Share Prices estimate the current value of each share of a property. They are created by taking the current property value estimate and factoring in the LLC’s assets and liabilities, such as loan balance and cash reserves. Reduction in cash reserves from starting operations and servicing loans can negatively impact the share valuation initially. The Share Price value may go up or down, and the actual investment returns will largely depend on the property’s eventual sale price at the end of the 5-7 or 5-15 year hold period.
Given the calculation method there are three potential causes for a share price dropping below the initial $10 value.
Lower Cash Reserves: Given the share price is calculated using all the assets and liabilities owned by the LLC, if the cash reserves have become reduced then the share price will be reduced as well. The cash reserves can be affected by things like servicing loans, vacancy while the property is initially being marketed to investors, or by repairs and maintenance costs.
Lower Property Value: The property value has decreased per a 3rd party valuation estimate. These professional 3rd party data sources estimate the home's value, and then our investments team does a manual review to ensure no extreme outliers in the data. If the property value is estimated to be lower than the purchase price, then the share price will reflect that and be reduced.
Pro-rated Upfront Fees: The share prices also include some adjustments for the upfront fees involved in the investment. The Arrived sourcing fee and the other upfront investment costs are meant to be for an investment period of at least 5 years. Accordingly, we structure these costs so that the share price reflects only the prorated fees up through that time.
While the Share Price value may go up or down in the short term, the actual investment returns will largely depend on the property’s eventual sale price at the end of the investment period. That is why we maintain that real estate performs best as a long-term investment all while investors continue earning dividends through rental income.
You can learn more about share prices and how they are calculated in our property share price blog post.