declining demand and reaching a vacancy rate of 19.7 percent at the onset of 2024.
A particularly alarming development is the significant increase in commercial real estate loans scheduled to mature by the end of 2024. The total amount has surged 41 percent to over $900 billion, primarily fueled by ongoing extensions and modifications of existing debts. This uptick, noted by analysts at Goldman Sachs, signifies a potentially tumultuous period ahead for the banking sector, already reeling from the impact of higher interest rates and declining property values that have complicated refinancing efforts.
Regional banks have acutely felt the ripple effects of the commercial real estate loan challenges, which have seen their stock prices wobble in the wake of last year’s string of bank failures. Given their exposure to commercial real estate loans, these institutions are particularly vulnerable, a situation exacerbated by the current economic climate marked by high interest rates and a depreciation in property values.
Despite the grim outlook for office loans, the broader commercial real estate market shows signs of resilience. In its assessment, Goldman Sachs noted that the office sector’s distress is unlikely to spill over into other areas of the commercial property market. Retail delinquencies, for instance, have shown improvement, and the multifamily and industrial sectors remain relatively stable. Furthermore, banks today are in a more robust capital position than during the financial crises of 2008-09 and the 1980s, offering hope that the current challenges can be navigated with strategic foresight and prudent management.
The office mortgage crisis presents a daunting challenge to the U.S. banking sector, underscored by a confluence of increasing delinquencies, a glut of maturing loans, and a commercial office market in distress.
If you’re in the market for a home, you may have come across the term “single-family home” and wondered what it means and if that is what you are looking to buy.
Generally, a single-family home refers to a freestanding home set on its own piece of property. It can be occupied by a single individual or a large family, as long as it’s occupied by a single household.
Owning a single family home comes with a number of benefits, including more privacy and space than other types of residential properties. However, this type of home also tends to come with a higher price tag and more responsibility. Here’s a closer look at what single family homes are and the pros and cons of buying one.
What Is a Single-Family Home?
Generally speaking, the term single-family home refers to a home that is designed for, occupied by, and maintained by one person or household. When you buy a single-family home, you will own both the home and the property it sits on. This is in contrast to other types of properties, such as condominiums (condos), where you only own the interior of your unit and share ownership of common areas with other homeowners in the complex.
In most cases, a single-family home is defined as one that is freestanding and not attached to homes owned by other individuals. However, the government has a broader definition. According to the U.S. Census Bureau, a single-family home includes fully detached homes, as well as semi-detached row houses and townhouses. In the case of attached units, the units must be separated by a ground-to-roof wall in order to be classified as a single-family structure. Also, these units must not share heating/air-conditioning systems or utilities.
In some places, a single-family home is defined in part by how many kitchens it has. Depending on zoning laws, adding a second full kitchen to an in-law’s apartment, for example, can cause a house to be redefined as a multi-family building. If you’re planning on doing this type of renovation, be sure to check local zoning laws beforehand.
Whether a home is classified as a single-family or multi-family home can have an impact on the type of mortgages you qualify for. Both single-family homes and two- to four-unit properties fall under residential lending guidelines. (A property with five or more units is considered commercial property.) You can use a conventional mortgage to purchase a home with four or fewer units, whether it’s a single- or multi-family home. If you’re buying a multi-family home with five or more units, you must use a commercial mortgage. Commercial mortgages have different terms than residential mortgages do. 💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
Pros and Cons of a Single-Family Home
As you shop for homes, it’s important to consider the various advantages and disadvantages of a single-family residence.
Some of the advantages are:
• More space Single-family homes tend to offer more space than other types of housing, and it belongs to you alone. They may have large yards where children and dogs can play or where you can plant a vegetable garden. They may also have storage in attics, garages, or basements, which aren’t shared between multiple units.
• Privacy Single-family units that don’t share walls with neighbors offer more privacy. You are less likely to hear neighbors’ activities, and they are less likely to be bothered by yours.
• More design features Single-family homes may be available in a broader range of designs and layouts, from Cape Cods or colonials to ranch homes and contemporary designs. You can also make changes to the building or landscape design without input from neighbors with a shared interest in the space.
• Room to grow Single-family homes may offer you more options for additions if you have a growing family or if aging parents may come to live with you. For example, single family detached homes with larger plots of land may allow additions that wouldn’t be possible in condo units.
• May offer higher appreciation Single-family homes tend to appreciate in value more than condos and townhouses.
• Option to rent As the sole owner of a single-family home, you have the option to rent out the house if you decide to move and wish to hang on to the property.
While these factors are attractive, it’s important to weigh potential disadvantages of buying a single-family home as well. Here are some to keep in mind:
• More expensive Single-family homes tend to be more expensive than other types of homes. That can mean a larger down payment and higher closing costs, and your mortgage payments may be higher.
• More maintenanceUnless your single-family home is part of a homeowner association (HOA) that provides basic services, you’ll be in charge of all home maintenance like lawn mowing and roof repairs. You’ll either have to take the time to do it yourself or hire help.
• Possible HOA fees Planned developments usually require HOA fees to cover the upkeep of common areas and shared structures.
• Less income potential With multi-family homes, you have the option to live in one unit while renting out the others. This allows you to bring in regular income to cover the cost of the mortgage and maintenance expenses.
Finding a Single-Family Home
Before you start looking for a single-family home, you’ll want to first determine how much home you can afford. You might start by calculating mortgage costs and getting prequalified for a home loan; prequalification often only takes a few minutes and provides an estimate of how much you might be able to borrow and at what rate (without impacting your credit).
You’re probably already searching real estate listings online and noting the property types. You might also want to do some research on housing market trends, especially if you live in one of the nation’s real estate hot spots.
You may also want to engage a real estate agent. They have expertise in local housing and zoning laws, know whether a list price is fair or above or below average, and can help you negotiate the price of a home you’re interested in buying.
If there’s any question about how a house is zoned, you can often look up zoning information through a particular city’s website.
Recommended: First-Time Home Buyer’s Guide
Who Should Get a Single-Family Home?
Single-family homes are a good fit for people who can cover the higher price tag, want privacy and flexibility, and are willing to take on a lot of responsibility.
If you qualify as a first-time homebuyer, there may be help available to buy a single-family home in the form of down payment assistance and low- or no-interest loans.
If you’re looking for a more affordable home and don’t mind giving up some privacy, you might want to consider a condo or townhouse.
A condo is like an apartment but is available for purchase. These units share walls with neighboring units, but you generally won’t have to worry about maintaining the property.
A townhouse, on the other hand, has multiple stories and will share one or two walls with other units. Like condos, townhouses are typically less expensive than single-family homes. Unlike a condo, you’ll own the property that the townhouse sits on.
If you’re looking to invest in real estate, you might consider buying a multi-family home. While this will likely cost more than a single-family home, you may be able to recoup the added cost (and, over time, earn even more) by collecting rent from tenants. 💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.
If You’re Thinking of Purchasing a Single-Family Home, SoFi Home Loans Can Help
Single-family homes are one of the most popular real estate options and often what people envision when they think about achieving the dream of home ownership.
This type of property typically sits on a parcel of private property and doesn’t share walls with neighbors, affording you a high level of privacy. You generally have more control over making enhancements to your home than you have with other types of properties, and usually have access to extra storage, including exterior storage space like a shed or garage.
However, don’t forget to consider the added responsibilities and costs when deciding on the right type of home for you and your family.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
How much does a single-family home cost?
The median price for an existing single-family home — one that’s already standing, not new construction — was $387,600 as of November 2023, according to the National Association of Realtors.
How much do I need to build a single-family home?
The cost of building a single-family home (not including land) can range anywhere from $42,000 to $900,000-plus depending on the home’s type and size and where you build. On average, the cost to build a house in the U.S. is about $329,000.
Can you get a loan to build a single-family home?
If you’re planning to build a single-family home from scratch, you can apply for a construction loan. With this type of loan, money is usually advanced incrementally during construction, as the home-building project progresses. Typically, you only pay interest during the construction period. Once the construction is over, the loan amount becomes due, and it is converted into a regular mortgage.
Photo credit: iStock/Dean Mitchell
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Such a scenario would offer some reprieve to the beleaguered CRE market, he noted: “Lower rates in 2024 would relieve some pressure in CRE credit markets, making it easier to finance commercial property purchases,” Synder said. CBRE analysts forecast that elusive 2% inflation rate is close at hand: “CBRE expects inflation will decline toward the Fed’s … [Read more…]
There are many pros and cons to investing in a small town as opposed to a larger town. I have many properties in small towns and larger towns and personally, I think the small towns are overlooked based on the many advantages they have. Some of the major differences in small towns are the taxes, demand, building permits, and more.
Pros of investing in real estate in a small town:
There are many advantages to investing in smaller towns. I have found some great deals in them and there were many advantages I did not think of until I had bought and operated a property in those small towns.
Lower property prices: Property prices in small towns are typically lower than in urban areas. This means that you can invest more property for your money. This is because fewer investors are looking at small towns. I have found multifamily and commercial to be much cheaper.
Higher rental yields: Rental yields in small towns are often higher than in urban areas. This means that you can generate more income from your rental properties. This rental yield comes from the fact that rents might be a little lower but prices are even lower relative to those rents producing a higher ROI.
Lower vacancy rates: Vacancy rates in small towns are typically lower than in urban areas. This means that you are more likely to find tenants for your properties. I have found this to be true as well because there are very few rentals, there are often people waiting for anything to pop up.
Stronger appreciation potential: Small towns are often experiencing population growth and economic development. This can lead to stronger appreciation potential for your investment properties. If there is a shortage of homes in the area, you could see huge appreciation if those homes are cheaper than the cost to build.
Lower taxes: In my area in Colorado the small towns often have lower property taxes and lower sales taxes. The property taxes can save thousands of dollars a year on larger properties.
Less regulations: Some small towns are also much easier to build and remodel in. Each town has different building permit processes and requirements. Some towns could be stricter but some could be very easy to work with.
Cons of investing in real estate in a small town:
Limited buyer pool: There is a smaller pool of potential buyers for properties in small towns. This can make it more difficult to sell your properties when you are ready to do so. If the town has a surplus of homes, prices could stay stagnant for many years.
Less access to amenities: Small towns may have fewer amenities than urban areas, such as shopping malls, restaurants, and entertainment options. This can make it more difficult to attract tenants and buyers.
More difficult to manage properties: It can be more difficult to manage properties in small towns, as there may be fewer qualified property managers available.
Less liquidity: Properties in small towns are typically less liquid than properties in urban areas. This means that it may be more difficult to sell your properties quickly if you need to do so.
Local politics: Some small towns may be difficult to work with or treat outsiders differently if you do not live there. This is not always the case but I have been told I can’t do certain things with a property and then had someone buy it from me in that small town and do exactly what I asked to do.
Is it worth investing in a small town?
I have had amazing luck investing in small towns. One of the properties I bought was a 4 plex for less than $200k in 2018. That property would have been at least $300k in the larger town 10 miles away. I have also had great luck with commercial property and single-family flips as well. There are challenges and just because there are advantages to investing in a small town, that does not mean it is easy.
Conclusion
Before you invest in any property, make sure to research the local market and economy. This will help you understand the local roadblocks, rental yields, and surplus or shortages in the area. Talk to the city government, especially the zoning and permit people (they might be one person). Try to see if the population is increasing or decreasing and make sure you have contractors or property managers that will work in the area if you need them!
Rent abatement is a powerful tool that can benefit both landlords and tenants, providing a financial cushion in times of hardship or unexpected events. By understanding the ins and outs of rent abatement, you can ensure a mutually beneficial agreement and avoid potential legal disputes. In this blog post, we will delve into the different types of rent abatement, negotiation strategies, common scenarios, insurance options, and legal aspects to help you navigate this crucial aspect of the landlord-tenant relationship.
Key Takeaways
Rent abatement is an agreement between landlords and tenants which can provide mutual protection while potentially increasing tenant attraction.
Negotiating rent abatement requires understanding one’s rights, being prepared for counteroffers, considering the entire agreement and relevant market conditions.
Successful implementation of rent abatement requires open communication and a thorough review of lease terms to ensure mutual protection.
What is Rent Abatement?
Rent abatement, including partial rent abatement, is a temporary reduction or suspension of rent payments in specific situations, such as property damage or natural disasters, benefiting both landlords and tenants. It is a powerful financial tool that can help protect both parties from unforeseen circumstances, especially in commercial real estate where businesses can be significantly impacted by property damage or other issues.
A smooth and successful relationship between landlords and tenants is facilitated by incorporating rent abatement terms in the lease agreement. These terms can provide substantial protection and lead to increased tenant attraction and revenue for landlords, while tenants may enjoy a partial discount on the overall rental period.
Commercial Lease Rent Abatement
In commercial leases, rent abatement can be negotiated during tenant improvements, as a concession, or due to the space being untenantable. Rent abatement is often viewed by landlords as a necessary compromise, given it is a more attractive option than having an empty office space during the abatement period.
Typically, rent abatement is applied in commercial leases when the tenant’s space is undergoing construction or to cover the tenant’s business opening. This can result in a rent reduction for the tenant during the specified period, helping businesses minimize their financial burdens during times of transition or renovation.
Residential Lease Rent Abatement
Residential rent abatement typically applies when a property becomes uninhabitable due to damage or necessary repairs. This form of rent relief helps protect tenants from financial hardships when they are unable to fully utilize their living space. During this period, the tenant may be eligible for abated rent, depending on the terms of the lease agreement.
Both landlords and tenants have specific rights and responsibilities regarding rent abatement in residential leases. Landlords must ensure that the rental property is safe and habitable, while tenants must adhere to the lease agreement and make timely rent payments.
For a successful rent abatement implementation, open communication, thorough review of lease terms, and preparedness to negotiate are key strategies landlords and tenants should adopt.
Negotiating Rent Abatement in Lease Agreements
Successfully negotiate rent abatement in lease agreements by understanding your rights and responsibilities as a landlord or tenant and being prepared for counteroffers from the other party. This process can be complex and requires careful consideration of the entire agreement, as well as an understanding of the relevant market conditions.
Landlords may offer alternative options such as longer lease terms, higher lease rates, and higher yearly rent escalations in lieu of rent abatement. To navigate these negotiations effectively, it is advisable to save the abatement request for a later stage, after addressing the primary requests and concessions. Flexibility and openness to compromise can lead both parties to an agreement that offers mutual benefits.
Know Your Rights and Responsibilities
When negotiating rent abatement, landlords and tenants should be aware of their rights and responsibilities. For landlords, this involves:
Evaluating the tenant’s request and determining the legitimacy of the stated reasons
Communicating with the tenant
Negotiating the terms of the rent abatement agreement
Tenants, on the other hand, have the right to request rent abatement if they are experiencing issues with their rental unit that may affect their ability to pay rent. They also have the responsibility to communicate with the landlord, provide necessary documentation or evidence, and negotiate the terms of the rent abatement agreement.
A comprehensive understanding of these rights and responsibilities can enable both parties to collaboratively reach a fair agreement.
Be Prepared for Counteroffers
When negotiating rent abatement, tenants should expect counteroffers from landlords, such as longer lease terms or higher rent. These counteroffers may be offered as alternatives to rent abatement, so it’s important for tenants to be ready to negotiate and be amenable to compromise.
To effectively negotiate counteroffers, tenants should engage in transparent dialogue with their landlord, thoroughly analyze the lease terms, and be willing to meet halfway. Preparation for counteroffers and a clear understanding of their rights and obligations under the lease agreement can empower tenants to successfully navigate rent abatement negotiations and reach an outcome that benefits both parties.
Rent Abatement Scenarios
Rent abatement scenarios include property damage and repairs, as well as natural disasters and evacuations that render the property unusable. In these situations, rent abatement provisions in lease agreements can provide financial relief for tenants and help landlords avoid potential legal disputes.
Whether the property is commercial or residential, understanding the various rent abatement scenarios and the implications for both landlords and tenants is crucial for a successful landlord-tenant relationship. By being aware of these scenarios, both parties can work together to address the issues and find a fair solution that meets everyone’s needs.
Property Damage and Repairs
Rent abatement may apply when a property is damaged and requires repairs, making it temporarily uninhabitable. In such cases, the landlord is obligated to cover the costs of repair, and their business liability insurance typically provides the necessary coverage.
During the rent abatement period, rent abatement can provide tenants with financial relief, allowing them to stop paying rent for an unusable space and focus on finding temporary housing or alternative arrangements without the burden of paying rent.
It’s important for both landlords and tenants to understand the terms of their lease agreement regarding property damage and repairs to ensure a smooth rent abatement process.
Natural Disasters and Evacuations
Natural disasters and government-mandated evacuations can also trigger rent abatement provisions in lease agreements. In these situations, the property may be rendered unusable, and tenants may require financial assistance to cope with the unexpected event.
By incorporating rent abatement clauses in lease agreements, both landlords and tenants can be prepared for such scenarios and ensure that their rights and responsibilities are clearly outlined. Understanding the role of rent abatement in natural disasters and evacuations can help both parties navigate these challenging situations and reach a fair resolution.
Insurance Options for Landlords and Tenants
Insurance options for landlords and tenants include renter’s insurance, business liability insurance, and business interruption insurance to cover various risks and expenses. These insurance options provide financial protection for both parties in situations where rent abatement may be applicable, as well as in other unforeseen events.
A clear understanding of the available insurance options and their respective coverages enables landlords and tenants to make informed decisions on the best policies to suit their needs and mitigate potential risks. This ensures that both parties are adequately protected and prepared for any challenges that may arise during the rental period.
Renter’s Insurance
Renter’s insurance covers personal belongings and temporary housing in case of property damage or rent abatement ineligibility. This type of insurance is essential for residential tenants, as it provides financial protection against theft, fire, natural disasters, and other unexpected events that may affect their personal property.
Obtaining renter’s insurance is a recommendation applicable to all tenants, irrespective of their rental situation. This way, they can safeguard their personal belongings and enjoy peace of mind knowing they are covered in the event of unexpected occurrences.
Business Liability Insurance
Business liability insurance protects commercial tenants from property damage and loss of personal property caused by the rented space. This type of insurance is crucial for commercial tenants, as it provides coverage for losses incurred due to property damage and helps them avoid potential financial hardships.
Commercial tenants should carefully consider the extent of their business liability insurance coverage for their commercial property, as well as any additional coverage options that may be necessary for their specific situation. By doing so, they can ensure that their business is adequately protected against potential risks and unexpected events.
Business Interruption Insurance
Business interruption insurance covers lost income and operating expenses due to property damage or destruction. This type of insurance is particularly important for commercial tenants, as it provides financial assistance to businesses that experience a loss of income due to a covered peril, such as a natural disaster or property damage.
When obtaining business interruption insurance, tenants should ensure that they have set appropriate policy limits and understand the coverage provided by the policy. This will help them to be prepared for any unexpected events that may impact their business operations and minimize potential financial losses.
Legal Aspects of Rent Abatement
Legal aspects of rent abatement include incorporating rent abatement clauses in lease agreements and taking a rent abatement case to court if necessary. Understanding the legal implications of rent abatement is crucial for both landlords and tenants, as it ensures that their rights and responsibilities are clearly outlined and that any disputes can be resolved fairly and efficiently.
Awareness of the legal aspects of rent abatement enables landlords and tenants to collaboratively address potential issues and find a resolution benefiting both parties. This helps to maintain a positive landlord-tenant relationship and minimize the risk of legal disputes.
Rent Abatement Clauses in Lease Agreements
Rent abatement clauses in lease agreements outline the terms and conditions under which rent abatement can be applied. These clauses are essential for ensuring that both landlords and tenants understand their rights and responsibilities in case of property damage, natural disasters, or other scenarios that may trigger rent abatement.
Incorporating clear and comprehensive rent abatement clauses in lease agreements helps both parties sidestep misunderstandings and potential disputes. This helps to maintain a positive landlord-tenant relationship and ensures that both parties are protected in case of unexpected events.
Taking a Rent Abatement Case to Court
Tenants can take a rent abatement case to court if the landlord fails to meet lease terms or provide a habitable property. In such cases, tenants may be required to request an inspection by city officials and, if the landlord still does not comply with the required repairs, the tenant can bring the case to court.
Understanding the process of taking a rent abatement case to court is crucial for tenants who may need to pursue legal action against their landlord. Preparation and knowledge about the legal aspects of rent abatement empower tenants to protect their rights and ensure they receive the appropriate financial relief.
Tips for Successfully Implementing Rent Abatement
Successfully implementing rent abatement requires open communication between landlords and tenants, as well as a thorough review of lease terms. By maintaining a positive dialogue and understanding the legal implications of rent abatement, both parties can work together to reach a fair and mutually beneficial agreement.
Maintaining a successful rental relationship and ensuring protection of respective rights and responsibilities can be achieved by landlords and tenants through proactive addressing of potential rent abatement scenarios and adherence to these tips.
Communicate Openly and Honestly
Maintaining open and honest communication between landlords and tenants is essential for ensuring a smooth rent abatement process. By being transparent in their communication and receptive to each other’s perspectives, both parties can work together to address any issues that may arise and find a fair solution.
Maintaining open communication can be achieved through strategies such as proactive discussions about potential rent abatement scenarios, clear and timely updates on property repairs, and a willingness to compromise and negotiate. Through effective communication, both landlords and tenants can build trust and ensure a successful rental relationship.
Review Lease Terms Carefully
Both parties should review lease terms carefully to understand their rights and responsibilities regarding rent abatement. By being aware of the specific clauses and provisions related to rent abatement in their lease agreement, landlords and tenants can avoid potential misunderstandings and disputes.
Review of lease terms by both parties should take into account clauses related to rent abatement. These clauses may include stipulations for:
Rent reductions or waivers in the case of property damage
Rent reductions or waivers in the case of natural disasters
Rent reductions or waivers in the case of other scenarios
By understanding these terms and ensuring that they are clearly outlined in the lease agreement, both landlords and tenants can work together to address potential rent abatement issues and find a mutually beneficial solution.
Summary
In conclusion, rent abatement is a powerful financial tool that can benefit both landlords and tenants in times of hardship or unexpected events. By understanding the different types of rent abatement, negotiation strategies, common scenarios, insurance options, and legal aspects, landlords and tenants can navigate this crucial aspect of their relationship and ensure a successful rental experience. Remember, communication is key, and a thorough understanding of your lease terms is essential to protect your rights and responsibilities.
Frequently Asked Questions
What is the rent abatement in NJ?
In New Jersey, a rent abatement is a court order resulting from a finding that the property was not maintained in a habitable condition. It allows the tenant to be charged only with the reasonable rental value of the property in its imperfect condition during the tenancy.
How do I request rent abatement in NYC?
To request rent abatement in NYC, you can submit an individual complaint by using the DHCR Form RA-81 or submitting a complaint online at www.hcr.ny.gov.
How do you use rent abatement in a sentence?
Tenant acknowledges and agrees to a rent abatement granted as additional consideration for entering into an amendment and paying rent under the lease.
What is the main purpose of rent abatement?
Rent abatement is a beneficial measure which allows landlords and tenants to temporarily reduce or suspend rent payments in specific situations, such as property damage or natural disasters.
How is rent abatement negotiated in lease agreements?
Rent abatement can be successfully negotiated in lease agreements by being knowledgeable about your rights and responsibilities and being prepared for counteroffers.
This article is intended for informational purposes only and should not be considered legal advice. Always consult a qualified attorney in regards to any legal matters.
Big banks slow down before the big bang And then, the fireworks started in earnest. “When we first saw it was the middle of last year,” Acton said. “The transaction market in the United States had been very strong in 2021 following the COVID shutdown. Things came back pretty quickly – very high levels of … [Read more…]
Banks are facing substantial risk of losses from commercial real estate loans, according to a new Moody’s survey of lenders, which found that some borrowers are already struggling and others may hit trouble when more of their loans mature.
The survey’s findings also suggest that some banks may not be tracking CRE borrowers’ health as closely as others — since they weren’t able to provide fully up-to-date metrics when asked.
The lack of timeliness in some banks’ disclosures was “eye-opening,” said Stephen Lynch, senior credit officer at Moody’s Investors Service. Up-to-date data about commercial property values and borrowers’ ability to cover their interest payments is critical for spotting potential problems, Lynch said.
“Good underwriting can maybe compensate for subpar portfolio analytics,” Lynch said, but strong analytics give banks the ability to mitigate problems early, rather than the often-costlier option of letting them bubble up.
The survey drew responses from 55 banks — including large, regional and community banks — in June and July. Since banks’ public disclosures are somewhat limited, Moody’s asked the respondents to provide more detail about certain key metrics.
Those measures include the percentage of CRE loans maturing soon; debt service coverage ratios, which show borrowers’ debt obligations relative to their cash flow; and loan-to-value ratios, which quantify the amount of debt outstanding as a percentage of the property’s value.
Some banks provided up-to-date data, while others submitted information from the end of 2022.
The Moody’s survey found that U.S. banks have significant amounts of CRE loans that will mature in the next 18 months. For the median bank that responded, those loans amounted to 46% of their tangible common equity — a percentage that Moody’s said was material. Some banks were substantially above that figure.
Upcoming maturities may pose problems for borrowers because they’ll need to refinance those loans, and they’ll need to do so at much higher interest rates and with banks being more demanding in their underwriting criteria.
Properties whose values have fallen sharply may get some help from providers of private capital, which can kick in additional equity to help property owners meet banks’ more stringent criteria. But the amount of money available likely isn’t going to “move the needle,” given the large amount of loans outstanding, Moody’s Lynch said.
While private equity firms, hedge funds and other sources of private capital may see opportunities to jump in, they are “not going to solve every problem,” said Brendan Browne, an analyst at the ratings firm S&P Global. Private money will help where companies see a chance to make significant returns, but there will also be cases “where the economics probably just don’t work well enough,” Browne said.
Overall, banks will feel “some pain” on CRE loans — particularly banks with larger exposures to the sector, Browne said. Most of the banks that S&P rates don’t have such outsized exposures, he added.
The Moody’s survey pointed to office and construction loans as the riskiest property types, given the shift at some companies toward remote work and the fact that properties that serve as collateral for construction loans don’t earn income while those loans are outstanding.
A loan may be at greater risk now if the borrower is having a tougher time paying its obligations. So Moody’s asked banks about how many of their loans have debt service coverage ratios below 1, an indication that the borrower does not have adequate cash flow.
The median respondent has 13.5% of its tangible common equity in CRE loans where the debt service coverage ratios are below 1, Moody’s survey found.
That figure was higher than Moody’s expected, Lynch said.
Betterment and Betterment are not only two of the most popular robo advisors in the industry, but they may very well be the most innovative in the field. Though they represent two of the first robo advisors, both have built out their platforms and now offer robust portfolio options and other services to their clients.
Though they each have their own nuances–and specializations–you really can’t go wrong with either platform. Each will take complete control of your portfolio, managing every aspect of it for a very low annual fee. When you sign up with either service, your only responsibility will be to fund your account on a regular basis.
But what if you’re either new to robo advisors or you’re considering a switch from another one? If you’re researching robo advisors, the information will inevitably lead to Betterment and Wealthfront. So let’s take a look at the two heavyweights in the robo advisor space and see which might be a better fit for your portfolio. Listen to the Podcast of this Article
About Betterment
Betterment is not only the original robo advisor, but its also the largest independent robo (along with Wealthfront), with $21 billion in assets under management. The company is based in New York City and began operations in 2008.
As a robo advisor, Betterment is an automated, online investment platform that handles all aspects of investment management for you. When you sign up for the service, you complete a questionnaire that will help determine your investment goals, time horizon, and investment risk tolerance. From that information, Betterment creates a portfolio of stocks and bonds to meet your investor profile.
They dont actually invest your money in individual securities, but instead through exchange-traded funds (ETFs), each representing a specific asset class. They can build an entire portfolio for you through about a dozen funds that will give you exposure to the entire global financial markets.
All this is done for a low annual management fee. Your only responsibility will be to fund that your account on a regular basis and let Betterment handle all the management details for you.
Better Business Bureau rates Betterment as A+, which is the highest rating in a range from A+ to F. The company also scores 4.8 stars out of 5 by more than 20,000 users on the App Store, and 4.5 stars out of 5 by more than 4,500 users on Google Play.
About Wealthfront
Wealthfront is, with Betterment, the largest independent robo advisor, and Betterment’s primary competitor. In fact, with over $24 billion in assets under management, its now slightly larger than Betterment. The company is based in Redwood City, California, and launched operations in 2011.
As a robo advisor, it works much the same as Betterment, creating a portfolio for you based on your answers to a questionnaire when you open your account. Wealthfront will also manage your account using a small number of ETFs spread across various asset classes. But on larger accounts, they’ll also add individual stocks to get greater benefit from tax-loss harvesting.
Like Betterment and virtually all robo advisors, Wealthfronts basic investment strategy is based on Modern Portfolio Theory (MPT), which emphasizes asset allocation over individual security selection.
Similar to Betterment, and really all robo advisors, your account will receive full investment management for a very low annual fee. Your only responsibility will be to fund your account on a regular basis.
Unfortunately, Wealthfront has a Better Business Bureau rating of F, due to unanswered complaints. However, the company gets 4.9 stars out of 5 from more than 9,000 users on the App Store, and 4.8 stars out of 5 by more than 2,700 users on Google Play.
Investment Strategies Betterment vs Wealthfront
Betterment Investment Strategy
Betterment offers two plan levels, Digital and Premium. Premium is available for minimum account balances of $100,000, while Digital is open to all account balances. Like many robo advisors, Betterment has evolved past building and managing a basic portfolio comprised of a mix of stocks and bonds.
For example, if you choose the Premium Plan, you’ll have access to live financial advisors. But there are many other services and plans to choose from.
Read More: Betterment Promotions
Basic portfolio mix
Your portfolio will be invested in as many as six stock asset classes/ETFs and eight bond asset classes/EFTs.
Stocks:
US Total Stock Market
US Value Stocks Large Cap
US Value Stocks Mid Cap
US Value Stocks Small Cap
International Developed Markets Stocks
International Emerging Markets Stocks
Bonds:
US High-quality Bonds
US Municipal Bonds
US Inflation-Protected Bonds
US High-Yield Corporate Bonds
US Short-term Treasury Bonds
US Short-term Investment-Grade Bonds
International Developed Markets Bonds
International Emerging Markets Bonds
Use of value stocks
Notice that three of the six stock asset classes involve value stocks. This is a specialization of Betterment and represents a time-honored stock market investment strategy. Value stocks are investments in companies with stock prices that are low in relation to their competitors by various standard measurements. But the companies are deemed to be fundamentally sound, and therefore likely to outperform the general market once the investment community realizes the true value of the stocks.
In this way, Betterment makes an attempt to outperform the general market, such as the S&P 500 or even some broader indices.
Smart Beta
This is another investment strategy Betterment uses with the potential to outperform the general market. This specific portfolio is managed by Goldman Sachs. Smart Beta is a form of active portfolio management, which seeks high-quality companies with low volatility, strong momentum, and good value.
Since its a higher risk/high reward type of investing, it requires a minimum portfolio of $100,000.
Socially responsible investing (SRI)
This is an investment option increasingly being offered by robo advisors. However, with Betterment only a portion of your portfolio will be invested in SRI. They replace the ETFs in the International Emerging Market Stocks and US Value Stocks Large Cap with ETFs that specialize in socially responsible investing in those sectors.
Learn More: The Pros and Cons of Socially Responsible Investing
Flexible Portfolios
If you want more control over your investment portfolio, you can choose this option. It allows you to adjust the individual asset class weights in your portfolio allocation. Its also designed for more advanced investors and gives you an opportunity to increase allocations in asset classes you believe are likely to outperform the market.
BlackRock Target Income
For investors looking for income and safety of principal, Betterment offers this portfolio, which consists of 100% of bonds. There is some risk of principal in this portfolio but it’s designed to be minimal. You can even choose the level of risk and return you want. It won’t provide the type of long-term gains you’ll get from a stock portfolio, but it will offer the kind of steady income that will work especially well for retirees.
Tax-loss Harvesting
Tax-loss harvesting is a year-end strategy in which asset classes with losses are sold (and later replaced with comparable ones) to offset gains in winning asset classes. The strategy helps to defer taxable capital gains on growing asset classes.
Betterment makes this strategy available on all account balances. However, it’s only offered on taxable accounts since it’s completely unnecessary for tax-sheltered retirement plans.
Betterment Everyday Cash Reserve
If you’re looking to add a cash option to your investment portfolio, you can do it through Betterment Cash Reserve. The account is eligible for FDIC insurance up to $1 million. The minimum deposit is $10, and offers unlimited transfers, both in and out of your account.
Betterment Checking
The Betterment Checking account gives you the flexibility to manage your money in a way that best fits your financial goals. You’ll get this account with a debit card and you can use it to pay in person or online. You’ll also get FDIC insurance on your money.
The Betterment Checking account is an innovative way to manage your money. It’s faster, more secure, and requires zero minimum balance requirements. You can now deposit checks using their streamlined mobile app. Just take a picture and deposit checks will be there for you on the other side.
Wealthfront Investment Strategy
Unlike Betterment, Wealthfront has a single plan for all investors, with an annual management fee of 0.25% on all account balances. And like Betterment, Wealthfront has expanded its investment options menu in many different directions.
Basic Portfolio Mix
Wealthfront uses 11 asset classes in the construction of its portfolios, including four stock funds, five bond funds, plus real estate and natural resources.
The allocation looks like this:
Stocks:
US Stocks
Foreign Stocks
Emerging Market Stocks
Dividend Stocks
Bonds:
Treasury Inflation-Protected Securities (TIPS)
Municipal Bonds (on taxable investment accounts only)
Corporate Bonds
U.S. Government Bonds
Emerging Market Bonds
Alternatives:
Real Estate
Natural Resources
Use of Alternative Investments
Wealthfront includes real estate and natural resources in its portfolio composition. The real estate sector invests in companies that provide exposure to commercial property, apartment complexes, and retail space. Natural resources are held in ETFs representing that sector.
The combination of the two offers a stronger diversification away from a portfolio comprised entirely of stocks and bonds, largely because they offer protection in an inflationary environment. It’s possible for these sectors to perform well when the general financial markets are not.
Smart Beta
The Smart Beta option attempts to outperform the general financial markets. The strategy deemphasizes market capitalization in the creation of a portfolio. For example, rather than using the capitalization allocations of certain companies within the S&P 500, the strategy might increase some allocations and decrease others. It’s more of an active investment strategy and requires a minimum investment portfolio of $500,000.
Wealthfront Risk Parity
This is another investment strategy for investors with larger accounts and a greater appetite for risk. Its been shown to provide higher long-term returns, but it may use leverage to increase those returns.
Stock-level Tax-loss Harvesting
Tax-loss harvesting is available on all taxable investment accounts. But Stock-level Tax-loss Harvesting is available to larger accounts to provide more aggressive tax deferral.
This is a fairly complex investment strategy, but it involves the use of individual stocks to take greater advantage of tax-loss harvesting. The use of individual stocks will make it easier to buy and sell securities to minimize capital gains taxes. Depending on the specific plan, the required minimum investment ranges between $100,000 and $500,000.
Wealthfront Path
This is a software-based financial advisory, providing you with financial planning tools. They can help you plan for retirement or saving for the down payment on a house or a college education for one or more of your children. The apps run what-if scenarios, that can make projections based on various savings levels for each of your specific goals.
Though it doesn’t offer live financial advice, the service is free to use.
Wealthfront Cash
You can open an interest-bearing cash account with Wealthfront Cash Account with just $1. There’s no market risk, no fees, unlimited free transfers, and your account is FDIC insured for up to $5 million. The account currently pays 4.30% APY and provides a safe, cash investment to go with your stock portfolios.
And now, Wealthfront Cash allows you to get your paycheck up to two days early when you set up a direct deposit. They’ve also implemented the ability for you to invest directly into the market within minutes, straight from your Wealthfront Cash account. That means you can get paid early and immediately invest – giving you about extra days of investing each year.
Read more: Wealthfront Cash Account review
Wealthfront Portfolio Line of Credit
Much like a home equity line of credit, the Wealthfront Portfolio Line of Credit is secured by your investment account. You can borrow up to 30% of the value of your account for any purpose. There’s no prequalification since the line of credit is completely secured by your investment account.
The line of credit is automatic if you have a non-retirement account balance of at least $25,000. You can request funds against the line on your smartphone and receive them in as little as one business day.
Current interest rates paid on the line range between 2.45% and 3.70% APR, depending on the size of your account.
Retirement Planning Betterment vs. Wealthfront
One of the most common uses of robo advisors is the management of retirement accounts. Both Betterment and Wealthfront can manage all types of IRA accounts, similar to the way they do with taxable accounts. But each also offers some level of retirement planning.
Read More: Best Robo Advisors Find out which one matches your investment needs.
Betterment Retirement Planning
Betterment is strong in this category because in addition to their regular portfolios, they also offer income-specific investment options, like their BlackRock Target Income and Everyday Cash Reserve. The Target Income option in particular focuses on maximizing interest income, which is exactly what most people are looking for in retirement.
One of the advantages Betterment offers is that you can connect your 401(k) with your investment account. Betterment cant manage the 401(k) (unless chosen to do so by your employer through their 401(k) management plan), but they can coordinate your Betterment retirement account(s) with the activity in your employer plan.
And of course, if you have at least $100,000 in your Betterment account, you can enroll in the Premium plan and have access to live financial advisors.
But Betterment also offers its Retirement Savings Calculator to help you know if you’re on track for your retirement. By answering just four questions, they’ll be able to determine if your current retirement plan will provide the income you’ll need in retirement, taking your projected Social Security income into consideration. If it isn’t, it’ll let you know how much more you need to invest on a regular basis.
Wealthfront Retirement Planning
You can take advantage of Wealthfront Path to help you with retirement planning. You’ll start by linking your financial accounts so the program can get a better understanding of your finances. Recommendations to help you reach your goals are made based on the amount of regular contributions you’re making and the income you will need in retirement.
Path will analyze your spending patterns, your average annual savings rate, the interest you’re earning on those savings, as well as your investment and retirement contributions. It will also analyze the fees you’re paying on your investment and retirement accounts. Loan accounts are analyzed as well.
The information is assembled, and future projections are made. You’ll be given advice on any needed increases in savings for retirement contributions, as well as asset allocations. And perhaps best of all, since all your financial accounts are linked to the service, it will provide continuous updates on your progress toward your retirement goals.
Betterment Pros & Cons
No minimum initial investment or account balance requirement.
Reduced fee structure on larger account balances.
Use of value stocks seeks to outperform the general market.
Unlimited access to certified financial planners on account balances over $100,000.
Comprehensive retirement planning package.
Limited investment diversification, excluding alternative asset classes, like real estate and natural resources.
The annual management fee rises from 0.25% to 0.40% if you select the Premium plan.
The reduced fee structure on large account balances doesn’t kick in until you reach a minimum of $2 million.
Wealthfront Pros & Cons
Your account includes alternative investments, like real estate and natural resources. This offers greater diversification than a portfolio invested only in stocks and bonds.
The minimum initial investment is just $500. That’s not zero, but it’s an amount most small investors can comfortably start with.
Flat-rate fee of 0.25% on all account balances.
Larger accounts get the benefit of more efficient tax-loss harvesting strategies through Wealthfront Risk Parity.
The Wealthfront Portfolio Line of Credit lets you borrow up to 30% of the value of your non-retirement accounts at very low interest and with no credit check.
There’s no reduced management fee for larger account balances.
The retirement planning tool (Path) is an automated system and does not provide advice from live financial advisors.
Poor rating from the Better Business Bureau.
Bottom Line
We’ve covered a lot of territory and details in this side-by-side comparison of Betterment vs Wealthfront. The summary table below should help you to be able to compare the various services each offers with a quick glance.
Category
Betterment
Wealthfront
Minimum initial investment
Digital: $0 Premium: $100,000
$500
Promotions
Up To 1 Year Free
First $5,000 Managed Free
Management fees
Digital: 0.25% up to $2 million, then 0.15% above Premium: 0.40% to $2 million, then 0.30%
0.25%
Available accounts
Individual and joint taxable accounts; traditional, Roth, rollover and SEP IRAs; trusts and nonprofit accounts
Individual and joint taxable accounts; traditional, Roth, rollover and SEP IRAs; trusts and 529 accounts
Rebalancing
Yes
Yes
Dividend reinvestment
Yes
Yes
Tax-loss harvesting – on taxable accounts only
Yes
Yes
Socially-responsible investing
Yes
Available through Smart Beta ($500,000 minimum) and Stock-level Tax-Loss Harvesting ($100,000 minimum)
Smart Beta investing
Yes
Yes, minimum $500,000
Interest bearing cash account
Yes
Yes
Line of credit
No
Yes
Financial advice
Yes, on Premium Plan only
Automated only
Mobile app
Yes
Yes
Customer service
Phone and email, Monday through Friday, 9:00 am to 6:00 pm Eastern time
Phone and email, Monday through Friday, 10:00 am to 8:00 pm Eastern time
You’ve probably already guessed were not declaring a winner between these two popular roboadvisors. Both are first rate and you can’t go wrong with either. More than anything, your decision will likely come down to specific details–what features and benefits one offers that better suits your own personal preferences and investment style.
But one advantage that’s undeniable with both Betterment and Wealthfront is that not only is each a first-rate service, but they provide enough investment options and related services that they can accommodate your growing financial capabilities and needs well into the future.
For example, while you may start out with a basic managed portfolio, you’ll eventually want to get into higher risk/higher reward options as your wealth grows. As well, you’ll like the flexibility of having high-interest cash investment options, as well as low-cost or free financial or retirement advice.
We like both these services and are certain you can’t go wrong with whichever one you choose.
Betterment Cash Reserve Disclosure – Betterment Cash Reserve (“Cash Reserve”) is offered by Betterment LLC. Clients of Betterment LLC participate in Cash Reserve through their brokerage account held at Betterment Securities. Neither Betterment LLC nor any of its affiliates is a bank. Through Cash Reserve, clients’ funds are deposited into one or more banks (“Program Banks“) where the funds earn a variable interest rate and are eligible for FDIC insurance. Cash Reserve provides Betterment clients with the opportunity to earn interest on cash intended to purchase securities through Betterment LLC and Betterment Securities. Cash Reserve should not be viewed as a long-term investment option.
Funds held in your brokerage accounts are not FDIC‐insured but are protected by SIPC. Funds in transit to or from Program Banks are generally not FDIC‐insured but are protected by SIPC, except when those funds are held in a sweep account following a deposit or prior to a withdrawal, at which time funds are eligible for FDIC insurance but are not protected by SIPC. See Betterment Client Agreements for further details. Funds deposited into Cash Reserve are eligible for up to $1,000,000.00 (or $2,000,000.00 for joint accounts) of FDIC insurance once the funds reach one or more Program Banks (up to $250,000 for each insurable capacity—e.g., individual or joint—at up to four Program Banks). Even if there are more than four Program Banks, clients will not necessarily have deposits allocated in a manner that will provide FDIC insurance above $1,000,000.00 (or $2,000,000.00 for joint accounts). The FDIC calculates the insurance limits based on all accounts held in the same insurable capacity at a bank, not just cash in Cash Reserve. If clients elect to exclude one or more Program Banks from receiving deposits the amount of FDIC insurance available through Cash Reserve may be lower. Clients are responsible for monitoring their total assets at each Program Bank, including existing deposits held at Program Banks outside of Cash Reserve, to ensure FDIC insurance limits are not exceeded, which could result in some funds being uninsured. For more information on FDIC insurance please visit www.FDIC.gov. Deposits held in Program Banks are not protected by SIPC. For more information see the full terms and conditions and Betterment LLC’s Form ADV Part II.
DoughRoller receives cash compensation from Wealthfront Advisers LLC (“Wealthfront Advisers”) for each new client that applies for a Wealthfront Automated Investing Account through our links. This creates an incentive that results in a material conflict of interest. DoughRoller is not a Wealthfront Advisers client, and this is a paid endorsement. More information is available via our links to Wealthfront Advisers.
Let’s face it; the Internet has led to the demise of many long-standing brick-and-mortar businesses, like the yellow pages, or travel agents, to name just two that come to mind.
And now it appears as if another popular profession is at risk, real estate agents.
Yep, Google finally made a major move in the real estate realm today, announcing a $50 million investment in Auction.com, a well-established website for buying and selling real estate online.
Last year, Auction.com sold over $7 billion in real estate via more than 35,000 auctions. And since 2010, the company has reportedly sold nearly $20 billion in so-called real estate assets.
Google Capital, which was formed just last year, made the investment, giving them a roughly four percent stake in Auction.com based on its $1.2 billion valuation.
As part of the investment, Google Capital will gain a seat on the board of Auction.com, along with a board observer position.
As for what Google plans to do with the investment, partner David Lawee noted in the press release that they think Auction.com can “fundamentally change” how real estate is bought and sold by leveling the playing field for smaller investors.
Lawee also seemed particularly interested in commercial real estate, meaning residential real estate agents probably don’t need to worry, yet.
At the moment, Auction.com is focused primarily on distressed real estate, such as bank-owned homes, foreclosures, notes, land, and commercial property.
So it’s not as if an everyday Joe is going to use Auction.com instead of their neighbor who also happens to be a real estate agent.
Google Real Estate Coming Soon?
At the moment, there isn’t a “Google Real Estate” division at Google, at least not publicly. In fact, some random guy seems to own the domain name GoogleRealEstate.com.
There is a Google Real Estate team, but I believe they focus on Google’s own properties, keeping the Zen for employees by creating beautiful campuses.
And if anything, Google took a step back from real estate in recent years. In 2011, the company pulled real estate listings from Google Maps, citing low usage as a reason, along with other “excellent property-search tools” that were readily available.
So is this another experiment for Google, or the beginning of a major foray into real estate?
After all, companies like Zillow, Redfin, and Trulia are making big money, with two of the three publicly traded and Redfin soon to be.
Could we soon see local real estate listings in Google’s search results, or back on maps? Or something even more robust? Only time will tell, but either way, I don’t see the real estate agent going away anytime soon.
At the end of the day, you need a physical human to help navigate the oft-confusing process, at least for now.
Sure, buyers are doing a lot more of the legwork nowadays thanks to those real estate listings websites, but someone still needs to negotiate and handle the paperwork.
However, major players in the field should be on notice now that Google has pledged a decent chunk of change toward real estate.