Crowd Funded Real Estate

[Terhathum123]

There are many "accredited investors" reading and commenting in these forums.

As an accredited investor myself I am a fan of private real estate investments.

More specifically, as relates to this post, one of the categories of real estate investment that I am particularly keen on is crowd funded real estate investing.

I like the monthly or quarterly distributions in the 5% to 10% annual return range to fund everyday expenses. I like the additional return when property is sold to add to capital for future cash flowing investments.

I'm inclined to put free capital into private real estate more so than the Vangaurd or other domestic or international stock indices.

I believe in a diverse portfolio of investments, but, I'm pretty heavy (50% plus) in private realestate.

Thoughts?

Curious to see why some people may agree or disagree.

 

[CaliKid]

I like these things too but it's important to remember there are no guarantees and most of these sites are little more than craigslist of investment opportunities. Thus you need to do your homework and due diligence.

 

[RenoJay]

I do private real estate investments and lending but avoid crowd sourced ones or anything with a person managing a project. My belief is that if someone else is making the underwriting decisions and doesn’t have their own skin in the game, when marginal decisions need to be made the decision-maker’s incentives won’t necessarily align with mine.

 

[97guns]

I’ve been poking around looking into them myself, I am leery 2x post #2 but might dabble. Personal loan Crowdfunding doesn’t appeal to me

 

[Scuba]

I do private real estate investments and lending but avoid crowd sourced ones or anything with a person managing a project. My belief is that if someone else is making the underwriting decisions and doesn’t have their own skin in the game, when marginal decisions need to be made the decision-maker’s incentives won’t necessarily align with mine.

+1

 

[Terhathum123]

Craigslist of investing? Have you done any sort of research to support that sort of categorization?

I am not heavily into the crowd funded real estate (RealCrowd, RealtyShares etc.), but, they look pretty legitimate to me. I've seen several really well established project sponsors using the crowd sites as opposed to a more traditional avenue of reaching people through a broker.

 

[Terhathum123]

I do private real estate investments and lending but avoid crowd sourced ones or anything with a person managing a project. My belief is that if someone else is making the underwriting decisions and doesn’t have their own skin in the game, when marginal decisions need to be made the decision-maker’s incentives won’t necessarily align with mine.

The project sponsors with the deals I've seen all have skin in the game, maybe only 5%-10% of the projects total funding.

How do you avoid any investments with a person managing a project? I'm a big fan of Artificial Intelligence too!

 

[retired1]

I just started looking into Real Estate. So far I've been in REITs but no physical Real Estate of my own. Crowdfunding RE seems good idea but very leery since it's "Private" and lack of 10+ year history. Can you share specific ones that have been around and worth investing in ?

 

[Bruceski44]

You may get more info on a forum dedicated to RE investing, like BiggerPockets, which also has a CF subsection: https://www.biggerpockets.com/forums/520-crowdfunding-real-estate

I invested a small amount through CrowdStreet, where the investor pays no fees. My investment was in mezzanine debt on a commercial property. It has paid me 10% like clockwork for several years now. Even if the market turns down, the lease on a commercial property requires continued rent payments. Even if the lessee goes bankrupt, the rents are considered operating expenses and are usually continued by court order. I own a small portion of a drug store on the strip in Vegas, which has been empty for several months, but the rent checks keep coming in. That investment was in a DST, not a CF site. Commercial RE is a much safer investment than residential.

The RE market has been soaring, just like the stock market, so you must choose wisely, because not every offering is priced right.

Exposure to alternative assets, of which RE is one such asset, serves to diversify away some of your market risk.

 

[OldShooter]

I have done quite a few deals as an accredited investor, though only one (apartment buildings) in real estate. One of the more interesting rides was Gaming Corp.: Ho-Chunk dispute settled for $42M | National | journaltimes.com We actually owned some real estate but it was not a real estate deal.

My view has always been that any deal being hawked to the general public is a deal that is not good enough to sell easily and privately and, hence, nothing I am interested in. This emphatically includes deals that involve a color brochure and a salesman, but I would tend to put crowdfunding into the same category. This may be somewhat unfair because the promoter may simply be someone who is too naive to know how to sell a deal privately, but (a) that would be a warning bell on its own and (b) if I am being unfair, so what? It's my money.

The world has changed, though, and there are now investor options for unaccredited investors permitted into smaller and simpler deals. I have a nephew-in-law who just funded a $400K solar energy project that way. It was interesting and, if arms-length, I might have taken a piece. But investing with someone in the family does not feel like a wise thing to me and he, fortunately, agreed.

If I were thinking of the crowfunding route I would take the time to find out what my state's current options are for this sort of thing are and find out about whatever national changes there may have been. The last thing I would want to get into is a deal that is totally or marginally prohibited. The easiest way out of a stinky deal is to not get into it in the first place.

 

[Bruceski44]

My view has always been that any deal being hawked to the general public is a deal that is not good enough to sell easily and privately and, hence, nothing I am interested in.

Has every stock you ever invested in been a winner? No bad choices? Ever? Real estate is not as liquid as stocks, so more care is needed, but most investments will still build wealth, albeit not as fast as the winners. I'm just a small fry, so cannot hope to play in the same ponds as the big fish, but picking up their scraps is enough for me.

Sometimes "good enough" is just fine. I wouldn't choose to invest in every RE offering out there, but there are many deals which would increase my wealth. As with everything else, moderation rules. To me, this means not too much in one asset, sector, geography or sponsor.

CF real estate opens up new sectors and geographies to average investors.

 

[OldShooter]

Has every stock you ever invested in been a winner? No bad choices? Ever? Real estate is not as liquid as stocks, so more care is needed, but most investments will still build wealth, albeit not as fast as the winners. I'm just a small fry, so cannot hope to play in the same ponds as the big fish, but picking up their scraps is enough for me.

Sometimes "good enough" is just fine. I wouldn't choose to invest in every RE offering out there, but there are many deals which would increase my wealth. As with everything else, moderation rules. To me, this means not too much in one asset, sector, geography or sponsor.

CF real estate opens up new sectors and geographies to average investors.

Wow. So if I have ever made a mistake I should quit with the due diligence? That's a very strange position to take.

Scraps? Fine. Scraps can be fine and nutritious if they haven't been lying on the floor too long, but that is not where I prefer to get my food. I buy into smaller deals where I am a small player, like $50K into a $2M deal. Any big deal being made available to the general public has probably had already had all the juice sucked out of it by the promoters and their friends anyway. Good deals don't get sold that way.

On my small deals I have made anywhere from 15% CAGR to 20x my money. They are dice rolls. Rolled snake eyes only once: Lost $50K on a restaurant deal.

Along those lines, I don't do "good enough" or "close enough" except in horseshoes and hand grenades. No deal is perfect, but that is not a reason to use a "good enough" standard. Certainly you don't run your life that way.

Diversification? Of course.

 

[Bruceski44]

So what advice do you have for those who are not as naturally gifted or adept as you are?

Because it sounds like you're saying, unless you are OldShooter, you should just stay away. Unhelpful to say the least.

And what led you to think I'm against due diligence? That's just ridiculous!

 

[OldShooter]

So what advice do you have for those who are not as naturally gifted or adept as you are?

Because it sounds like you're saying, unless you are OldShooter, you should just stay away. Unhelpful to say the least.

And what led you to think I'm against due diligence? That's just ridiculous!

@Bruceski44, I don't know why you are here trying to pick a fight but I now realize that I should not have responded to your last attempt. I certainly will not respond to this one. But here is a quotation from Will Rogers that you might consider:

"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest of them have to pee on the electric fence for themselves."

 

[Bruceski44]

Funny... You exaggerate and obfuscate, not to mention post nothing but worthless bragging, and I'm the villain? At least I'm offering some useful information to the OP and other readers.

To anyone not named OldShooter, rest assured that there's money to be made in real estate, whether it be CF, private equity or other. Don't be foolish and don't be greedy and there's literally a wealth of vast middle ground in which you will succeed. Don't let OldShooter's perfect be the enemy of your good enough.

I get about 8% from my RE portfolio in the form of monthly distributions and this income has enabled my early retirement. Two of my properties aren't paying distributions yet, but they are all increasing in value. This portfolio should generate about 15% IRR when all is said and done. This portfolio requires no active involvement from me, will rollover into new properties when redeemed and will eventually pass to my heirs with a stepped-up basis. I have about 50% in RE and 45% in stocks and bonds, which is a larger allocation to RE than most recommendations, but I understand it and believe it to be secure. It is exclusively commercial RE diversified by region and sector, with a large exposure to neccessity retail ( drug stores, auto parts, grocery, gyms, etc.). A couple of properties were impacted by the hurricanes, but they reopened within a few days and there has been no disruption to the cashflow. I don't invest in CA or NY due to their unfriendly business climates.

 

[Onward]

Real-estate crowdfunding smells. It smells of novelty, faddishness, and over-enthusiastic millennials.

Even so, I'm signed up as an investor on several sites (Fundrise, etc.).

Every time I get ready to invest something, I get an email like this one, which I got the other day from RealtyMogul, announcing a new investment opportunity:

"We partnered with an experienced Real Estate Company that reports to have owned and managed a collective $5 billion in real estate. They currently operate three other properties in the Minneapolis area through a different entity." [emphasis mine]

"Reports to have owned and managed"?

"through a different entity"?

Yikes!

 

[calmloki]

We've had rental real estate since the mid 80s - still do, though we are easing out of it. Also have been doing private money loans since the places all paid off and we started having excess cash build up. Lost a year's living expense sized amount when we lent to a lending company who would do all the work. Nearly took a bath when we lent in a second position - had to be active in pursuing the foreclosure. Now I look longingly at crowd funding and feel like a luddite dummy not being deeply into it, but.... I'm a simple guy that likes to go look at the property I'm lending on. I like being in first position in case things go badly with the loan. Times are passing me by - I don't have a Bitcoin or Etherium investment either, 'cause I don't understand how they work either.

 

[Terhathum123]

I just started looking into Real Estate. So far I've been in REITs but no physical Real Estate of my own. Crowdfunding RE seems good idea but very leery since it's "Private" and lack of 10+ year history. Can you share specific ones that have been around and worth investing in ?

Bruceski has some pretty good thoughts here:

http://www.early-retirement.org/forums/f28/real-estate-crowd-funding-83381.html

Is that how to link to another thread?

 

[Terhathum123]

I just started looking into Real Estate. So far I've been in REITs but no physical Real Estate of my own. Crowdfunding RE seems good idea but very leery since it's "Private" and lack of 10+ year history. Can you share specific ones that have been around and worth investing in ?

http://www.early-retirement.org/forums/f28/real-estate-crowd-funding-83381.html

 

[Terhathum123]

We've had rental real estate since the mid 80s - still do, though we are easing out of it. Also have been doing private money loans since the places all paid off and we started having excess cash build up. Lost a year's living expense sized amount when we lent to a lending company who would do all the work. Nearly took a bath when we lent in a second position - had to be active in pursuing the foreclosure. Now I look longingly at crowd funding and feel like a luddite dummy not being deeply into it, but.... I'm a simple guy that likes to go look at the property I'm lending on. I like being in first position in case things go badly with the loan. Times are passing me by - I don't have a Bitcoin or Etherium investment either, 'cause I don't understand how they work either.

I'm certainly in a different position, much more akin to Bruceski's. I own rental property as well as private LP deals and am in some crowd funded deals. One thing I've never done is be a direct hard money lender. I'm intrigued by diversifying that way i.e. making some hard money loans. Sounds like you've had success with it. Any hints?

 

[Terhathum123]

Real-estate crowdfunding smells. It smells of novelty, faddishness, and over-enthusiastic millennials.

Even so, I'm signed up as an investor on several sites (Fundrise, etc.).

Every time I get ready to invest something, I get an email like this one, which I got the other day from RealtyMogul, announcing a new investment opportunity:

"We partnered with an experienced Real Estate Company that reports to have owned and managed a collective $5 billion in real estate. They currently operate three other properties in the Minneapolis area through a different entity." [emphasis mine]

"Reports to have owned and managed"?

"through a different entity"?

Yikes!

Yeah, when I looked at a few of the offering I thought RealtyMogul seemed to have less quality than a few of the others. I've been pleased with RealtyShares and RealCrowd.

 

[Terhathum123]

I have done quite a few deals as an accredited investor, though only one (apartment buildings) in real estate. One of the more interesting rides was Gaming Corp.: Ho-Chunk dispute settled for $42M | National | journaltimes.com We actually owned some real estate but it was not a real estate deal.

My view has always been that any deal being hawked to the general public is a deal that is not good enough to sell easily and privately and, hence, nothing I am interested in. This emphatically includes deals that involve a color brochure and a salesman, but I would tend to put crowdfunding into the same category. This may be somewhat unfair because the promoter may simply be someone who is too naive to know how to sell a deal privately, but (a) that would be a warning bell on its own and (b) if I am being unfair, so what? It's my money.

The world has changed, though, and there are now investor options for unaccredited investors permitted into smaller and simpler deals. I have a nephew-in-law who just funded a $400K solar energy project that way. It was interesting and, if arms-length, I might have taken a piece. But investing with someone in the family does not feel like a wise thing to me and he, fortunately, agreed.

If I were thinking of the crowfunding route I would take the time to find out what my state's current options are for this sort of thing are and find out about whatever national changes there may have been. The last thing I would want to get into is a deal that is totally or marginally prohibited. The easiest way out of a stinky deal is to not get into it in the first place.

I don't necessarily agree with your blanket statements crowdfunding sites hawking bad products. But, I am interested in getting into more private deals and, it sounds like you've had some variety. How do you find your private deals?

 

[Scuba]

I don't necessarily agree with your blanket statements crowdfunding sites hawking bad products. But, I am interested in getting into more private deals and, it sounds like you've had some variety. How do you find your private deals?

I go through a hard money lending broker to find deals.