Author Topic: Crowdfunding Real Estate for Everyone (Article)  (Read 19533 times)

GGNoob

  • Pencil Stache
  • ****
  • Posts: 724
  • Age: 31
  • Location: Colorado
Crowdfunding Real Estate for Everyone (Article)
« on: June 13, 2015, 09:52:49 PM »
Quote
Starting June 19, everyday investors will be able to back real estate projects with Kickstarter-like crowdfunding initiatives.

You can now invest in real estate, even if you're not Donald Trump

What do you guys think?

Here's a few of the sites that seem to be the big players:
Fundrise
RealtyShares
CityFunders
Realty Mogul

I've looked into Fundrise and it seems pretty neat. I'm not sure I would get into it though, as I'd want to be very diversified and I currently do not have the available assets in taxable accounts as everything goes into maxing retirement accounts. Also, this would not be the most tax efficient investment.

frugledoc

  • Pencil Stache
  • ****
  • Posts: 543
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #1 on: June 14, 2015, 04:01:41 AM »
I invest a lot in UK property crowdfunding.  Main disadvantages are loss of certain tax reliefs and lack of leverage (although if property prices drop this will be an advantage).   Main advantage is complete lack of any hassle whatsoever.  It is certainly much preferable to REITS investing  in my opinion.

The main 3 uk websites are:
1) Property partner  (high end, lower yield property)
2) Property moose   (low end, high yielding property)
3) The House Crowd (low end, high yield)
« Last Edit: June 14, 2015, 04:03:37 AM by frugledoc »

frugledoc

  • Pencil Stache
  • ****
  • Posts: 543
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #2 on: June 14, 2015, 04:05:19 AM »
I should say that I am a huge fan of crowdfunding in general and have money invested in equity crowdfunded startups, small and medium companies debt and even wind turbines and solar farms.

YoungInvestor

  • Bristles
  • ***
  • Posts: 383
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #3 on: June 14, 2015, 06:25:18 AM »
I invest a lot in UK property crowdfunding.  Main disadvantages are loss of certain tax reliefs and lack of leverage (although if property prices drop this will be an advantage).   Main advantage is complete lack of any hassle whatsoever.  It is certainly much preferable to REITS investing  in my opinion.

The main 3 uk websites are:
1) Property partner  (high end, lower yield property)
2) Property moose   (low end, high yielding property)
3) The House Crowd (low end, high yield)

Could you expand on why you think this type of investment is superior to REITs?

forummm

  • Walrus Stache
  • *******
  • Posts: 7360
  • Senior Mustachian
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #4 on: June 14, 2015, 07:09:27 AM »
It seems like this would require more due diligence and provide more risk and less diversification than REITs. It seems like the returns wouldn't necessarily compensate for these additional factors.

mr_orange

  • Magnum Stache
  • ******
  • Posts: 4028
  • Age: 39
  • Location: Round Rock, TX
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #5 on: June 14, 2015, 07:22:15 AM »
Disclosure: I run a crowdfunding site and speak at conferences on these topics frequently

On June 19th Title IV of The JOBS Act will be fully in force.  What you'll most likely see are funds set up to invest money on a discretionary basis for non-accredited investors because of the way that the laws work.  Title IV (Regulation A+) forces companies through a "mini IPO" style regulatory regime, which adds significant costs for promoters.   

This is probably the biggest thing that has happened in the securities world in almost 100 years and it is interesting to me that very few people know about it.  If you're an accredited investor you will also have many more options under Title II and existing sites generally operate using 506(b) and the Lamp NAL.  This will likely change once the herd of sites starts doing offerings for non-accredited investors as well. 

Fundrise is an industry leader in offerings for non-accredited investors and is run by some smart folks from a wealthy family.  They have been positioning themselves for A+ for several years now.  Another company that has been on this bandwagon is Groundfloor out of Georgia, but they have been focusing more on intrastate exemptions and using Tier I of A+, both of which I think are sub-optimal. 

You need to know what you're doing when you invest in these projects.  Don't assume that the sites have "curated" the deals properly.  I know many of the site owners and operations very well and many are not run by real estate people; they're run by technology people that have little experience underwriting risk. 

GGNoob

  • Pencil Stache
  • ****
  • Posts: 724
  • Age: 31
  • Location: Colorado
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #6 on: June 14, 2015, 04:36:44 PM »
It seems like this would require more due diligence and provide more risk and less diversification than REITs. It seems like the returns wouldn't necessarily compensate for these additional factors.

Not knowing much about real estate investing myself, I'd have a lot of homework to do before doing anything like this. REITs do seem a lot easier!

Another Reader

  • Magnum Stache
  • ******
  • Posts: 4450
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #7 on: June 14, 2015, 05:18:24 PM »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27096
  • Age: -999
  • Location: Traveling the World
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #8 on: June 14, 2015, 05:53:05 PM »
Crowdfunding offers none of the benefits of real estate with more risks.

The risk adjusted return, IMO, is pretty terrible.  I'd stick with index funds, or actual hard asset real estate.

Even REITs are better than crowdfunded real estate, IMO (and I'm no fan of REITs, in general), as you at least have a track record, more professionalism, more transparency, more accountability, and more liquidity.

I don't see any upside to crowdfunded real estate and significant drawbacks as compared to other types of investments.

But given that multiple people in this thread have already posted they're heavily invested in it or work in the industry, I expect some push back on that.  ;)

As Upton Sinclair said, "It is difficult to get a man to understand something when his job depends on not understanding it."
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

tj

  • Handlebar Stache
  • *****
  • Posts: 1221
  • Age: 33
  • Location: Phoenix
    • Arcadia Power
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #9 on: June 14, 2015, 05:57:19 PM »
one of these guys went on Shark Tank and got blasted by Mark Cuban. The guy pitching the concept's argument was  "REITs aren't sexy".


I'm not touching these with a ten foot pole.

mr_orange

  • Magnum Stache
  • ******
  • Posts: 4028
  • Age: 39
  • Location: Round Rock, TX
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #10 on: June 14, 2015, 06:59:31 PM »
The guy on The Shark Tank did a horrible job....horrible.  Many of the sites in the industry had articles making fun of the guy after the show aired. 

I honestly couldn't care less if anyone invests in the crowdfunding sites.  There are plenty of intelligent investors out there already investing in these projects and making nice yields in them.  There are also plenty of sites run by technology people that probably won't be around in 2+ years. 

However, I will take issue with the claim that crowdfunding offers none of the benefits of real estate with more risks.  The summary statement is completely false.  Crowdfunding is just an advertising technique for an industry that has been around for decades offering private investments.  Ya know....how companies get financed prior to IPO and where a lot of the real money is made. 

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27096
  • Age: -999
  • Location: Traveling the World
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #11 on: June 14, 2015, 07:45:07 PM »
However, I will take issue with the claim that crowdfunding offers none of the benefits of real estate with more risks.  The summary statement is completely false.  Crowdfunding is just an advertising technique for an industry that has been around for decades offering private investments.  Ya know....how companies get financed prior to IPO and where a lot of the real money is made.

The industry is great, if you have the knowledge and contacts to invest in it correctly.

Crowdfunding does not open that to the masses, unfortunately, it pushes the investments that can't get funded more strategic and better ways (often due to their poor viability) onto unsophisticated investors who don't know any better.

There is so much money floating around right now looking for investments, if it's a good investment, it'll get funded.  The fact that a company has to go through a crowdfunding portal for suboptimal funding speaks volumes, IMO.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

mr_orange

  • Magnum Stache
  • ******
  • Posts: 4028
  • Age: 39
  • Location: Round Rock, TX
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #12 on: June 14, 2015, 08:56:53 PM »
Money has to get matched with investments.  Summarily discarding investments as poor because the capital is sourced via a website is ridiculous in my opinion. 

There are hoards of great investments that have traditionally had a hard time finding capital.  All crowdfunding does is take advantage of the new ability to publicly solicit funds while introducing new reasonableness screening for accreditation.  On June 19th of this year there will be other exemptions to registration that will also allow for non-accredited investors. 

Further, there are many reasons that promoters would not select the "more strategic" and "better" ways cited in your post.  Crowdfunding allows promoters to control their investments more with less involvement from people writing big checks and thinking they'll own the entrepreneur. 

Further, the funding is not "suboptimal" in many cases.  The funding has a preferred return structure and promotes similar to what one would get through private equity funding channels.  The difference is that the continuity of funding is better with crowdfunding and the entrepreneurs can control their investments more in many cases.  This is tough to discuss in the abstract because there is not a one-size-fits-all crowdfunding model so the concerns you're raising are, at best, painting the whole industry with a broad brush. 

Further, if you live in cities like Austin right now there are probably far more good projects than there is money chasing them.  There are other cities with the opposite issue.  Crowdfunding allows capital to flow to these projects and get them funded.  All that has changed with crowdfunding is the ability to publicly solicit for money.  How someone can summarily dismiss an entire industry or technique like you have done is beyond me. 

GGNoob

  • Pencil Stache
  • ****
  • Posts: 724
  • Age: 31
  • Location: Colorado
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #13 on: June 14, 2015, 08:59:41 PM »

There is so much money floating around right now looking for investments, if it's a good investment, it'll get funded.  The fact that a company has to go through a crowdfunding portal for suboptimal funding speaks volumes, IMO.

It would be nice to see real estate crowd funding be as popular as Lending Club and Prosper and not be the "last resort" for developers.


Sent from my iPhone using Tapatalk

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27096
  • Age: -999
  • Location: Traveling the World
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #14 on: June 14, 2015, 09:03:03 PM »
How someone can summarily dismiss an entire industry or technique like you have done is beyond me. 

Maybe once some of the disasters happen it won't be beyond you anymore.  ;)

Real estate private money is terrific.  I've argued for it multiple times on this site.

Crowdfunding is not it. It's a very subpar way to invest in real estate versus all of the alternatives.  It gives most of the downsides but not much upside.

It would be nice to see real estate crowd funding be as popular as Lending Club and Prosper and not be the "last resort" for developers.

While better funding options exist, it will always be lower on the options list.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

mr_orange

  • Magnum Stache
  • ******
  • Posts: 4028
  • Age: 39
  • Location: Round Rock, TX
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #15 on: June 14, 2015, 09:10:40 PM »
Quote
Crowdfunding is not it. It's a very subpar way to invest in real estate versus all of the alternatives.  It gives most of the downsides but not much upside.

This statement is ridiculous.  There are literally THOUSANDS (probably more) of different ways securities transactions can be constructed.  "It" can thus be any number of ways to structure an offering.  The downside can be significant or can be very small.  The upside is the same; it can be huge or very narrow. 

Further, if you somehow like private money then there really isn't any material difference between private money in certain offerings than there is in crowdfunding save the securities exemptions utilized.  The statements you made above are not congruent. 

mr_orange

  • Magnum Stache
  • ******
  • Posts: 4028
  • Age: 39
  • Location: Round Rock, TX
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #16 on: June 14, 2015, 09:14:30 PM »
It would be nice to see real estate crowd funding be as popular as Lending Club and Prosper and not be the "last resort" for developers.

There are many, many large developers on the crowdfunding sites that are simply trying to development new relationships with investors.  It isn't a last resort for them.  They often carve out small pieces of their offering for the sites to get access to more capital. 

There are also new sites being developed that are more crowd-centric that will NOT use the curation model and will allow the crowd to vote with their dollars.  The sites take on more liability this way and that is why you haven't seen many of these models in the early part of the industry.  They're coming though. 

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27096
  • Age: -999
  • Location: Traveling the World
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #17 on: June 14, 2015, 09:52:45 PM »
I've seen a lot more dumb money pumping the idea of crowdfunded real estate than smart money interested in it.  Especially regarding people already in the industry.

We'll have to agree to disagree.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

mr_orange

  • Magnum Stache
  • ******
  • Posts: 4028
  • Age: 39
  • Location: Round Rock, TX
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #18 on: June 15, 2015, 05:30:31 AM »
Fair enough.  There certainly is a fair share of bad product in the industry because several of the sites are run by folks that don't understand investments very well.  There are, however, many sites with reputable folks running them that know what they're doing.  Fundrise is one.  There are many others too. 

GGNoob

  • Pencil Stache
  • ****
  • Posts: 724
  • Age: 31
  • Location: Colorado
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #19 on: June 15, 2015, 10:21:51 AM »
It would be nice to see real estate crowd funding be as popular as Lending Club and Prosper and not be the "last resort" for developers.

There are many, many large developers on the crowdfunding sites that are simply trying to development new relationships with investors.  It isn't a last resort for them.  They often carve out small pieces of their offering for the sites to get access to more capital. 

There are also new sites being developed that are more crowd-centric that will NOT use the curation model and will allow the crowd to vote with their dollars.  The sites take on more liability this way and that is why you haven't seen many of these models in the early part of the industry.  They're coming though.

You're right. I think what I meant was, it'd be nice to see this go mainstream like LC and Prosper for personal loans, so that investors don't think this is just a last resort for developers who otherwise can't get money.

I'm a big fan of LC and I can't wait to see where crowdfunding real estate goes in the near future.

mr_orange

  • Magnum Stache
  • ******
  • Posts: 4028
  • Age: 39
  • Location: Round Rock, TX
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #20 on: May 02, 2016, 07:02:07 PM »
So is real estate crowdfunding now suitable since MMM blogged about it today?

zz_marcello

  • 5 O'Clock Shadow
  • *
  • Posts: 50
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #21 on: May 02, 2016, 07:41:26 PM »
It's a diversification for me in Shiller CAPE26 US stock market times but not more.
I have 10% of my net worth in ~15 different Fundrise projects.
The main risk is a default of the note issuer. For this risk, I want more return than a good REIT (with 7% (+yearly rising) dividend,+ covered inflation like HCP, OHI, OLP...).

With Fundrise I have an average return of 13% (~11% after inflation) with notes that have a maturity of ~2.5 years. I will definitely not increase my 10% investment and in case, the US stock market cools down I will shift more money back into the safest place of the universe for assets: The US stock market.
« Last Edit: May 02, 2016, 07:43:48 PM by zz_marcello »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27096
  • Age: -999
  • Location: Traveling the World
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #22 on: May 02, 2016, 08:16:20 PM »
So is real estate crowdfunding now suitable since MMM blogged about it today?

Ugh, no.

That article made me shiver and cringe reading it. :P

Some people are going to lose a lot of money, sadly.

As I said before, the risk-adjusted returns aren't worth it, at all.

Wish Pete would have explored a little more what happens when things go wrong, and played out that scenario a little.

There are SO MANY ways to make money in real estate. You don't have to be a landlord. But crowdfunding something with little info, no control, and little recourse for mediocre returns (low double digit, which sounds good to people comparing apples to oranges, but is not good for the risk put in)?  That's like 50th on the list of ways to make money in real estate.   Hard pass.

This is a case of something run by nice people, and Pete's optimism gun making him think everything will work out, so it doesn't have actual solid analysis in the article, more of a summary of the company, with the rosy points included.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

mr_orange

  • Magnum Stache
  • ******
  • Posts: 4028
  • Age: 39
  • Location: Round Rock, TX
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #23 on: May 02, 2016, 08:34:09 PM »
Double-digit returns for clicking a few buttons on a website and passively collecting returns is a raw deal?  It seems to me if you find a suitable underwriting partner firm this is a no-brainer for part of your portfolio for most folks.  Maybe your perspective is colored by being a more active investor somehow. 

I know that I can easily make returns above those that hard money loans deliver by participating actively.  In fact, we're setting up a private equity fund right now to deliver similar returns to those that the funds and individual projects on the sites deliver and keeping part of the additional upside. 

Hopefully MMM writing about it will compel others to at least give it a look.  I think hard money loans and other sorts of syndications are excellent options for part of the portfolios of accredited investors.  I plan to park a lot of spare cash in these vehicles in the coming few years both in projects on our site and the other sites. 

mr_orange

  • Magnum Stache
  • ******
  • Posts: 4028
  • Age: 39
  • Location: Round Rock, TX
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #24 on: May 02, 2016, 08:52:16 PM »
It is interesting to me that PeerStreet was selected.  I really don't know much about them and they certainly are not one of the more well-known players in the industry. 

It was also interesting to me that they have some sort of auto investment mechanism.  I haven't heard about that on the other sites, but it may exist. 

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27096
  • Age: -999
  • Location: Traveling the World
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #25 on: May 02, 2016, 09:21:58 PM »
Double-digit returns for clicking a few buttons on a website and passively collecting returns is a raw deal?  It seems to me if you find a suitable underwriting partner firm this is a no-brainer for part of your portfolio for most folks.  Maybe your perspective is colored by being a more active investor somehow. 

There's a huge difference between the prima facie return and the risk-adjusted return.

A lot of people will be drooling over those "double digit returns" and will lose a lot of money.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

CanuckExpat

  • Magnum Stache
  • ******
  • Posts: 2716
  • Age: 35
  • Location: Travelling
    • Freedom35
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #26 on: May 03, 2016, 02:26:26 AM »
Ugh, no.

That article made me shiver and cringe reading it. :P

Some people are going to lose a lot of money, sadly.

As I said before, the risk-adjusted returns aren't worth it, at all.

Wish Pete would have explored a little more what happens when things go wrong, and played out that scenario a little.

There are SO MANY ways to make money in real estate. You don't have to be a landlord. But crowdfunding something with little info, no control, and little recourse for mediocre returns (low double digit, which sounds good to people comparing apples to oranges, but is not good for the risk put in)?  That's like 50th on the list of ways to make money in real estate.   Hard pass.

This is a case of something run by nice people, and Pete's optimism gun making him think everything will work out, so it doesn't have actual solid analysis in the article, more of a summary of the company, with the rosy points included.

Aren't these the reasons investments like this are limited to accredited investors only?
They, at least in theory, can take the risk, and should be able to do the due dilligence.

I say this as someone who has been meaning to learn about these options for months and still hasn't got around to even skimming Pete's article.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27096
  • Age: -999
  • Location: Traveling the World
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #27 on: May 03, 2016, 02:36:58 AM »
Yeah, in theory.  But being an accredited investor (a designation which used to mean something, but since it didn't adjust with inflation, means a lot less nowadays) doesn't mean you know real estate.  Plenty of people make 200k nowadays because they're a professional with a high paying job, but don't know their elbow from a hole in the ground when it comes to investing.  Real estate is especially tricky due to a number of factors, exacerbated by a platform like this.

Look at the comments of the article--a bunch of people lamenting they aren't accredited investors, so they could invest in this.   You also see a comment from someone saying you can just lie about being accredited, and a comment from someone who has to ask if they're accredited (due to their business income). 

I guarantee you plenty of people who are "accredited" will invest blindly, without knowing what they're getting in to.


Read the comments by "Another Reader" on the blog post, and by "Daniel Born."

This one by JayP also sums it up nicely:
Quote
Wow, this sounds totally off the mark for MMM. So, I am going to invest in RE “flips” where the investors take most of the risks? Real estate flipping is risky, you are either going to make a great profit or lose your shirt. The idea of taking all or most of the risk, with no upside potential other than the fixed interest rate does not sound smart. Sorry, and I am a big MMM fan on most topics – but this one has me scratching my head.

Speculative loans on risky real estate ventures are priced the way they are due to risk, not due to inefficiencies in the market.  There are plenty of players that would lower the rates, if that were the case.  This company is artificially lowering them, leading to a terrible risk-adjusted return.
« Last Edit: May 03, 2016, 02:39:43 AM by arebelspy »
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

mr_orange

  • Magnum Stache
  • ******
  • Posts: 4028
  • Age: 39
  • Location: Round Rock, TX
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #28 on: May 03, 2016, 07:41:42 AM »
Speculative loans on risky real estate ventures are priced the way they are due to risk, not due to inefficiencies in the market.  There are plenty of players that would lower the rates, if that were the case.  This company is artificially lowering them, leading to a terrible risk-adjusted return.

I don't agree with this and I have been a real estate investor for 14 years now.  There are plenty of well-priced risky loans for borrowers without W2s with businesses growing rapidly.  Gossett/Jones locally is run by a CFA and another partner with a wealthy family and they were still borrowing hard money until a few years ago. 

The key is finding a suitable platform to partner with.  The problem many platforms have in the industry is that they're backed by venture capital with a bias toward doing ANY deals to generate profits and not the best deals.  I would seek out platforms where:

1.  They are co-invested in the project alongside the investors
2.  They do fewer deals per year and are using the RIA regime instead of being a full scale broker-dealer
3.  They have an underwriting team or committee with a diverse background (law, accounting, risk pricing, etc.) and more than a decade of experience per committee member. You'd certainly want members that have been through at least 1 bad downturn and preferably 2 or more

There are literally hundreds of platforms now.  One has to do their diligence to find the right platforms to align with.  There are some reputable players out there if you do your homework.  Yes, this is work.   

Regarding accreditation there are over 20 legal portals being formed right now under Title III of The JOBS Act that will allow for non-accredited investors to invest as well.  There is a primer on Title III and the investment thresholds here for anyone that wishes to learn more:

http://www.flastergreenberg.com/assets/htmldocuments/Title%20III%20Primer.pdf

Another Reader

  • Magnum Stache
  • ******
  • Posts: 4450
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #29 on: May 03, 2016, 08:24:37 AM »


The key is finding a suitable platform to partner with.  The problem many platforms have in the industry is that they're backed by venture capital with a bias toward doing ANY deals to generate profits and not the best deals. I would seek out platforms where:

1.  They are co-invested in the project alongside the investors
2.  They do fewer deals per year and are using the RIA regime instead of being a full scale broker-dealer
3.  They have an underwriting team or committee with a diverse background (law, accounting, risk pricing, etc.) and more than a decade of experience per committee member. You'd certainly want members that have been through at least 1 bad downturn and preferably 2 or more

There are literally hundreds of platforms now.  One has to do their diligence to find the right platforms to align with.  There are some reputable players out there if you do your homework.  Yes, this is work.   

And this is the problem with PeerStreet.  Almost all of the originators from whom they are buying have been in business less than five years.  Some of the principals in those originators have been  around longer, but I don't see consistent track records.

I looked at two performing deals in my immediate area.  The one with the most details was appalling.  The originator charged 10 percent (no doubt with a fat origination fee), there is a "third party" skimming one percent, and PeerStreet is charging one percent.  It's a short term loan, on its second extension.  Guarantor credit scores were very poor.    And they want investors to accept 8 percent on this investment??  My guess is Mr. Orange is correct.  This entity is buying deals that could not be shopped elsewhere.

After 35 years of watching the movies, I think I know how this one is going to end.   My advice is to stay away.

mr_orange

  • Magnum Stache
  • ******
  • Posts: 4028
  • Age: 39
  • Location: Round Rock, TX
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #30 on: May 03, 2016, 08:30:15 AM »
This thread inspired me to write a blog post called Don't Believe The Hype this morning.  Hopefully it will be published in the coming few days.  I'll redact it and share it when our marketing team has a chance to edit it. 

I would avoid any platforms backed by venture capital personally.  Some think that this adds value, but I honestly think it creates misalignment and a bias toward building something to sell instead of building it to operate sustainably for the long term. 

retiringearly

  • Bristles
  • ***
  • Posts: 341
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #31 on: May 03, 2016, 08:50:29 AM »
I have money invested through four sites: RealtyMogul.com, Fundrise.com, RealtyShares.com, and PatchofLand.com.  I have been very, very happy with the performance.

The majority of my investments have been in debt deals - lending money to people that are doing "fix and flips".  I only invest in deals where 1) I have first position lien on the property - meaning if the borrower does not pay us back we take the property (not what you want to do but it provides security), and 2) the borrower has put in a significant amount of his own money in to the deal (this means there is a financial cushion that will help soften the blow of having to take the property, and it means the borrower has a vested interest in making good on the loan).  The loans I participate in are usually no longer than 12 months, with a couple being 18 months.   

All of my loans have been paid back prior to the maturity date.

I can't inspect every property myself but I do look up each property on Zillow, Redfin, and other sites.  I will put money in if I feel comfortable that the property isn't grossly overvalued (I don't want to be part of a $500K loan on a property that is only worth $250K).

Most interest rates have been between 9% and 10.75%.

I have invested in a few preferred equity deals as well as a couple straight equity deals.   The nice thing about the equity deals is the depreciation on the property is passed out to the investors which helps at tax time. 

I only invest in preferred equity deals if 1) the sponsor has a significant amount of money invested in the deal and 2) I get paid out before the sponsor receives his payout.

I have only had one "negative" experience so far - a borrower was late on the first payment, clearly not what you want.  He ended up refinancing with another lender and we were paid back in full in two months - the bonus was the loan required a minimum of three months interest to be paid so we got an extra month of interest payment.

I have increased my investments in this area and plan to continue maintaining a decent amount of money in this area until something radically changes (the real estate market starts to drop, etc).   

I have money in 4 different online platforms because 1) I want to be able to pick and choose investments, 2) each platform is a bit different and offers different types of investments, and 3) I want to be diversified (I don't want a ton of money in any one platform in such a new industry, who knows who will be left standing in 5 years).
« Last Edit: May 03, 2016, 08:59:00 AM by retiringearly »

retiringearly

  • Bristles
  • ***
  • Posts: 341
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #32 on: May 03, 2016, 10:26:02 AM »
It is interesting to me that PeerStreet was selected.  I really don't know much about them and they certainly are not one of the more well-known players in the industry. 

It was also interesting to me that they have some sort of auto investment mechanism.  I haven't heard about that on the other sites, but it may exist.

Agreed on both points.  I hadn't heard of PeerStreet prior to the blog.  I haven't seen a site with the auto investing option - I personally wouldn't participate in it simply because I like to pick and choose between the investments that I select.  There have been some loans available that simply didn't make much sense to me.

retiringearly

  • Bristles
  • ***
  • Posts: 341
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #33 on: May 03, 2016, 10:33:33 AM »

There is so much money floating around right now looking for investments, if it's a good investment, it'll get funded.  The fact that a company has to go through a crowdfunding portal for suboptimal funding speaks volumes, IMO.

It would be nice to see real estate crowd funding be as popular as Lending Club and Prosper and not be the "last resort" for developers.


Sent from my iPhone using Tapatalk
I have never fully understood Lending Club, the loans are backed up by nothing (unless I am missing something).  It seems like LC allows you to take on an unusual amount of risk.

zz_marcello

  • 5 O'Clock Shadow
  • *
  • Posts: 50
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #34 on: May 03, 2016, 11:39:59 AM »
I have never fully understood Lending Club, the loans are backed up by nothing (unless I am missing something).  It seems like LC allows you to take on an unusual amount of risk.

They are backed up by the same thing as all credit card debt: The potential punishment of a destroyed FICO score.
With some screening and parameter optimization you could get 10%+ yields for the last several years.
Thats a decent diversification, especially in times of a CAPE26 US stock market.
Lending Club itself is listed at the stock exchange and they made it already into profitable territory in the last quarters.
So the main risk of a defaulting note issuer is minimized with LC (in opposite of nearly all other P2P Plattforms).

vivophoenix

  • Bristles
  • ***
  • Posts: 430
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #35 on: May 03, 2016, 11:41:48 AM »
I have money invested through four sites: RealtyMogul.com, Fundrise.com, RealtyShares.com, and PatchofLand.com.  I have been very, very happy with the performance.

The majority of my investments have been in debt deals - lending money to people that are doing "fix and flips".  I only invest in deals where 1) I have first position lien on the property - meaning if the borrower does not pay us back we take the property (not what you want to do but it provides security), and 2) the borrower has put in a significant amount of his own money in to the deal (this means there is a financial cushion that will help soften the blow of having to take the property, and it means the borrower has a vested interest in making good on the loan).  The loans I participate in are usually no longer than 12 months, with a couple being 18 months.   

All of my loans have been paid back prior to the maturity date.

I can't inspect every property myself but I do look up each property on Zillow, Redfin, and other sites.  I will put money in if I feel comfortable that the property isn't grossly overvalued (I don't want to be part of a $500K loan on a property that is only worth $250K).

Most interest rates have been between 9% and 10.75%.

I have invested in a few preferred equity deals as well as a couple straight equity deals.   The nice thing about the equity deals is the depreciation on the property is passed out to the investors which helps at tax time. 

I only invest in preferred equity deals if 1) the sponsor has a significant amount of money invested in the deal and 2) I get paid out before the sponsor receives his payout.

I have only had one "negative" experience so far - a borrower was late on the first payment, clearly not what you want.  He ended up refinancing with another lender and we were paid back in full in two months - the bonus was the loan required a minimum of three months interest to be paid so we got an extra month of interest payment.

I have increased my investments in this area and plan to continue maintaining a decent amount of money in this area until something radically changes (the real estate market starts to drop, etc).   

I have money in 4 different online platforms because 1) I want to be able to pick and choose investments, 2) each platform is a bit different and offers different types of investments, and 3) I want to be diversified (I don't want a ton of money in any one platform in such a new industry, who knows who will be left standing in 5 years).



i would love to hear more about your investment selection process.


thanks

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3634
  • Age: 40
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #36 on: May 03, 2016, 11:44:45 AM »
This thread inspired me to write a blog post called Don't Believe The Hype this morning.  Hopefully it will be published in the coming few days.  I'll redact it and share it when our marketing team has a chance to edit it. 

I would avoid any platforms backed by venture capital personally.  Some think that this adds value, but I honestly think it creates misalignment and a bias toward building something to sell instead of building it to operate sustainably for the long term.
I saw this thread and my first thought was to see if you had added anything interesting to the topic... hehe

mr_orange

  • Magnum Stache
  • ******
  • Posts: 4028
  • Age: 39
  • Location: Round Rock, TX
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #37 on: May 03, 2016, 11:58:59 AM »
I think some people are disagreeing to be disagreeable frankly.  That's okay though.  As long as people get balanced viewpoints other readers can check everything out and decide for themselves. 

When Title III is in full force I think you can expect for the yield to go down on investments through the platforms and the risk/reward may be more skewed.  Getting double-digit returns for some decent projects with good sponsors is a pretty good deal IMO.  The 4 platforms listed above are more well-known in the industry. 

CanuckExpat

  • Magnum Stache
  • ******
  • Posts: 2716
  • Age: 35
  • Location: Travelling
    • Freedom35
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #38 on: May 03, 2016, 12:27:09 PM »
Investment returns for these types of platforms are taxed as ordinary income right?
In our situation, the tax treatment seemed to make the after-tax returns (taking a 30-40% haircut) much too low for the amount of risk, and there isn't an easy nor cheap way to get these into tax-advantaged accounts if I recall.

If/when we FIRE and find ourselves in a more favorable tax situation, I'm interested in investigating some of these alternative investments with a bit of "play money", both out of curiosity, and as added diversification.

As it is, the tax situation seems quite unfavorable though, am I missing anything?

retiringearly

  • Bristles
  • ***
  • Posts: 341
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #39 on: May 03, 2016, 01:34:33 PM »
I think some people are disagreeing to be disagreeable frankly.  That's okay though.  As long as people get balanced viewpoints other readers can check everything out and decide for themselves. 

When Title III is in full force I think you can expect for the yield to go down on investments through the platforms and the risk/reward may be more skewed.  Getting double-digit returns for some decent projects with good sponsors is a pretty good deal IMO.  The 4 platforms listed above are more well-known in the industry.
"I think some people are disagreeing to be disagreeable frankly."
Glad I am not the only one with that perspective.

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 2973
  • Location: Emmaus, PA
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #40 on: May 03, 2016, 02:09:58 PM »
One of the comments pretty well echoes my question: why not just buy a fund of REITs? SCHH charges a .07% expense ratio and over the last five years has returned 11.83% on an annualized basis.

retiringearly

  • Bristles
  • ***
  • Posts: 341
Re: Crowdfunding Real Estate for Everyone (Article)
« Reply #41 on: May 03, 2016, 02:52:46 PM »
One of the comments pretty well echoes my question: why not just buy a fund of REITs? SCHH charges a .07% expense ratio and over the last five years has returned 11.83% on an annualized basis.
My personal reason, I have money in SCHH as part of my asset allocation in all of my brokerage accounts.  I sleep a little easier having some of my money completely outside the stock & bond market.   SCHH invests in publicly traded REITs.   I bought single family homes as rental properties after the crash and have been happy with them.  I like the idea of putting money to work through short term real estate loans.  It isn't a huge part of my portfolio, but is is a significant amount of money.