Author Topic: RealtyShares and Fundrise Thoughts?  (Read 3014 times)

flyersman

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RealtyShares and Fundrise Thoughts?
« on: January 10, 2017, 11:21:01 AM »
Any one have thoughts on RealtyShares and Fundrise?

I max my 401K each yr, and Backdoor Roth. I also consistently add money to a Taxable Account with Fidelity Total Market Funds.

We own a rental property and were looking at another however these companies seems like great ways to diversify with Real Estate. I quality for accreditation for both.

I looked through RealtyShares and see you can invest in Debt, Equity or Preferred Equity. There are investments for Storage facilities, single home rehabs, complexes, retail, etc.

Fundrise is slightly different and offer more segments eReits.

* Any reason to get in on these over a REIT on Fidelity such as "O" in my taxable account as i have no more room in tax advantaged.
* Does anyone know what the default rate on Realtyshares offerings are? Do many go under or for the most part do you get your return?
* How do they attain returns from 8-14%+? Is someone actually taking out a 8-14% loan which seems high doesnt it?
* Are the debt offerings typically someone buying and flipping the house?
* Lets say I invest $10K. Does monthly or quarterly distributions include a piece of my principal back?

Mr. Green

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Re: RealtyShares and Fundrise Thoughts?
« Reply #1 on: January 10, 2017, 03:47:14 PM »
I have some money invested with RealtyShares so I can answer your questions from that perspective.

* Any reason to get in on these over a REIT on Fidelity such as "O" in my taxable account as i have no more room in tax advantaged.
The only good reason I can think of is if your want to be very specific about what property you are investing in.

* Does anyone know what the default rate on Realtyshares offerings are? Do many go under or for the most part do you get your return?
I do not know of a RealtyShares offer that has gone belly up. I have had one investment take several months longer than expected to exit. The way RealtyShares is doing business is changing, though, and it bothers me a little bit. For instance, they will pre-fund some deals with capital they're raised. In this sense, all the money isn't necessarily coming from individual investors. In my deal that ran long, the deal was a  9 home portfolio that was a fix/flip. They flipped most of the homes and paid out the principal but the last 30% or so went past the target exit date. If RealtyShares is putting they own funding into their platform, what would stop them from paying off the investors themselves, calling it a success, and then litigating what was left of the deal themselves. That outcome could be better for their track record, and it would falsely give a stronger impression of deal outcomes. I'm not saying this is happening but if they're injecting their own money into the process it's not much of a leap.

* How do they attain returns from 8-14%+? Is someone actually taking out a 8-14% loan which seems high doesnt it?
Big deals are becoming more and more common on RealtyShares. You'll see a Capital Company advertise a $2 million fund for a big city and they're basically going to take that money and do as much as they can with it for two years and then pay it back. You're seeing these deals more because individual investors are not knowledgeable in risk management so the rates these Capital Companies are borrowing the money for is less than what a bank or another lender would give them the money for. In the fix/flip deals, it's more common for the borrowers to be smaller organizations (people/companies). Prior to crowdsourced lending, sometimes the only place to borrow money for deals like that was from what's called a "hard money lender" and the rates were typically higher because the risk is higher. Again, borrowers are finding better rates in crowdsourced lending so they're using it to their advantage, though I'm not saying all deals are a bad deal for the investor (you and me). You just have to understand what is going on.

* Are the debt offerings typically someone buying and flipping the house?
More often than not, but not exclusively.

* Lets say I invest $10K. Does monthly or quarterly distributions include a piece of my principal back?
It's all up to the borrower. You'll get a K-9 tax form at the end of the year for each deal you're invested in. I've had ones where they've paid only profit on the K-9, meaning I'm paying taxes on that money then. Other deals it's all been principal, which means all of the profit will hit in the year the deal closes. It's possible the deal says how it will be laid out up front but it's a fair amount of paperwork to sign (e-sign) for each one and I have yet to read something that states it up front.


As far as RealtyShares goes, the smaller individual deals are becoming fewer and fewer. Those were the ones that interested me because you could get a better feel for your comfort level with the project, as opposed to buying into a strip shopping center or an unfinished 100 home community. Maybe they're just being drown out by all the big money but I think RealtyShares is losing a little bit of what I thought made it a good platform when I first started investing almost 2 years ago. I won't touch the big equity funds that get put together because that's basically a locale-specific REIT, and I think that's a crappy investment. If there's a local real estate correction the whole fund can become insolvent overnight.

I'm also a little concerned with the number of "It's been a while since you invested. Invest now and we'll give you $100!" or "Refer a friend and get $100" type of emails I'm now getting from them. You're supposed to be an accredited investor. Why would someone with a $1 million net worth or a $300,000+ a year income chose to time their investments to earn an extra $100? They wouldn't, which tells me there's lots of people who just click the buttons and say they're accredited investors but they aren't. Do I think that someone who doesn't have $1 million but is real estate savvy should be able to risk some money? Absolutely. But I bet most people don't completely understand what they're doing and crowdsourced real estate lending is taking advantage of this. I suspect most people see a 14% interest rate back by real property, and the free $100 just looks like icing on the cake. What they miss is that it's essentially a third position equity deal paying 9% now and a 5% kicker when it exits and the whole fund is in one city, run by one company. I just think there's more risk there than a 9% return is worth, since you don't see the back end 5% if the deal goes belly up.

I have always limited my investments to small amounts in each deal, and it's a tiny percentage of our portfolio, less than 2%. I was more curious than anything and wondered what the experience would be like. I still see some deals on RealtyShares I would invest in, if I can catch them quickly enough. Often times the good deals are totally funded within hours. But I think there's a lot more noise to sort through now than there used to be.

One thing to beware of is how complicated it can make your taxes. I had a fix/flip deal where two of the properties were rented and kept by the borrower during the deal. Since I was a member of the corporation that owned those properties, and those properties brought in rent, I had to file additional tax forms that showed the rental income and everything, for what was a very small about of money. In the future I might steer clear of those because it was a SERIOUS pain in the ass reading all the tax instructions and being 100% sure what what being asked of me on the forms. I still managed to file my own taxes but it took me a several hours to get through everything. If you took all that stuff to a tax preparer I suspect it would cost some serious money for them to do your taxes.

I hope that helps.

tj

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Re: RealtyShares and Fundrise Thoughts?
« Reply #2 on: January 10, 2017, 04:24:54 PM »
Both of those companies required accredited investors (1,000,000 in assets or $200k in income)

I have nibbled a bit with GroundFloor:

https://www.groundfloor.us/investments

flyersman

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Re: RealtyShares and Fundrise Thoughts?
« Reply #3 on: January 10, 2017, 07:33:50 PM »
Both of those companies required accredited investors (1,000,000 in assets or $200k in income)

I have nibbled a bit with GroundFloor:

https://www.groundfloor.us/investments

I just became accredited this year so I have options. Ill looking into your link too.

flyersman

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Re: RealtyShares and Fundrise Thoughts?
« Reply #4 on: January 10, 2017, 07:38:09 PM »
Thanks for that great response. I am really only seeing three types of investments right now below. Are their other types I am missing and what is the Debt offerings? Someone who owns a house and just wants to renovate?

- PREF. EQUITY
- EQUITY
- DEBT - Single or Multi Family

Why dont more people do this? I dont want to say its a no brainer but seems good.


I have some money invested with RealtyShares so I can answer your questions from that perspective.

* Any reason to get in on these over a REIT on Fidelity such as "O" in my taxable account as i have no more room in tax advantaged.
The only good reason I can think of is if your want to be very specific about what property you are investing in.

* Does anyone know what the default rate on Realtyshares offerings are? Do many go under or for the most part do you get your return?
I do not know of a RealtyShares offer that has gone belly up. I have had one investment take several months longer than expected to exit. The way RealtyShares is doing business is changing, though, and it bothers me a little bit. For instance, they will pre-fund some deals with capital they're raised. In this sense, all the money isn't necessarily coming from individual investors. In my deal that ran long, the deal was a  9 home portfolio that was a fix/flip. They flipped most of the homes and paid out the principal but the last 30% or so went past the target exit date. If RealtyShares is putting they own funding into their platform, what would stop them from paying off the investors themselves, calling it a success, and then litigating what was left of the deal themselves. That outcome could be better for their track record, and it would falsely give a stronger impression of deal outcomes. I'm not saying this is happening but if they're injecting their own money into the process it's not much of a leap.

* How do they attain returns from 8-14%+? Is someone actually taking out a 8-14% loan which seems high doesnt it?
Big deals are becoming more and more common on RealtyShares. You'll see a Capital Company advertise a $2 million fund for a big city and they're basically going to take that money and do as much as they can with it for two years and then pay it back. You're seeing these deals more because individual investors are not knowledgeable in risk management so the rates these Capital Companies are borrowing the money for is less than what a bank or another lender would give them the money for. In the fix/flip deals, it's more common for the borrowers to be smaller organizations (people/companies). Prior to crowdsourced lending, sometimes the only place to borrow money for deals like that was from what's called a "hard money lender" and the rates were typically higher because the risk is higher. Again, borrowers are finding better rates in crowdsourced lending so they're using it to their advantage, though I'm not saying all deals are a bad deal for the investor (you and me). You just have to understand what is going on.

* Are the debt offerings typically someone buying and flipping the house?
More often than not, but not exclusively.

* Lets say I invest $10K. Does monthly or quarterly distributions include a piece of my principal back?
It's all up to the borrower. You'll get a K-9 tax form at the end of the year for each deal you're invested in. I've had ones where they've paid only profit on the K-9, meaning I'm paying taxes on that money then. Other deals it's all been principal, which means all of the profit will hit in the year the deal closes. It's possible the deal says how it will be laid out up front but it's a fair amount of paperwork to sign (e-sign) for each one and I have yet to read something that states it up front.


As far as RealtyShares goes, the smaller individual deals are becoming fewer and fewer. Those were the ones that interested me because you could get a better feel for your comfort level with the project, as opposed to buying into a strip shopping center or an unfinished 100 home community. Maybe they're just being drown out by all the big money but I think RealtyShares is losing a little bit of what I thought made it a good platform when I first started investing almost 2 years ago. I won't touch the big equity funds that get put together because that's basically a locale-specific REIT, and I think that's a crappy investment. If there's a local real estate correction the whole fund can become insolvent overnight.

I'm also a little concerned with the number of "It's been a while since you invested. Invest now and we'll give you $100!" or "Refer a friend and get $100" type of emails I'm now getting from them. You're supposed to be an accredited investor. Why would someone with a $1 million net worth or a $300,000+ a year income chose to time their investments to earn an extra $100? They wouldn't, which tells me there's lots of people who just click the buttons and say they're accredited investors but they aren't. Do I think that someone who doesn't have $1 million but is real estate savvy should be able to risk some money? Absolutely. But I bet most people don't completely understand what they're doing and crowdsourced real estate lending is taking advantage of this. I suspect most people see a 14% interest rate back by real property, and the free $100 just looks like icing on the cake. What they miss is that it's essentially a third position equity deal paying 9% now and a 5% kicker when it exits and the whole fund is in one city, run by one company. I just think there's more risk there than a 9% return is worth, since you don't see the back end 5% if the deal goes belly up.

I have always limited my investments to small amounts in each deal, and it's a tiny percentage of our portfolio, less than 2%. I was more curious than anything and wondered what the experience would be like. I still see some deals on RealtyShares I would invest in, if I can catch them quickly enough. Often times the good deals are totally funded within hours. But I think there's a lot more noise to sort through now than there used to be.

One thing to beware of is how complicated it can make your taxes. I had a fix/flip deal where two of the properties were rented and kept by the borrower during the deal. Since I was a member of the corporation that owned those properties, and those properties brought in rent, I had to file additional tax forms that showed the rental income and everything, for what was a very small about of money. In the future I might steer clear of those because it was a SERIOUS pain in the ass reading all the tax instructions and being 100% sure what what being asked of me on the forms. I still managed to file my own taxes but it took me a several hours to get through everything. If you took all that stuff to a tax preparer I suspect it would cost some serious money for them to do your taxes.

I hope that helps.

Mr. Green

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Re: RealtyShares and Fundrise Thoughts?
« Reply #5 on: January 10, 2017, 07:54:38 PM »
Thanks for that great response. I am really only seeing three types of investments right now below. Are their other types I am missing and what is the Debt offerings? Someone who owns a house and just wants to renovate?

- PREF. EQUITY
- EQUITY
- DEBT - Single or Multi Family

Why dont more people do this? I dont want to say its a no brainer but seems good.
Worth noting is that debt can be two types, first position debt or not. First position debt is always the least risky because in the event the deal goes south that debt is the first to be paid through foreclosure or whatever other means are used to make investors as whole as possible. Other debt gets paid second, then equity third. Of the equity deals I've seen, the borrower is typically using the equity money to fill out their required equity part of a debt deal. For example, a bank says you need 20% down. The bank will finance the 80%, but then say you only have 5%. You could crowdsource a preferred equity position in the property for the other 15%. It allows you to have less skin in the game personally while still getting the deal done.

Most debt deals are single homes, a duplex, or a couple homes. If you can get debt financing from a regular bank it tends to be cheaper so many of the residential debt deals you'll find are either for situations where a bank won't finance it or if a creditor has a credit score low enough that it makes their rates bad.

flyersman

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Re: RealtyShares and Fundrise Thoughts?
« Reply #6 on: January 10, 2017, 10:15:49 PM »
On a side note, I have a family accountant who is excellent and usually manages big fish and private business. Got that side covered.
Just looking for ways to diversify or I'll continue with my monthly contributions to FSTVX

flyersman

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Re: RealtyShares and Fundrise Thoughts?
« Reply #7 on: January 10, 2017, 10:22:30 PM »
Thanks for that great response. I am really only seeing three types of investments right now below. Are their other types I am missing and what is the Debt offerings? Someone who owns a house and just wants to renovate?

- PREF. EQUITY
- EQUITY
- DEBT - Single or Multi Family

Why dont more people do this? I dont want to say its a no brainer but seems good.
Worth noting is that debt can be two types, first position debt or not. First position debt is always the least risky because in the event the deal goes south that debt is the first to be paid through foreclosure or whatever other means are used to make investors as whole as possible. Other debt gets paid second, then equity third. Of the equity deals I've seen, the borrower is typically using the equity money to fill out their required equity part of a debt deal. For example, a bank says you need 20% down. The bank will finance the 80%, but then say you only have 5%. You could crowdsource a preferred equity position in the property for the other 15%. It allows you to have less skin in the game personally while still getting the deal done.

Most debt deals are single homes, a duplex, or a couple homes. If you can get debt financing from a regular bank it tends to be cheaper so many of the residential debt deals you'll find are either for situations where a bank won't finance it or if a creditor has a credit score low enough that it makes their rates bad.

Good to know. So you seemingly being very knowledgeable in this area, do you recommend anny specific types of investments on their site to keep an eye on?

Have you tried ereits on fundrise?

Mr. Green

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Re: RealtyShares and Fundrise Thoughts?
« Reply #8 on: January 11, 2017, 08:25:58 AM »
Thanks for that great response. I am really only seeing three types of investments right now below. Are their other types I am missing and what is the Debt offerings? Someone who owns a house and just wants to renovate?

- PREF. EQUITY
- EQUITY
- DEBT - Single or Multi Family

Why dont more people do this? I dont want to say its a no brainer but seems good.
Worth noting is that debt can be two types, first position debt or not. First position debt is always the least risky because in the event the deal goes south that debt is the first to be paid through foreclosure or whatever other means are used to make investors as whole as possible. Other debt gets paid second, then equity third. Of the equity deals I've seen, the borrower is typically using the equity money to fill out their required equity part of a debt deal. For example, a bank says you need 20% down. The bank will finance the 80%, but then say you only have 5%. You could crowdsource a preferred equity position in the property for the other 15%. It allows you to have less skin in the game personally while still getting the deal done.

Most debt deals are single homes, a duplex, or a couple homes. If you can get debt financing from a regular bank it tends to be cheaper so many of the residential debt deals you'll find are either for situations where a bank won't finance it or if a creditor has a credit score low enough that it makes their rates bad.

Good to know. So you seemingly being very knowledgeable in this area, do you recommend anny specific types of investments on their site to keep an eye on?

Have you tried ereits on fundrise?
I do not have any experience with Fundrise. I don't know that I could make a recommendation to you about RealtyShares because I don't know what you're looking for. They seem to have just about everything. Commercial, residential, long-term, short-term, fix/flips, new construction, total renovation. If you're not looking for any one particular thing then perhaps a REIT would be best for you if you're looking for a little more real estate exposure in your portfolio. I knew very specifically what I wanted to invest it, so I liked the ability to pick individual projects.

tj

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Re: RealtyShares and Fundrise Thoughts?
« Reply #9 on: January 11, 2017, 09:28:03 AM »
Quote
Why dont more people do this? I dont want to say its a no brainer but seems good.

Because these are so much more riskier than the stock market or even a REIT. You are lending to people who the banks have decided are not a good risk.

If you read the offering circular for almost any of these companies, it basically says "Only invest $$$ that you would feel comfortable losing".

In a bear market, these are the absolutely types of investments where you end up with nothing.