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  • Real Estate fund question

    Hello, I have recently been trying to educate myself on real estate crowdfunding and syndications and am looking for some guidance from people who have invested in this space. Ultimately I would like to have RE represent 10% of my portfolio, and I'm planning to get there gradually over the next 2-3 years. Currently my only real estate holding is the Vanguard REIT.
    Initially my plan was to dip my toes in with minimum investments in Fundrise and Peer Street and the REITs on RealtyMogul and Equity Multiple. I was going to increase my exposure with minimum investments into platforms such as alpha investing, crowdstreet, acre trader and others with the plan to eventually invest in the 50k to 100k minimum funds.
    I considered this plan initially in order to spread risk over multiple platforms and multiple deals. I'm rethinking this strategy though due to the time commitment vetting numerous relatively small deals. I'm considering whether jumping straight to the larger funds (MLG, Origin, Arixa, CityVest, and 37 Parallel are the ones I've come across on the WCI network) may make more sense as they spread the capital over numerous deals as far as I can tell.

    I know there's more than one way to skin a cat, but I'm curious what you all feel are the pros and cons of the gradual approach vs the jump right in approach.

    For those who have invested in the larger minimum funds, what was the deciding factor in choosing that platform? And once you decided to go with a particular platform (MLG for example) how much due diligence did you perform before investing in a particular fund?

    Thank you for the help.

  • #2
    I started as you described, dipping my toes into crowdfunded deals across a variety of platforms.

    More recently, I invested a sum greater than the rest of those investments combined into one fund (Origin IncomePlus). It will be easier to track, simpler at tax time, and diversification is built in without picking and choosing deals.

    As more of my earlier deals come full circle, I'll probably divert the money into a second fund with a different company for further diversification.

    Cheers!
    -PoF

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    • #3
      Thanks PoF.
      That's sort of the route I'm leaning towards.

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      • #4
        I’m surprised you aren’t getting more responses, but there have been several similar threads recently. If you have not seen these, they address some of your questions.

        https://www.whitecoatinvestor.com/fo...ing#post236223

        https://www.whitecoatinvestor.com/fo...und#post237335

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        • #5
          I will jump out on a limb and be contrarian. Investments in real estate in which you have no control and are privately run have tremendous dangers as to a decent return. You have no idea what is going on "under the curtain"-who is paid what, who might benefit besides the investors, etc. These type investments are relatively new and the older type (private placement real estate) were fraught with bad deals and outright fraud. I tell clients there are only two safe ways to own real estate. First, trade in market listed REITs when their dividends are historically high. Second, own and control the real estate yourself (much more work, variable more risk) and be patient.

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          • #6
            Thanks Larry, I did see those threads. I've been diving deep on content here and elsewhere over the past few weeks trying to develop a sound plan before dedicating any significant money into this space.
            I'm most interested in the reasons people chose a certain platform over others. With minimums of 50 or 100k or more, I'd likely only invest in one fund at first. It seems that Origin is mentioned a lot here while MLG is mentioned more at PIMD. My guess is that going with either of these would be relatively "safe."

            Steven, I understand where you are coming from too. I've thought about the rental game, but I don't want to dedicate the time to that right now. I have considered going in with some friends to purchase something where we can share the work and the investment, but I haven't really pursued that yet.

            I am actually interested in looking into farmland too. I have considered the crowdfunding sites for this, but also more of a direct ownership approach as well. Trying to research this still.

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            • #7
              I"m following this post.

              Curious as to what others have to say.

              For the past 5 years, all I've done was buy just individual stocks and some mutual funds (and for the most part held them). They've done incredibly well. Well over 900k return (apple, square, google, Facebook, Microsoft, amazon and Tesla stocks mostly) from investing about 600k of my own money (~ 100k or so a year each year). I know this is probably not going to keep going that way, so I am very interested in putting money into the real estate market. But I have no idea where to start. I've thought about buying rental properties but like many, I don't know that I want to have to deal with tenants or even where to buy these 'rental' properties.

              I've heard of REIT and read some on it. But again, not really sure how to actually go about putting my feet in it. The stock market was really easy - open a brokerage account, transfer money from my bank to the account, enter a stock symbol, select number of shares, click and done. Stocks are easy as there are many articles written about companies and forecast and historical performance. I plan to read up on the WCI blog listed above by Larry.

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              • #8
                I'll be totally honest. I look at funds in an investment club outside of this site. I don't feel like mentioning it because I think the club has enough members already, and the more members there are, the less exclusive the perks become. I do think they find better deals than the ones that are promoted on this site. I tried to get in on a deal recently, but they wanted hard commits and filled up within two days before I felt like spending several hours on the due diligence.

                That's the problem with real estate investing in general compared to index fund investing. It is extremely competitive.

                There are a lot of times I feel the way Steve describes and conclude it just isn't worth the time and hassle. I'm sure I'll have more money with a vanilla three fund portfolio than I'll ever need to spend. But other times I conclude that the tax and diversification benefits are too great to ignore.
                “Work” is a four letter word for good reason.

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                • #9
                  STATscans, if you were trying to dip your toes in REIT, the easiest way I've found is the Vanguard REIT index fund. I put mine into my Roth IRA due to the poor tax implications that I've read about. I have similar feelings about direct real estate purchases. As a life long renter I don't have experience purchasing a primary residence let alone an investment property. I am intrigued by the potential revenue and favorable tax treatment, but I don't have the time nor the inclination at this stage to go that route yet. I am actually researching farmland. From what I've read the ROI seems to be good and apparently there is a low correlation with the stock market.

                  After pouring over blog articles and forum threads, I'm leaning away from the smaller debt deals (Peer Street) and selecting individual equity deals. I'm worried I don't really know what to look for when doing due diligence to adequately select these deals, and I'm not willing to invest the money necessary to become diversified in this space.

                  I'm looking more into a debt and an equity fund. The question I keep coming back to, and that I'll pose to the forum, is how do you decide which fund to invest in? We've been fortunate with our income and market returns over the past few years, but with minimums of $50-100k at most I'll start with 1 debt and 1 equity fund.

                  If you have invested in one of these funds, how did you decide on the fund?

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                  • #10
                    Here are some pro's and con's of each type of passive real estate investment that you mentioned:

                    REIT:
                    Pros - diversified portfolio of properties, very easy to invest in (just google some and they'll happily guide you through the process on their site)
                    Cons - They offer moderate cash flow returns (I experienced 6.5% annualized cash flow at Fundrise) but there is no pop on the back end if they sell a property and realize a profit. Also, it's somewhat liquid, but will take about 3-4 months to get your money out, and they usually apply a fee unless it's been over a certain amount of time (3-5 years maybe depending on the company). Another Con: No customer service or point of contact to ask questions or discuss operations, etc - it's a very sterile unpersonal experience

                    Syndication Fund:
                    Pros - Diversified portfolio, single point of contact that you can ask questions to and discuss the different properties that are being acquired etc, also you can achieve higher returns than REIT's, and much higher than the public market.
                    Cons - The diversification is usually within one lane, like a fund that focuses on mobile home parks because that's where the sponsor's expertise is in. So in this way, it's diversified across properties, but maybe not asset types, and maybe not even markets (i.e. they just focus on multifamily in the DFW metro). Another Con - there is much less visibility and accountability of the sponsor vs a direct syndication which gives the investor rights to view financials of the special purpose vehicle. Also, the investor doesn't get to choose which properties are acquired - so if the sponsor acquires 4 properties and you're not a big fan of 2 of them, you're just along for the ride and don't get a say.

                    Direct Syndications - Meaning investments in individual property acquisitions with a sponsor:
                    Pros - You get to choose the investments you want to participate in, and as mentioned before, the investor is entitled to much more visibility which keeps a sponsor accountable. There is a much higher level of communication from sponsors and availability, and you can really dig into questions and details of each deal before you invest. Much higher returns than the market and REIT's, with a nice profit pop on the back end when the property sells
                    Cons - These are not liquid, you must have patient capital that can hold for the targeted period of the investment (and potentially beyond if there are headwinds and the sponsor decides not to sell at that time), but many of these are cash flowing so at least you will be seeing cash flow during that time. There is no diversification if you invest in just one, but from my experience, investors just diversify themselves into different direct syndicated investments. If I had $250K I wanted to allocate to real estate, I would happily spread that across 5 different direct investments of my choosing at $50K each.

                    Full disclosure, I invest and also work in direct syndications, so I'm a little biased towards that, personally. However, I did recently invest in a VC fund with diversified startup investments, which I think is fantastic given the risk profile of that industry and the level of experience you need to be able to choose companies individually.

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                    • #11
                      I am interested in exploring RE investing...however wouldn't NOW be a bad time to get into this given so many people are not able to pay rent and are living in their appt rent free?Obviosuly commerical RE I wouldnt touch now nor in the future. Additionally, how do you really know something is legit versus Ponzi scheme except anonymous word of mouth on the internet?
                      I was interested in acretrader but turn off was needing to file taxes in the State the farm is in.
                      Are any of you getting into these funds now or waiting for COVID normalization first?

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                      • #12
                        MP, depending on how you look at it, now could be a great time to invest in real estate...or not. From your question, it sounds like you would be primarily investing in a fund or with syndications. In either case, if the investment vehicle hasn't baked in costs and risks related to Covid, then it would be a bad investment. Don't pay top-dollar for an apartment complex in an area where people aren't paying, of course. However, because rent collections are down in some areas, it can be an excellent time to purchase inexpensive but high-quality assets. Also if you wait for the perfect time to invest, you will never invest. When things feel safe generally speaking, return will seem too low, and vice versa. That said, I think rent delinquency may be lower than you are assuming. https://www.nmhc.org/research-insigh...yment-tracker/ indicates that payment rates are around 88.6% nationally, down only about 2.5%, among professionally managed apartments.
                        Not sure why it's obvious that commercial is a bad idea. There are numerous commercial tenants that are mandatory in-person service providers (think much of medicine, grocery stores, hardware stores, for example). It's interesting you bring up Acretrader. Farming in the US is mostly run on subsidies, as I understand it. Not sure I would want to be investing in that land, although I know very little about it.
                        It ultimately all boils down to your concern regarding fund/deal sponsors. How do you trust a person with your money, and do you trust they understand their real estate market? Word of mouth is good. Ask your friends. Ask other people on this forum. Look at their website. You can get on a phone call with most deal sponsors to get a feel for them personally. Look at their track record. Look at the deal specifics and actually read the legal documents you receive! If they have weird provisions allowing them to move money around or if the return is impossibly high, walk away.
                        Ponzi schemes aren't very common, but poorly run businesses are. So you are probably best served by making sure their business plan makes sense to you and that you trust they have the team in place to execute.

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                        • #13
                          I don’t trust syndications in general as the sponsors do great and the investors generally get more modest returns. And they are often hard to properly vet.

                          I prefer direct real estate investing as there is much more control of the tax benefits, and the tax benefits are a primary reason I have diversified from stocks into real estate. The other thing I like about real estate is the monthly cash flow, particularly since bonds pay almost nothing these days.

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                          • #14
                            Absolutely. If you have the time, energy, and enough money to research opportunities and invest directly on your own or in a partnership, and you do a good job, the returns will be far above what you can expect from a syndication. Otherwise you are paying the sponsors to do that work for you and likely take personal loan risk. So at the end of the day you'll need to expect they take a piece of the profits that you would otherwise take for yourself.
                            Something I've heard from physicians when looking at deal sponsors is that finding a sponsor team with another physician on it can be very helpful for improved communication.

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                            • #15
                              Very much agree with Steven Podnos MD CFP and White.Beard.Doc. impo, the most underrated aspect of syndications is that they are opaque and are not subject to the same requirements as SEC-registered companies. Very very hard - if not impossible - to do your "due diligence". You have to rely on the advertisers and promoters (who are compensated by the syndications and, thus, d/n/h a fiduciary duty to the investors).
                              Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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