Author Topic: Has anyone used real estate crowdfunding?  (Read 8468 times)

dadof4

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Has anyone used real estate crowdfunding?
« on: December 11, 2013, 12:43:08 AM »
I'd like to include real estate in my portfolio, both for diversification and for higher yield.

The two options I know about:
1. Owning actual real estate, and renting it. This comes with a lot of headaches, but has a fantastic yield if done well. The best values are in other towns, further aggravating the headaches.
2. REITs - Easy to handle and liquid, but currently selling at 2-4X their underlying NAV. This seems ripe for a bubble burst. Yield is much lower than actual real estate.

I've been doing a bit of reading about syndication and crowdfunding, and they seem to combine the best of both worlds (except for the liquidity): high yield, value tied to underlying holdings, passive investing. There are a lot of sites springing up and offering these services. Has anyone used or considered using them?

Because of SEC regulations, they require "Accredited Investors", ie those with over $1mm or 200k annual income. Do they actually verify these requirements, or is it lip service?

El Gringo

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Re: Has anyone used real estate crowdfunding?
« Reply #1 on: December 11, 2013, 06:30:51 AM »
Fundrise (http://fundrise.com/) hasn't required you to be accredited, due to a loophole in SEC regulations (although the regulations are changing anyway due to the JOBS Act and soon the loophole won't matter because anyone will be able to)

I solicited people's opinions a while back about it (https://forum.mrmoneymustache.com/investor-alley/any-concerns-about-investing-in-crowdfunded-commercial-real-estate/msg83336/#msg83336) and pretty much everyone thought it was a bad idea. I'm more interested in the social impact aspect of being able to own part of local real estate and have influence, more so than the actual ROI of such ownership. But the lack of liquidity bothered (my understanding of the agreement is that it's basically impossible to get out of ownership, which bothered me)

arebelspy

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Re: Has anyone used real estate crowdfunding?
« Reply #2 on: December 11, 2013, 07:21:58 AM »
I solicited people's opinions a while back about it (https://forum.mrmoneymustache.com/investor-alley/any-concerns-about-investing-in-crowdfunded-commercial-real-estate/msg83336/#msg83336) and pretty much everyone thought it was a bad idea.

To clarify: Some people posting thought crowdfunded real estate was a bad idea, while other others posting in that thread thought that opportunity was a bad idea.  See: the first reply versus the next two.

I personally fell in the latter camp.  I do believe crowdfunding real estate investing has a future.

So don't conflate "people were negative about that opportunity" with "people were negative about crowd funding."  :)

The problem is that it's just getting started.  I wouldn't recommend a newbie jump into it right away, because you're liable to get burned.  The SEC is still working on clarifying the JOBs Act.  Let things shake out a little before getting all gung-ho about a much hyped idea that is not yet running smoothly.

dadof4, I think your best option right now if you want a middle ground between the two is partnerships.  Find someone successfully investing in real estate and invest with them.  You become private money/hard money.  You're the bank, lending them the money for the acquisition, you get a lien on the property, and they pay you a healthy interest rate.

Instead of a REIT investing your money, you will have more due diligence opportunity and more direct influence and control, without the hassles of direct ownership, tenants, etc.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

El Gringo

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Re: Has anyone used real estate crowdfunding?
« Reply #3 on: December 11, 2013, 08:01:14 AM »
To clarify: Some people posting thought crowdfunded real estate was a bad idea, while other others posting in that thread thought that opportunity was a bad idea.  See: the first reply versus the next two.

I personally fell in the latter camp.  I do believe crowdfunding real estate investing has a future.

So don't conflate "people were negative about that opportunity" with "people were negative about crowd funding."  :)

The problem is that it's just getting started.  I wouldn't recommend a newbie jump into it right away, because you're liable to get burned.  The SEC is still working on clarifying the JOBs Act.  Let things shake out a little before getting all gung-ho about a much hyped idea that is not yet running smoothly.

Thanks for the clarification. I was going off of general memory and hadn't gone back recently and reviewed the replies. I see you're point. And I'm glad that others here are optimistic about it. :)

prof61820

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Re: Has anyone used real estate crowdfunding?
« Reply #4 on: December 11, 2013, 08:05:30 AM »
Because of SEC regulations, they require "Accredited Investors", ie those with over $1mm or 200k annual income. Do they actually verify these requirements, or is it lip service?

YES - absolutely, you should consult an attorney who is an expert in securities law (not inexpensive) before soliciting investments.  Besides pesky SEC folks and state regulators, if anything goes wrong with your investment strategy (or an investor just wants out), investors will look to see if you've done everything properly and by the books as they try to recoup their principal.  Failure to do so could prove very costly in the long run (or result in the loss of liberty)...

arebelspy

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Re: Has anyone used real estate crowdfunding?
« Reply #5 on: December 11, 2013, 08:19:39 AM »
Because of SEC regulations, they require "Accredited Investors", ie those with over $1mm or 200k annual income. Do they actually verify these requirements, or is it lip service?

YES - absolutely, you should consult an attorney who is an expert in securities law (not inexpensive) before soliciting investments.  Besides pesky SEC folks and state regulators, if anything goes wrong with your investment strategy (or an investor just wants out), investors will look to see if you've done everything properly and by the books as they try to recoup their principal.  Failure to do so could prove very costly in the long run (or result in the loss of liberty)...

Oh yes, I meant to comment on that question as well, but forgot.

Big +1 to your answer.

The verification requirement got even stricter with the JOBS act.  The amount of actual verification done to show someone is an accredited investor became more well defined and more extensive.

Yet another reason to be private money if you don't meet that qualification (where you don't have to be accredited).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

dadof4

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Re: Has anyone used real estate crowdfunding?
« Reply #6 on: December 11, 2013, 01:12:20 PM »
Fundrise (http://fundrise.com/) hasn't required you to be accredited, due to a loophole in SEC regulations (although the regulations are changing anyway due to the JOBS Act and soon the loophole won't matter because anyone will be able to)
It doesn't look like Fundrise is very active.


dadof4

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Re: Has anyone used real estate crowdfunding?
« Reply #7 on: December 11, 2013, 01:23:09 PM »
dadof4, I think your best option right now if you want a middle ground between the two is partnerships.  Find someone successfully investing in real estate and invest with them.  You become private money/hard money.  You're the bank, lending them the money for the acquisition, you get a lien on the property, and they pay you a healthy interest rate.

Instead of a REIT investing your money, you will have more due diligence opportunity and more direct influence and control, without the hassles of direct ownership, tenants, etc.
Thanks for the idea, I hadn't considered that. Do you happen to have any pointers to further reading on the subject?

On a similar vein, how does this stack up with offering seller financing on an existing property?

dadof4

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Re: Has anyone used real estate crowdfunding?
« Reply #8 on: December 11, 2013, 01:29:18 PM »
YES - absolutely, you should consult an attorney who is an expert in securities law (not inexpensive) before soliciting investments.  Besides pesky SEC folks and state regulators, if anything goes wrong with your investment strategy (or an investor just wants out), investors will look to see if you've done everything properly and by the books as they try to recoup their principal.  Failure to do so could prove very costly in the long run (or result in the loss of liberty)...

I wouldn't be soliciting investments though. I would be investing. It probably means that the burden of verifying investor status would fall on those actually soliciting the investment. At worst, it would hinder the possibility of me suing them if things go south.

El Gringo

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Re: Has anyone used real estate crowdfunding?
« Reply #9 on: December 11, 2013, 02:54:16 PM »

dadof4

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Re: Has anyone used real estate crowdfunding?
« Reply #10 on: December 11, 2013, 05:18:00 PM »
They're a startup (as I guess pretty much any crowdfunding real estate company would be), so they don't have a ton of offerings. They've had several private offerings and several public offerings in DC.

It looks like they're doing a "testing the water" for a project in Portland. They did that in DC, too. Basically they're seeking investor interest before they actually open a public offer.
Exactly. Only 5 public projects, two of which are done, and three which are only proposals. And even then, the max you can invest is $10k.
It's quaint, but not particularly useful as of now.

arebelspy

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Re: Has anyone used real estate crowdfunding?
« Reply #11 on: December 11, 2013, 07:58:06 PM »
dadof4, I think your best option right now if you want a middle ground between the two is partnerships.  Find someone successfully investing in real estate and invest with them.  You become private money/hard money.  You're the bank, lending them the money for the acquisition, you get a lien on the property, and they pay you a healthy interest rate.

Instead of a REIT investing your money, you will have more due diligence opportunity and more direct influence and control, without the hassles of direct ownership, tenants, etc.
Thanks for the idea, I hadn't considered that. Do you happen to have any pointers to further reading on the subject?

On a similar vein, how does this stack up with offering seller financing on an existing property?

Similar to offering seller financing, but with that you have to already own the property and be selling it.

What I'm talking about is providing the funding for a purchase.

In either case though you hold a note secured by the property, and get payments from the borrower (the buyer).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

dadof4

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Re: Has anyone used real estate crowdfunding?
« Reply #12 on: December 17, 2013, 11:46:23 AM »
Similar to offering seller financing, but with that you have to already own the property and be selling it.

What I'm talking about is providing the funding for a purchase.

In either case though you hold a note secured by the property, and get payments from the borrower (the buyer).
I already own a rental home (free and clear) that isn't bringing in much rent, which is prompting me to sell.
It could be that the best option is to try to sell it using owner financing, which will probably give me a higher sale price, while simultaneously giving a secure passive investment.
 
Any idea what the expected APR/terms are on owner financing?

arebelspy

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Re: Has anyone used real estate crowdfunding?
« Reply #13 on: December 17, 2013, 12:06:54 PM »
Similar to offering seller financing, but with that you have to already own the property and be selling it.

What I'm talking about is providing the funding for a purchase.

In either case though you hold a note secured by the property, and get payments from the borrower (the buyer).
I already own a rental home (free and clear) that isn't bringing in much rent, which is prompting me to sell.
It could be that the best option is to try to sell it using owner financing, which will probably give me a higher sale price, while simultaneously giving a secure passive investment.

Sure, carrying paper may be a better situation than renting it, but is it necessarily better than selling it outright?  One advantage is tax (spreading out the sale over several years) that could matter (or not) based on what tax bracket you're in, but there are downsides as well.

Any idea what the expected APR/terms are on owner financing?

It's all negotiable.

Just watch out for the SAFE Act and Dodd-Frank, and how they impact seller financing.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

dadof4

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Re: Has anyone used real estate crowdfunding?
« Reply #14 on: December 17, 2013, 01:38:34 PM »
Sure, carrying paper may be a better situation than renting it, but is it necessarily better than selling it outright?  One advantage is tax (spreading out the sale over several years) that could matter (or not) based on what tax bracket you're in, but there are downsides as well.
Selling it outright will mean a (possibly) lower sale price, and then I would need to find a new investment vehicle.

It's all negotiable.
Assuming it is with people who don't qualify for a bank loan, and that 20% is down, would 6-7% APR be the ball park?

Just watch out for the SAFE Act and Dodd-Frank, and how they impact seller financing.
Thanks for the pointer. I've done a bit of skimming, and it looks like they shouldn't affect a one time seller finance. Will  need to have a lawyer if this gets any more traction.

arebelspy

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Re: Has anyone used real estate crowdfunding?
« Reply #15 on: December 17, 2013, 07:40:35 PM »
Quote
Selling it outright will mean a (possibly) lower sale price, and then I would need to find a new investment vehicle.

Possibly.  I'd explore all options.

Quote
Assuming it is with people who don't qualify for a bank loan, and that 20% is down, would 6-7% APR be the ball park?

It's all negotiable.  I've seen as low as 0% (which has some potential tax implications on imputed interest), and as high as private money rates (12-15%).  It will depend, among other things, on your local laws.

Quote
Thanks for the pointer. I've done a bit of skimming, and it looks like they shouldn't affect a one time seller finance. Will  need to have a lawyer if this gets any more traction.

Most likely, and it varies how many you can do state-by-state, but I also believe there are some provisions that you may need to comply with regardless of how many seller finance transactions you do (the balloon payment issue, for example, may be one).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

dadof4

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Re: Has anyone used real estate crowdfunding?
« Reply #16 on: December 18, 2013, 03:18:49 PM »
One more question, back to the OP content.
As an alternative to crowdfunding or public REIT, what are your thoughts on non-traded REITs as a buy and hold, passive income option?

They have some fees, so you'll never get close to the returns of landlording yourself, but compared to public REIT's their NAV to price ratio are more sane.