Experiences with Real Estate Crowdfunding Platforms--any negative ones out there

[VagabondMD]

I have now been investing in RE Crowdfunding via RealtyShares and Peer Street for about 18 months. I receive my payments as promised and am starting to receive my capital back from my earliest (and shorter term) investments. I do not have a whole lot of money in-play, about $50k, but I am now having difficulty getting into some of the more attractive appearing offerings. These tend to be filled before I get a chance to read the email announcing them.

On another note, does anyone have firsthand experience of capital loss (or significant delay) in any of these platforms? I know that we have been in a benign economic environment for the last several years, and I expect that this space might get more turbulent in the setting of a recession.

[sealsmith217]

I also began investing in RE crowdfunding and placed $47k in January. Peer Street fills up so quickly before I even hear about it via email. I even set up the automated investing option and it still didn't get me into any of the more attractive offerings so I stopped investing with Peer Street due to the frustration. I haven't received any payments yet and haven't heard of any capital loss yet but I just started last month.

I did read an article recently that multifamily investments in secondary markets remain appealing for now and to avoid it in primary markets (ie. Boston, NY, San Francisco, etc.) since this market could be the next possible asset-price bubble.

 

[The White Coat Investor]

I've only been full circle in one deal, a one year debt deal. I was paid as promised and got my capital back. The other deals are about what I expected except one which is yielding something like 3% when I was expecting 8% and the latest payment is late. They had an excuse for it and supposedly it is coming any day but it isn't very reassuring. My best syndicated deal so far is the office building for my partnership.

[G]

Has anyone used the REIT from RealtyMogul?

[The White Coat Investor]

I'm a little hesitant about the REITs from RealtyMogul and Fundrise. If I'm going to buy a REIT, I feel like I'd rather buy all the publicly traded ones via the Vanguard REIT Index Fund. Privately traded REITS do not have a good history.

[VagabondMD]

The White Coat Investor wrote:

I’m a little hesitant about the REITs from RealtyMogul and Fundrise. If I’m going to buy a REIT, I feel like I’d rather buy all the publicly traded ones via the Vanguard REIT Index Fund. Privately traded REITS do not have a good history.

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I agree. They sound too good to be true.

[The White Coat Investor]

Vagabond MD wrote:

The White Coat Investor wrote:

I’m a little hesitant about the REITs from RealtyMogul and Fundrise. If I’m going to buy a REIT, I feel like I’d rather buy all the publicly traded ones via the Vanguard REIT Index Fund. Privately traded REITS do not have a good history.

Click to expand…

I agree. They sound too good to be true.

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The point of them is they can sell them to non-accredited investors, unlike the regular deals on the site. They're just bundling up a bunch of the regular deals and calling it a REIT as I understand it, but it is obviously a bit more diversified. But you lose the ability to avoid the deals you think are bad.

[PenguinMD]

I've been investing in both startup CF plus RE CF since two years ago. I've had several investments go full circle and got my principal back plus the promised interest. On the startup side might even have some that IPO this year (but those investments are more buying lottery ticket dreams vs wealth building).

Anyways, there was a sponsor which was delayed and had late payments, this was due to getting new construction permits from the city which delayed everything. My particular deal with the sponsor had no issues and got my principal plus interest, but I do know others that had significant delays being paid back. To the platform credit (RealtyShares), they setup a webinar with the sponsor and all the investors to provide an update.

That being said, there is risk for anything thus diversification is REAL KEY.

Here's some good resources for those that want to play in this world:

- For overall real estate knowledge I like the BiggerPocket forums, they even have a specific CrowdFunding forum. In there you can find even more horror stories of deals that have gone south. Again, there is REAL RISK, so you want to diversify as you can. It's all about risk and reward.

- Some good podcasts about passive Real Estate Investing and doing Due Diligence. This particular guest speaker is widely respected and suggest reading up and listening to his other guest posts and podcasts. http://www.kevinbupp.com/ep-138-the-art-or-becoming-a-successful-passive-real-estate-investor-with-jeremy-roll/

- CrowdDD -- this site is SPECIFICALLY for RE CF, they even will rate sponsors (there was a recent WCI post that talked about sponsor-RISK, I would say this definitely one of the most important things out there and can even trump the IRR, CoC, Pref, or even the Waterfall for the deal.)

- From that site you can even gain access to a PRIVATE group of only accredited investors where people will openly discuss deals on various platforms and will share their due diligence on each deal (can't do that publicly due to SEC rules). This is probably most valuable as many RE vets will weigh in on what they like and don't like about a deal. Even just reading along you can learn a ton.

Dip your feet into debt deals and when you're comfortable you can graduate to pref equity deals or even pure equity deals (on platforms like RealCrowd and CrowdStreet). Your typical RE debt is around 6-10% returns but get taxed as ORDINARY. Equity deals these days have CoC of 8-10% and an IRR of 15%-18% after exit (5-7Y hold) and you get to depreciate losses and can get favorable long-term tax treatment. At that point you really want to start doing your homework as the minimums get very significant and we're talking about $25K, $50K and even $100K mins for some deals.

Due to our high tax bracket I've moved away from debt and now only doing equity deals which has better tax treatment. But again equity deals take much more time then your typical debt deals. You really need to do your homework/due diligence. If you're looking at strictly RE debt I would suggest looking at funds that specialize in RE debt and will help diversify you, such as AlphaFlow.

It's somewhat ironic cause it's technically classified as "passive" investing but in realty the whole due diligence process and figuring out which deals to pass and which deals to participate in is quite active .

Good luck!