Alternative Investing; Crowdfunding Experiences?

[ExFlyBoy5]

I am in the process of looking at some alternative vehicles to put some cash to work for me. Specifically, I am thinking of putting some of that $ into a company called "Fund That Flip". Basically, it's a company that links investors with house flippers. Reading through the information and reviewing the limited stuff that's online, it seems like a pretty decent deal. So, has anyone invested in FTF or a similar platform? I understand that the risks are substantial (you can tell that from the get-go since you have to be an accredited investor) but the rewards have been pretty decent too. Looking forward to your thoughts...

[CaliKid]

Not familiar with that one. I have researched through the large syndication websites like realcrowd and others. I did one investment so far. Early so who knows. You might investigate at bogleheads or BiggerPockets as lots of threads on these topics.

[OldShooter]

IMO any really good private deal will never show up on a site like that. Every private deal I have ever invested in (maybe 10 total) has come to me via word of mouth, typically from a lawyer or accountant friend. The offerings are on plain white paper. No color brochures, videos, or dancing bears.

The deals on the sites, again IMO, are most likely to be stinky deals that could not sold locally or deals offered by complete novices in business and finance. Some will undoubtedly pay off handsomely and be featured like the billboards showing casino and lottery winners, but I don't think the odds are very good.

Limiting to accredited investors is simply due to legal requirements on the specific type of offering. No one has made any kind of determination of risk.

I suggest that you talk to your attorney and cpa; ask to hear about local deals when they come around.

[BeachOrCity]

The crowdfunding sites are attractive to some sponsors because they don’t have to pay investment advisors fees. There are MUCH better choices than ftf. If I are accredited look at realcrowd crowdstreet for current and past offerings. Some of it is hard to sell junk as mentioned above but they do get some decent offerings.

FWIW the ones I have found thru crowdfunding have better terms and splits than the ones available thru RIAs.

[OldShooter]

Quote:

Originally Posted by BeachOrCity ... FWIW the ones I have found thru crowdfunding have better terms and splits than the ones available thru RIAs.

I'm not surprised. The ones sold via RIA as virtually certain to have had the juice sucked out of them by the promoters and the RIAs. At least with crowd funding you have a small chance.

I once got a mailing from a company promoting a private deal. In the follow-up phone call from a salesman I simply told him that any deal that needed a four-color brochure, direct mailing, and a sales effort was guaranteed to be a stinky deal. He didn't argue, just said something polite and terminated the call. I never heard from those guys again.

[LOL!]

May I ask what is the attraction to do this? This is a serious question.

I'll say why I don't even bother. If I need more risk and more return, then I just amp up the percentage of my portfolio devoted to equities. I don't really need more return in order to live a very nice lifestyle, so I have plenty of assets in bond funds. I don't think I'm missing out on anything.

Now I can understand some behavioral reasons to invest in alternatives. For instance, one can be a member of a group of friends all trying to outdo one another with cool and interesting investments. This can be a nice hobby and lead to bonding when everyone gets together. Or gold coins are fun to look at, touch, and play with. Those are behavioral things that are all perfectly OK.

[Rickt]

Done a small debt investment thru "Realtyshares" in Oct, 2017 for building and selling a NNN Commercial Property (Checkers Restaurant) in Florida. The term is for 12 months and interest paid monthly is @ 9.5% per annum. So far have been getting monthly interest payments regularly. The term expires in Oct, 2018 and expect to receive the principal back at that time.

[ExFlyBoy5]

Quote:

Originally Posted by LOL! May I ask what is the attraction to do this? This is a serious question. I'll say why I don't even bother. If I need more risk and more return, then I just amp up the percentage of my portfolio devoted to equities. I don't really need more return in order to live a very nice lifestyle, so I have plenty of assets in bond funds. I don't think I'm missing out on anything. Now I can understand some behavioral reasons to invest in alternatives. For instance, one can be a member of a group of friends all trying to outdo one another with cool and interesting investments. This can be a nice hobby and lead to bonding when everyone gets together. Or gold coins are fun to look at, touch, and play with. Those are behavioral things that are all perfectly OK.

This is very fair question. For me, it's just something to "dabble in" and something that I could be "active" doing. I have plenty of money working for me passively 24/7 and that is...well, just a little boring (don't get me wrong, that is a GOOD thing!)

What got me thinking about it was that I have a couple of friends that are involved in flipping (one has been doing it for about 5 years and another that has been doing it for about a year.) They are both using hard money lenders and paying about 12% in interest (plus a 1.5/2.0% funding fee) and well, that's not bad money. I am interested in playing the game, but not interested in underwriting an entire flip (or putting up 100K on a single deal). That's where crowd sourcing like FTF comes in; you can make investments as low as 5K. I have been pretty impressed with how they fund the flips and the requirements for a reasonable LTV (as well as a requirement that the flippers have at least 20% equity at all times). Once you sign up for an account (no funding required at that point), you are able to look at specific deals and the underlying financials w/ each deal. I have discussed it at length with an attorney friend and he is impressed with how they conduct business. I am just looking for feedback from folks who have used this specific company or something similar. I have looked at Bigger Pockets, and there doesn't seem to be too much discussion about it.

[LOL!]

Thanks for responding to my question. Good luck!

[Luck_Club]

Quote:

Originally Posted by ExFlyBoy5 This is very fair question. For me, it's just something to "dabble in" and something that I could be "active" doing. I have plenty of money working for me passively 24/7 and that is...well, just a little boring (don't get me wrong, that is a GOOD thing!) What got me thinking about it was that I have a couple of friends that are involved in flipping (one has been doing it for about 5 years and another that has been doing it for about a year.) They are both using hard money lenders and paying about 12% in interest (plus a 1.5/2.0% funding fee) and well, that's not bad money. I am interested in playing the game, but not interested in underwriting an entire flip (or putting up 100K on a single deal). That's where crowd sourcing like FTF comes in; you can make investments as low as 5K. I have been pretty impressed with how they fund the flips and the requirements for a reasonable LTV (as well as a requirement that the flippers have at least 20% equity at all times). Once you sign up for an account (no funding required at that point), you are able to look at specific deals and the underlying financials w/ each deal. I have discussed it at length with an attorney friend and he is impressed with how they conduct business. I am just looking for feedback from folks who have used this specific company or something similar. I have looked at Bigger Pockets, and there doesn't seem to be too much discussion about it.

Alternatives are good in my eyes. They allow you to really know what you are investing in. If it were me I would help fund your friends, where you know the players, and can examine the deal first hand. If your freinds are in the New England /Northeast, I'd be interested in possibly going in on local flips, where I can examine the property. Private Message me.

[BeachOrCity]

For me it is not about alternative as much as it is about having real estate as part of my portfolio. The syndicated options offer a hands off way to do this.

Ultimately my experience has shown that if I am willing to do the work myself I would do better on my own than with a syndicate.

If you do proceed be very careful. 90 percent of what is out there is fee laden junk. You have to work to find the pearls.

[MooreBonds]

When you dig into the weeds, it looks a lot like a hedge fund:

Sponsor invests $300,000
Investors invest $3,000,000
LTV: 70%
Asset purchase price: $11,600,000

Purchase transaction fee: sponsor gets 1% of transaction ($116k)
Disposition of asset fee: sponsor gets 1% (maybe $130k, assuming sales price of $13,000,000)
Asset management fee (annual) sponsor gets 2% of invested equity amount per year ($66,000)

Property management: maybe 5% of rental revenue. In fact, in one deal, the sponsor even brazenly said that all of the investors' gains were based on capital appreciation! It was an apartment deal where it had maybe 50 units, and they planned on rehabbing them. True, it would be partially vacant part of hte time during construction....but to simply take all of the rent and leave teh investors (with all of the risk) just the capital gain?!??! Talk about cajones!

I've even seen some where the sponsor gets a % of the mortgage balance upon closing of the loan and/or refinancing as well.

What do you get?

Maybe an 8% or 9% preferred return. Then 70% of the profits at disposition up to a 13% or 15% annualized return (sponsor takes 30%). Above that, the sponsor could take 40%, 50%, or even 60%!

So if you were following the math, the sponsor invests $300,000....yet, they essentially get all of their investment back between the fees they get from the purchase, disposition, and just 1 year of equity asset management fees. So basically, they have zero skin in the game....yet take 30%-60% of the gains! So they can do 5 deals, and not worry if 1, 2, or even 3 earn nothing....as long as they have 1 or 2 hit it big, they're set!

How do I get to be a part of this racket?

[Another Reader]

All of these groups are taking advantage of the lack of understanding of real estate and real estate financing by their investors. They are counting on the buyers focusing on the projected returns, which may not be realized, not on what is actually being sold and how much profit is being skimmed before you get yours. Most of the properties I have looked at are dogs, being flipped by someone else to you. The good deals are not sold to the public. They are picked off long before they get to you.

Flipping houses is like playing musical chairs. Everything is great until the music stops. Lots of flippers went bankrupt and lost everything in the the 2008-2012 downturn. Thanks, but I don't want to foreclose on some half finished project I will be stuck with when the cycle turns again.