Anyone try the crowd sourced real estate investing yet?

[q-school]

Feedback? Cautionary stories?

Ereit?

Thanks

[Mr. MedSchool Money]

www.passiveincomemd.com blogs about this pretty consistently and he has at least one or a few companies that he trusts to work with.

[VagabondMD]

I have been investing with Realty Shares and Peer Street and have posted it about it previously here.

I have had a mostly positive experience with both, with minor service and communication concerns, but not capital loss to this point. I currently favor Peer Street, but it has been increasingly difficult to make investments as they get filled very quickly.

[G]

I recently read Weapons of Math Destruction.  Among a variety of interesting topics, she touches upon the issue that a lot of the peer-to-peer lending (at least the best opportunities) is gobbled up by the banks.  Despite a number of accounts and intermittent searching, I've not found anything worth investing in.  This idea that Big Banks are already skimming the cream...well, I've stopped wasting my time looking and will just go REITs and rental property...and a little extra into Big Banks.

As an aside, that book is highly recommended.  It really made me reflect upon how improbable and fortunate I am/was to break into the "1%."

[sealsmith217]

I just started this year doing passive real estate investing via platforms so no cautionary tales yet since my shortest loan via PeerStreet is a 1 year term. I do think it is a good way to diversify your portfolio (12% of mine) as WCI and some other people has alluded to.

[Passive Income MD]

I've been investing in crowdfunding real estate for a couple years now. I just happened to be at a real estate investor meeting when one of the founders of Patch of Land gave a talk. It sounded great - low minimums, they would vet & manage the transaction, and it would totally be passive for me. Almost too good to be true. Anyways, I gave it a shot with the minimum $5k and when the monthly interest started rolling in the very next month, I went back for more. In total I've invested over $150k in it at this point with no loss of capital yet.

To be honest though, I don't know if the success just has to do with the state of the real estate market overall. Everyone looks like a genius right now. The true strength of the companies' vetting process and analysis will be seen when you see a correction (which most people will say is due). I've personally invested in Patch of Land, RealtyShares, RealCrowd, Fundrise, iFunding. I've also heard good things about EquityMultiple & Peerstreet. I'm also overdue for a post on this. In my opinion it's a great way to dip your feet into real estate investing. Stick to one of the more established ones like mentioned above. Reach out anytime, good luck!

[NJDoc]

I have a fair bit of money invested in large syndicators and have considered putting some smaller amounts with these companies. However, I am quite concerned when I hear that many of the crowdfunding deals fully fund in days or even hours. That begins to feel like 2005- 2007 , pre crash days, when everyone was a real estate investor. Frankly a bit scary.

Caveat emptor.

I will continue to look at deals, but I favor the bigger syndicators and their many year track records for now.

[FamilyFirst]

I like the idea of crowdfunding real estate in theory - higher returns than stocks for less work than finding your own real estate deals - but doesn't crowdfunding take away a lot of the tax benefits of real estate?

[CAinfo]

Passive Income MD wrote:

I’ve been investing in crowdfunding real estate for a couple years now. I just happened to be at a real estate investor meeting when one of the founders of Patch of Land gave a talk. It sounded great – low minimums, they would vet & manage the transaction, and it would totally be passive for me. Almost too good to be true. Anyways, I gave it a shot with the minimum $5k and when the monthly interest started rolling in the very next month, I went back for more. In total I’ve invested over $150k in it at this point with no loss of capital yet.

To be honest though, I don’t know if the success just has to do with the state of the real estate market overall. Everyone looks like a genius right now. The true strength of the companies’ vetting process and analysis will be seen when you see a correction (which most people will say is due). I’ve personally invested in Patch of Land, RealtyShares, RealCrowd, Fundrise, iFunding. I’ve also heard good things about EquityMultiple & Peerstreet. I’m also overdue for a post on this. In my opinion it’s a great way to dip your feet into real estate investing. Stick to one of the more established ones like mentioned above. Reach out anytime, good luck!

Click to expand...

I've also heard good things about Patch of Land.

[Passive Income MD]

FamilyFirst, you're right. Investing in crowdfunding real estate definitely doesn't get the same treatment tax-wise as owning rental property. For the debt deals, you're just receiving interest so it's pure capital gains. At least for the equity deals, you occasional get a slight ordinary income loss stated on the K-1 to offset some interest gain. I wouldn't think of it as a tax-advantaged investment. It's just another investment to diversify from equities (stocks) and a passive way to get involved in real estate.

[GXA]

I have had some investments at RealtyMogul for the past few years, and thus far all have performed as expected.

Agree with the comments above regarding diversification.  For equity deals you may want to be aware of state tax laws so you don't end up having to file state taxes in additional states as a result of your crowd sourced real estate investment.

[PenguinMD]

I've been doing it for the last couple years have over 15 investments ranging from $5k to $100k deals.

The RE debt space was good the last couple years but lately it's been bad with more defaults happening. Patch of Land was the go to a year ago but lately they've been MIA with investors seeing delayed payments and loans going into default. Go over to BiggerPockets and do a search and you can easily find recent war stories.

If you are in a high income bracket then the debt deals earning 8%-10% yield at a haircut of 50% (if you're in a high tax state too) doesn't really make too much sense for the risk you're taking. You might as well do a tax exempt state muni and get similar real returns w/o the risk.

That being said I primarily do equity deals. The main thing is just like in actual real estate you also get to do pass through depreciation so in the early years you will be filling lots of passive losses (I know I did about 20+ k-1s this year), you collect this passive losses and later in 7 years or 10 years when you exit you deduct the losses against gains. The depreciation gets recaptured (so you still pay tax) but your gains are treated as long-term.

The beauty of real estate is cash flow so the equity deals are typically 8-12% cash on cash each year. So that's actual money you get back that you can live on, go to dinner, watch a movie or spend on something else. When you eventually exit (say 7-10yrs) then the projected IRR are in the 15-20% range. In simple terms at the end of it for each $1 you invest it turns to $2 or more (as an example -- of course each deal is unique and you need to study the terms for each opportunity).

Of course there is RISK, a lot of the real estate chatter is that the market is in the 8th-9th inning and we're heading to a downturn in the next year or so (it's just how the cycle works).

Given that people are focusing on asset classes that can weather the storm so things like: self-storage, manufactured homes, and multi-family near large institutions like universities and hospitals (since people will still go to school and people will still get sick).

As mentioned before, you want to diversify and this is just another component to my portfolio.

One thing I do say is you want diversification and for CFRE the major dimensions will be:
- sponsor
- deal/opportunity
- asset type: MF, self storage, mobile parks, retail, hotel, industrial
- geography: avoid the coasts (CA and NY) real expensive and not as much upside, major opportunities all in the Midwest, mid-Atlantic, South.

Tip: signup with several portals and look at several opportunities and educate yourself.

Ones I personally used:
- RealtyShares
- FundRise
- CrowdStreet
- RealCrowd
- Also direct with sponsors (which will not have any of the platform fees)

Other ones with good reps:
- RealtyMogul
- Peerstreet
- Groundfloor

Note had a bad experience with RealtyShares where they provided me k-1s ONE DAY before tax day and to add insult to injury when I checked the numbers they were off and had to send me a correction which was a week AFTER I filed (argh). They say it was a computer error and will do better next year but there's plenty of other platforms out there so not worth my headache.

My last several deals have been on CrowdStreet, RealCrowd and direct.

For debt plays I actually recommend going the fund route like AlphaFlow. The issue is the institutional guys are getting first crack at the "best" loans and the "scraps" go onto the platform. It's similar to what happened over at LendingClub and Prosper where getting good returns is getting harder and harder. Plus the number of defaults increasing can be viewed as an indicator of the economy slowing down.

Also the industry to shifting a little as before it was single deals being offered but now many are offering "eREITs" like on RealtyMogul and FundRise. Think they project 8% returns but these are treated as interst income so taxed at ordinary income so they weren't attractive for me.

Some useful links to learn more:
Site dedicated to CFRE:
Crowddd.com

BiggerPockets Forum focused on CFRE:
https://www.biggerpockets.com/forums/520-crowdfunding-real-estate

Benefits of Passive Investing: http://www.rsnpropertygroup.com/rg-045-benefits-passive-investor-syndication-jeremy-roll/

Summary: Do lots and lots of education and research first and don't invest in anything you don't understand!

Net: CFRE can help diversify your investment portfolio and generate cash flow that you can actually live on (so if you're looking to reduce your shifts this can be a great strategy!). It's roughly 10-15% of our overall portfolio.

Good luck!

[PhotonsRGR8]

I've described in detail previously my 100K investment in a specific property in FL @8% 18 month term. Property closed out loan 01/01/18. It took approx another 2 1/2 months to get return OF principal. However I was paid to wait. I did get back my 100K + 14K. I used PeerStreet. I would say that I would use them again but put 10K x 10 on various properties. My problem is 1) tax treatment inferior to dividends 2) ROI @ 8% inferior to portfolio of blue chip multinational dividend producing stock which in 2017 was roughly 22%.

But to reiterate, I think Peer Street is a clean operation and should dogs and cats again lie down together like 2009 I would not hesitate to jump back in again if the yields/ interest rate offered were 10% because of no liquidity. I would be pleased to make another investment while I wait for the stock market to capitulate. 666

[The White Coat Investor]

I've probably been in 20 deals, maybe gone round trip in a quarter of them and haven't had one go bad yet. That said, I'm trending toward funds and away from individual deals partly for diversification but mostly just to reduce hassle. Same reasons I moved away from Lending Club/Prosper. That said, I've had a positive return with all of them and it's been 6+ years if you include LC/Prosper.

[VagabondMD]

I have two deals in various stage of default, one at RealyShares and the other at PeerStreet.

The RealtyShares property (debt deal on an apartment building in Milwaukee) stopped paying last May, was due to return capital around that time, has not paid a penny since and has completely gone through the foreclosure process. Now, RS owns the property and is trying to sell it. The first offer was about 32 cents on the dollar (based on the original value) on a list price of 57% original value. Ugh! Unless the platform steps in, I do not see how it is possible that we do not lose a majority of our capital on this deal.

The PeerStreet property (West Palm Beach) is entering the foreclosure process.

I know very little about real estate investing, and I know that profits can be earned on just about any property if you can buy it at the right price. That said, when I saw a property in my town offered in a neighborhood that would give me pause to drive through (let alone walk down the street) due to crime/drugs/gang infestation, it made me wonder about the vetting process and whether I had any business investing this way.