APY GUY: Maximize Your Savings & Earnings

Angelica Leicht

CrowdStreet – Averaging 17.1% Annual Returns for Investors


image credit: crowdstreet.com
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[Update August 2021 – CrowdStreet just funded its 500th real estate deal. Their largest individual deals are now in the following markets:

  1. Miami, Florida
  2. Park City, Utah
  3. Atlanta, Georiga
  4. Clemson, South Carolina
  5. Denver, Colorado.

Diversifying your portfolio is an important step to take whether you’re an amateur investor or have decades of experience. And while you may think that diversifying the types of stocks, bonds or ETFs you buy will cut it, it may not be the most well-rounded plan for 2021 as many “alternative investments” have changed the landscape for everyday investors.

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Take, for example, cryptocurrencies like Bitcoin and its rise — this is one of the prime examples of how alternative investments can be a lucrative, albeit risky, way to invest.

Surely, crypto has created a lot of wealth for many people in recent years, but many still find it too risky to add to their portfolio.

Luckily, there’s another option with commercial real estate investment via crowdsourcing platforms. Real estate investing, in general, is a lot more stable than crypto or other alt investments, and dozens of real estate investment marketplaces have emerged after Congress eased the securities regulations back in 2012 with the JOBS act. These platforms, like DiversyFund or GroundFloor, have made it extremely simple for novice real estate investors to take part.

One of the more popular real estate crowdfunding options is CrowdStreet, a platform that makes it simple to invest in commercial real estate projects across the country by connecting investors with “sponsors” (project developers) looking to fund a project.

CrowdSteet Platform Quick Facts:

Expected Annual Rate of Return (IRR)17.10%
Equity Multiple (expected ROI to investor)1.39x
Hold Period (how long your money will held)2.3 years
Fees0.50% – 2.50%
Investment Minimum$25,000

If you’re looking for a platform to get started in real estate investing, CrowdStreet is certainly worth looking into. Here’s what this real estate investing platform can offer.

Get Started With CrowdStreet today!

What is CrowdStreet and Who is Behind It

Founded in 2013, CrowdStreet is one of the oldest and largest real estate crowdfunding platforms available to investors. It’s also one of the highest volume marketplaces — at least in terms of standalone crowdfunded real estate deals. Since its inception, CrowdStreet has hosted 367 commercial real estate offerings from sponsors looking for funding from small and large investors.

The number of real estate offerings on this platform isn’t the only reason for its popularity, either. The company’s co-founders, Darren Powderly and Tore Steen, are both industry veterans who have helped to establish CrowdStreet as a legitimate investment opportunity.

Prior to founding CrowdStreet, Powderly served as President of Compass Commercial, a full-service commercial real estate services company. Since that point, Powderly has transacted billions of dollars’ worth of commercial real estate investments and enterprise software contracts.

Steen, on the other hand, led the product, sales, marketing, and business development efforts for Janrain prior to launching CrowdStreet. Steen is widely recognized for helping guide Janrain from its phases to a recognized leader in the social identity space with a full user management platform.

Both Powderly and Steen are still at the helm of the massive platform, with Steen acting as Chief Executive Officer and Powderly as Vice President of Capital Markets.

And, the duo’s combined expertise has clearly paid off. CrowdStreet currently offers the largest number of investment offerings in this market at any given time — helping to set it apart from the competition.

That’s not the only thing setting CrowdStreet apart, either. What’s unique about CrowdStreet is that unlike other platforms, CrowdStreet acts as an intermediary, taking a small fee (between 0.50% and 2.75% depending on the project) while connecting sponsors — who they vet thoroughly via background checks and references — directly with investors.

This gives both the investors and sponsors the freedom to manage the relationship with each other. It also helps keep issues with communication or delayed funding to a minimum that you would generally find with SPVs or special purpose vehicles, which are frequently formed entities in commercial real estate deals.

With CrowdStreet, you can choose between individual properties or CrowdStreet’s funds, which act much like mutual funds with a diverse range of real estate projects. Those features aren’t standard on other platforms.

These less common features, coupled with a potential for a high rate of return, have helped build CrowdStreet into one of the mainstays in the real estate crowdfunding space.

Features and Benefits

One of the more obvious benefits of the CrowdStreet platform is that it allows investors to pick and choose what real estate crowdfunding projects they’d like to buy into. If a savvy investor feels capable of picking individual real estate projects and navigating the relationship with the sponsor, that’s an option on this platform.

Or, if the investor is a little more gun shy and would prefer a safer bet, the CrowdStreet fund may be a better option. Having both options to choose from — along with a highly-integrated investment management platform — makes this platform user-friendly for a wide range of investors.

It’s also friendly to sponsors or real estate investment and development groups who are looking to fund their projects. As of 2021, more than 250 large commercial real estate developers and operators had utilized CrowdStreet’s technology to raise the funds necessary for their projects. That is a substantially higher number of funded projects than many of the smaller platforms have hosted, lending credibility to the idea that both the investor and the project sponsors can benefit from CrowdStreet.

The platform also offers a wide range of investment opportunities for investors. In recent years, investors were able to choose from new construction rental projects, charter school projects, multifamily developments, and other real estate projects. Many of these projects are unavailable on other real estate crowdsourcing platforms — which further helps CrowdStreet to stand out against the competition. Whatever type of project you’re looking to invest in, CrowdStreet likely offers it.

More platform benefits include:

  • A direct investment: Unlike other platforms, you deal directly with the sponsor if you opt to invest that way. This works in favor of the sponsor too, who is offered a more personal relationship with the investors using the platform.
  • A very thorough vetting process: CrowdStreet has an incredibly thorough vetting process it uses to determine legitimate projects and sponsors. It’s worth noting that only ~5% of submitted projects get approved for the platform. But, the vetting process doesn’t stop there. The platform also vets the investors, too — so both the investor and the sponsor can rest assured that the deals and funding are legit.
  • A culture of transparency: Investing in real estate crowdfunding deals can be intimidating, especially on this platform — where the minimum amount you’re investing is much higher than it would be on other platforms. CrowdStreet makes the process transparent, though, by offering documents and research on each deal.
  • The option to buy into CrowdStreet’s fund: Another benefit is the option to buy into CrowdStreet’s fund, which, as mentioned, acts much like a mutual fund in that it uses your money to buy into a wide range of real estate projects. This option is great for investors who aren’t comfortable with the one-on-one interaction with sponsors — or for those who want to fund a wide range of projects without buying into each one individually.
  • Tons of investment options: As one of the largest real estate crowdfunding platforms, CrowdStreet offers investors a massive range of commercial real estate projects to choose from. There are between five to 15 private equity investment opportunities on its marketplace, including both single-asset projects and funds.
  • Easy access to project research: One very unique feature of CrowdStreet is that you get access to all of the information you need to make a decision on a project. For example, each investment opportunity on the website gives you a detailed video with information about the project. This feature gives you a very simple way to both vet the project and understand what the purpose and goal of the project is. You can watch these videos and understand where your money is going — and why — to ensure you’re doing your due diligence before forking over any cash. Plus, you also have the option to submit questions to the sponsor, which can help you further understand the goal of the project — and decide whether the investment makes sense for you.
  • Access to a ton of resources: In addition to the easily accessible research, you’ll also get easy access to a ton of resources in the website’s research section. You can find instructional videos, articles, investing topics, and other resources in this section — along with access to the Quick Start Guide, which can help you navigate the platform.

Average Return to Investors

Targeted Returns on the above properties range from 12.9% IRR to 18.7% IRR. IRR = APY (annual percentage yield)

Another major perk of this platform is that it makes return information easily accessible to users. According to the website, CrowdStreet’s investors have made, on average, about 17.1% IRR as of June 2021, which is the annualized return metric that spreads cash flows and equity return over the course of the entire holding period.

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Furthermore, according to CrowdStreet’s data, investors, on average, receive a 1.39x equity multiple, which is the total cash distributions received from an investment, divided by the total equity invested.

Both of these numbers are based on a 2.3 year hold period, which is the amount of time from the date of the purchase to the date of the sale.

Those are just the current numbers, though. Thus far, CrowdStreet says it has successfully funded 485 deals on the site, of which 47 of have realized (sold).

As more deals work through their holding periods, the numbers will be updated to reflect the latest metrics, which are calculated to be net of fees.

Potential Drawbacks

While there are opportunities for a very healthy return on your investment of 18% or more with this platform, there are also potential drawbacks to using CrowdStreet to invest. These include:

  • Limited to accredited investors: Right now, CrowdStreet is mainly limited to accredited investors. That means that anyone who cannot meet the accreditation standards set by the SEC is out of luck. There are other platform options to choose from, of course, but CrowdStreet isn’t a viable option for anyone who would struggle to meet accreditation standards. 
  • A long investment term: The payoff for using CrowdStreet can be extremely high, but you’ll have to leave your money sitting in the investment for a period of years before you realize it. It takes about two-and-a-half years for most investments on this platform to mature, so if you can’t leave your funds tied up for that long, you may want to steer clear of this one.
  • A high minimum investment: In general, the minimum investment on this platform is $25,000 for the marketplace but this goes up to $250,000 for a CrowdStreet Advisors account which is privately managed.

Costs

CrowdStreet charges a 1% management fee for investing in its Blended Portfolio. It also charges a 1.75% management fee on the REITs, along with a 1% financing fee.

There are also fees for managed investments, which carry a 2% to 2.75% fee on the assets that are under management for the first year. After the first 365 days, that management fee drops to 0.25%, but the costs are still significant given the amount you’re investing in this platform.

How are CrowdStreet’s Investments Sourced

Unlike many of the smaller real estate crowdfunding platforms, investors don’t typically seek out CrowdStreet. Rather, the company’s “Capital Markets” team has a presence in every region of the nation and is always looking for deals worthy of making it onto the platform.

When the team finds a potential deal worth featuring, the opportunity is taken to the investments team, which puts the sponsor and the deal through a rigorous review process. This helps them determine whether the deal is a prime fit for the CrowdStreet marketplace.

According to CrowdStreet, out of every 100 deals that makes it in front of the investor team, only five will make it onto the marketplace for investors to buy into. It’s evidence of how extremely thorough and, dare we say, picky, CrowdStreet is with the investment opportunities it promotes.

CrowdStreet puts each of its potential investment opportunities through the same objective review process, which includes:

  • Background checks using industry-leading platforms. These background checks are run on the firm and the principals involved in the potential deal.
  • A track record review. CrowdStreet wants to know the history of the companies behind the potential deals, so they look into any past deals to find successfully executed projects in the asset type they are looking to bring to the marketplace. This gives them an idea of whether the past projects have been actualized in a sufficient manner.
  • Sponsor designation. Each sponsor is placed into a category based on background and experience.

These categories include emerging, seasoned, and tenured to help prospective investors understand the experience level and size of the sponsor or real estate firm they will be working with.

Below is a table breaking down the categories and what the sponsor requirements are for each.

CategorySponsor Requirements
EmergingRequires 2–5 years worth of experience with portfolio activity up to $100 million, as well as experience in both the geographical region and proposed asset class.
SeasonedRequires 5 or more years worth of experience with portfolio activity over $100 million. Must also have an existing network of repeat investors and established banking relationships.
TenuredRequires 10 or more years’ experience with portfolio activity of over $500 million, with principals who have invested together through multiple real estate cycles. The company must also have a dedicated staff for investor relations and accounting.

Any red flags, including “bad actor” violations or any pending material litigation, are grounds for immediate rejection — which is part of why only 5 out of 100 projects make it onto the marketplace.

Who is CrowdStreet For

While other platforms allow non-accredited investors to buy into projects, CrowdStreet primarily caters to accredited investors. This limits the opportunities to those who can meet the laborious accreditation standards set by the SEC.

In order to become accredited, the SEC requires a net worth of more than $1 million — not including your residence — or an annual income of at least $200,000 per individual for at least two years. CrowdStreet makes it clear that their platform is geared toward investors who can meet these standards — which can block out the little guys from the equation.

Accreditation isn’t the only requirement, though. Right now, only U.S. citizens and green card holders can invest in CrowdStreet, so if you’re outside of the United States, you’re likely out of luck.

You also have to be in this investment for the long haul. You won’t see a quick return on your investment with this platform, so anyone interested in using CrowdStreet to invest needs to be ready to leave their money tied up in a project for a couple of years at minimum. This can be tough if you need the cash unexpectedly, so before you take a dive into this platform, make sure you’re OK with tying up your funds for a few years at least.

And, CrowdStreet can pay off, but it can also be risky. If you’re risk-averse, you may not want to invest in real estate crowdfunding on any platform. The potential payoff is large because there’s risk involved with funding other people’s projects. You don’t have much control of what happens after you part with your capital.

But, if you’re willing to take the risk and do your homework on the projects you’re considering funding, this platform can be a great way to get into real estate crowdfunding — especially if you value choice and options in the projects you invest in.

Is CrowdStreet Safe

As mentioned above, if you’re going to invest in real estate crowdfunding, you’re going to take a risk. It’s important to remember that a good chunk of change is going into these projects — generally about $25,000 at minimum — so be sure this figure works within your overall portfolio. If it takes up a sizable portion of the pie, this probably isn’t for you.

And, as with any investment, you’re at risk of losing money with this platform. That’s the reality of investing. There’s a payoff because there’s risk. If a project you funded fails to pan out as expected, you may not make as much as you expected.

That said, CrowdStreet is transparent with the results of the past investments from the marketplace. You’re able to see what the results of each project were right on the website. 

The recent performance results show that most of the individual investments tend to outperform the blended portfolio options, but individual projects are by far much riskier than blended portfolios. When investing in an individual project, you run the risk of losing some or all of your capital.

How CrowdStreet Differs from the Competition

CrowdStreet makes it easy for accredited investors to shop around for commercial real estate projects to add to their portfolio. They have one of the largest platforms in terms of active deals on the market. You can browse projects by region, view incredibly in depth videos, see key statistics such as estimated time lock requirements, targeted cash yields, IRR (Internal Rate of Return) estimates, etc.

It also requires a hefty investment. You’ll need at least $25,000 to invest in this platform, though minimum investments can be much higher depending on what you’re investing in. That can limit who uses this platform to invest. Many competing platforms have much lower thresholds, some as low as $500.

Final Thoughts

CrowdStreet is one of the big players for a reason. This platform offers everything from video briefs on projects to clear and transparent vetting and project information on who it works with, from the individual investors to the deal sponsors. All sides are on equal footing with this platform, which is a pretty unique feature for the industry.

But, while the platform offers everything, it doesn’t offer everything to everybody. Smaller investors who can’t meet accreditation standards may feel boxed out.

That said, if you can meet current accreditation standards, the risk may be well worth it. With an average of an 18% return on investments, this platform offers a very high rate of return especially when pitted against other traditional saving vehicles.

Get Started with CrowdStreet Today!

RealtyMogul Review – a passive real estate investing platform


ReatlyMogul is averaging 4.50% – 6.0% yields on their REITs and up to 15% on private placements.

Investing in general can be a tricky landscape to navigate. The stock market has seen its share of ups and downs over the last couple of years, and crypto investing, while potentially lucrative, can be a volatile gamble for average investors. There are other, safer options you can utilize to help your money make money, of course — things like high-yield savings accounts, bonds, or low-risk funds — but these less risky investments don’t typically offer the high returns many investors seek.

The drive to find a good balance between risk and reward has led many investors to take an alternate route via real estate investing.

Thanks largely to matured start-ups reaching mass adoption like Airbnb and Vrbo, there has been an explosion in real estate investing nationwide as buyers snatch up properties for short-term rentals in hot markets, which has led to a shortage of inventory in these markets. Competition is now extremely tough for properties in many areas, making it even harder to land the right type of investment.

While short-term rental properties are extremely popular options for investing, many investors would prefer passive investment options in real estate.

That is where platforms like RealtyMogul come in. RealtyMogul allows you to invest your money passively in vetted commercial real estate properties that have the potential to generate income and grow in value.

To see if this real estate investment platform is right for you, continue reading our comprehensive review below.

What is RealtyMogul and who is behind it?

While perhaps not as well-known as platforms like CrowdStreet or DiversyFund, RealtyMogul is one of the earlier entrants into the hot market of crowd sourced real estate investment platforms.

The site was founded in 2012 by Jilliene Helman and Justin Hughes as part of the Microsoft/TechStars Accelerator event in Seattle, and was officially launched in 2013.

Helman, who has underwritten over $5 billion of real estate and acts as the CEO of the company, sits on RealtyMogul’s board. She is responsible for the company’s strategic direction and operations, and has plenty of experience with these tasks, thanks to her prior experience as a Vice President at Union Bank, where she spent time in Wealth Management, Finance and Risk Management.

Hughes is the co-founder of RealtyMogul and is a licensed real estate professional in California. Prior to helping launch RealtyMogul, Hughes ran an independent consultancy in Los Angeles that managed on-line communities and built web presences.

Helman and Hughes launched this platform with the idea that it would bring investors and real estate investment sponsors and borrowers together in order to create real estate investment opportunities that were mutually beneficial for both parties.

On the surface, the platform works similarly to many of the other real estate investment platforms. Investors buy “shares” into commercial real estate projects that are sold on the marketplace. This process allows developers to “crowdsource” the funds they need to complete their commercial project(s) from many investors who want a decent return on their invested capital and like the prospects of the project.

Investors who use RealtyMogul are able to choose from a wide range of individual commercial real estate investments. This could include projects like multi-family dwellings, office buildings, industrial sites, storage units, and retail or medical buildings — or any mix of other commercial projects, depending on what needs funding.

Prior to being allowed access to the RealtyMogul marketplace, each project is vetted to ensure the individuals behind the deal, and their project, meet the rigorous standards outlined by the company. A tenured group of real estate veterans with contracts across the US both seek out deals for the platform and vet deals submitted for inclusion.

According to RealtyMogul, they review thousands of deals each year and less than 1 percent of those end up on the marketplace.

There are other options for investing in commercial property via RealtyMarket, too. In addition to the private investments listed on the platform’s market, accredited investors can also opt into real estate investment trusts, or REITs, and 1031 eligible private placement investments on this platform.

REITs are available to non-accredited investors while private placements are not. Image credit: realtymogul.com

REITs are a popular choice among real estate investors because they allow you to invest in companies that own, operate, or finance income-producing properties — which can result in much higher returns than other types of investments. We’ll talk more about these types of investments below.

Features and Benefits

There are a wide range of benefits for investors, but perhaps the largest one is that it offers investors multiple avenues for investing in commercial real estate. Investors who use this platform get access to a variety of both public, non-traded REITs and private placements, which allows both accredited and non-accredited investors to take advantage of what RealtyMogul has to offer.

This is a significant perk for smaller investors, who may not be able to meet the laborious requirements for accreditation that are required by other platforms. It can be nearly impossible for smaller retail investors to meet the accreditation requirements set by the SEC, and that can put other platforms out of reach.

If you’re not sure why accreditation would be out of reach for smaller investors, here’s why: the SEC requires accredited investors to meet one of the following to be officially accredited:

  • Individuals: Must have income of more than $200,000 per year for each of the last two years with expectations to exceed that threshold for current year.
  • Spouses: Must have joint income between spouses of more than $300,000 per year for each of the last two years, with expectations to exceed the threshold in the current year.
  • A net worth exceeding $1M, excluding your primary residence, either individually or jointly with your spouse.
  • An investment on behalf of an entity with at least $5M in assets or an entity in which all the equity owners are accredited investors.

These accreditation requirements make it tough for small retail investors to take advantage of public, non-traded REITs, which are subject to oversight by the SEC.

But that’s where platforms like RealtyMogul (or DiversyFund) differ. They offer investors the option to buy into private market offerings, which are projects offered by individual borrowers that need funding. It also offers two different public, non-traded REITs, which gives investors even more options.

Another great feature of RealtyMogul is the vetting process. Rather than focussing on riskier projects in hopes of higher returns, RealtyMogul looks for safer “value-add”deals, particularly in multi-family housing. In most cases, the properties listed on the platform already have cash flows to help fund them, but could use a cash boost from private investors to help generate higher returns.

RealtyMogul REIT Offerings

RealtyMogul has two different REITs available to investors: the MogulREIT I and the MogulREIT II.

  • MogulREIT I: According to RealtyMogul, the MogulREIT I is a “public, non-traded REIT making debt and equity investments in commercial real estate properties diversified by investment, geography and property type.” This REIT’s primary focus is on providing regular income to investors. To do this, it rigorously evaluates investment opportunities to find ones that can support the REIT’s distribution target.

    The goal of this REIT is to help investors earn passive income by investing in a range of investments across property types and geographies. By diversifying the types of properties in the REIT, it helps to reduce risk and maximize returns for investors. This REIT pays out to investors on a monthly basis.
  • MogulREIT II: The MogulREIT II is also a public non-traded REIT. The main difference between the MogulREIT I and II is that MogulREIT II focuses on longer-term appreciation, and in turn, only pays out dividends to investors on a quarterly basis. 

The MogulREIT II generally invests in common and preferred equity investments in multifamily apartments. The historical dividends for MogulREIT II are lower than MogulREIT I, but that’s because, according to RealtyMogul, it aims for “significant value appreciation” in its share prices over time.

Access for non-accredited investors

While private placements are limited to accredited investors, both the MogulREIT I and II are available to both accredited and non-accredited investors alike. This means that investors have a choice of what they want to put their money into. In many cases, REITs are limited to accredited investors, so having two REITs available for non-accredited investors is a substantial perk.

Through the RealtyMogul platform, investors have the opportunity to invest in real estate opportunities online through a private, secure website. Investors can browse investments, review due diligence materials and sign legal documents securely online. Once invested, investors have access to an investor dashboard, giving them 24/7 access to monitor their money at work.

1031 exchange eligible properties

RealtyMogul also offers 1031 exchange eligible properties to investors, which helps cut down on costs associated with buying and selling properties. A 1031 exchange is a procedure that allows the owner of an investment property to sell it and buy like-kind property all while deferring capital gains tax.

By using RealtyMogul, you can find and invest in properties eligible for this type of capital gains tax deferment. This helps cut down on tax penalties incurred from buying and selling investment properties.

The benefits of using this exchange are as follows:

  • You can defer capital gains taxes on the sale of your property, and invest in cash flowing properties.
  • You can ensure certainty of closing and avoid property management headaches.
  • You can diversify your portfolio with a broad range of geography and property types.

Lower-risk deals

As touched on above, the deals on this platform tend to be lower risk than what you’d get with some of the other real estate crowdfunding platforms. While no investment is without risk, the upside of using RealtyMogul is that there is a lot of due diligence that goes into vetting the investment opportunities on this platform.

We’ll get into more on the safety measures in place for this platform below, but what you need to know is that generally, you’ll encounter investments with lower risk.

The option to auto-invest

Not all platforms offer the option to auto invest, but RealtyMogul does. After the initial investment into one of the REITs, you can auto-invest as little as $250 per month into your chosen REIT to continue building your investment on a monthly basis.

The Share Repurchase Program

If you aren’t happy with your REIT investment on this platform, or if you need access to your capital and can’t wait out the term of your REIT, you have the option to opt into the Share Repurchase Program.

This program allows shareholders to sell their MogulREIT I and MogulREIT II investments back to RealtyMogul for a reduced price after a year. One thing to note, though, is that these repurchases are “subject to availability of capital,” according to RealtyMogul.

If you want to sell back your REIT shares to RealtyMogul, here’s what you’re looking at on the repurchase price:

  • Less than one year: No repurchase allowed 
  • 1 to 2 years: 98% repurchase
  • 2 to 3 years: 99% repurchase
  • 3 or more years: 100% repurchase

Average Return to Investors

The average return varies by the type of investment you make. That said, the good thing about RealtyMogul is that they provide clear data and information on average returns since inception.

Here’s how the ROIs (return on investment) look per product:

  • MogulREIT I: The minimum initial investment amount for this type of REIT is $5,000 and the return is a 6% annualized rate of return.

    Dividends on this REIT are paid monthly, so what you get in return for your investment will depend on how much you invest. It’s important to remember that the dividends are paid out monthly, and the total you receive is 6% per year.

    If you want to know more about the historical returns for this REIT, you can find the monthly distribution information broken down by share here.
  • MogulREIT II: As with the MogulREIT I, the minimum initial investment amount for the REIT II is $5,000. The return is 4.50% annualized.

    Dividends on this REIT are paid quarterly, which means that you’ll get dividends equal to one-quarter of the 4.5% annualized rate for each quarter.

    If you want to learn more about the historical returns for the MogulREIT II, you can find the monthly distribution information per share here.  
  • Private placements: The average return information on private placements isn’t readily available. According to RealtyMogul, the average return on private placements can range from 0% to 15% annualized — which is admittedly a pretty wide range.

That variable rate of return is due mostly to the fact that individual properties vary widely from one another. What you stand to earn on your investment will be affected by a wide range of factors, including the total amount invested, the length of the investment, the type of project, the risk associated with the project, and of course other macro factors that deal with the health of the economy in general.

Potential Drawbacks

Any type of investment you pursue will have some drawbacks, and that’s true for RealtyMogul as well. The potential drawbacks of using this platform include:

  • Accreditation requirement for private placements: If you want to invest in private placements as a non-accredited investor, this isn’t the right platform for your needs. You have to be accredited to invest in RealtyMogul’s private placements, but you do have the REIT options if you want to pursue them.
  • A high minimum for investments: RealtyMogul requires you to invest at least $5,000 in its REITs and other investment opportunities, which means that you need to have a lot of spare cash on hand to invest via this platform. If you’re short on funds, or just aren’t ready to take the plunge, you may want to opt for an alternative platform.
  • Fees: We’ll talk more on these fees in the section below, but you should note that there are fees associated with using this platform.

Cost Associated With RealtyMogul

As mentioned above, there are some fees to pay when using this platform.

The fees you may encounter when using this platform for private placements include:

  • A technology services fee for private placements.
  • A 1% administrative services fee for private placements.

REIT fees include:

  • Operating fees of up to 3% of equity raised from REIT investors.
  • Asset management fees of 1% annualized, which is based on the average investment value.
  • A disposition fee of up to 2% of the contract sales price for each sold asset
  • An undisclosed promoted interest fee.
  • A servicing fee for performing investments, which amounts to 0.5% of the principal balance and accrued interest.
  • A special servicing fee for non-performing assets — which is 1% of the original value.

These fees can be costly depending on what you invest in, how it performs, and how much money you have invested in the platform. So, keep this in mind and be sure to do the math of what your investment will cost before you pull the trigger.

How are RealtyMogul’s Investments Sourced?

RealtyMogul’s investments come from two places: 1.) directly from borrowers, who submit deals to be considered and vetted by the platform; and 2.) via an in-house team that finds the investments that may fit its platform and market.

The potential deals that are presented to RealtyMogul are vetted to gain insights into things like the potential partner’s background, their experience, their references, etc. Background and criminal checks are also conducted to identify any pending litigation or items of concern.

Any and all assets that were previously acquired by the potential real estate partner company are then examined and compared to the scope of the proposed project. RealtyMogul also consults references to find out more about the potential partner(s) before any investment opportunities are listed on the marketplace.

How are the properties vetted

The quality of the property is obviously a huge point of consideration before accepting or rejecting it onto the marketplace.

RealtyMogul evaluates the property in 3 ways before coming to their determination. These are:

  1. Physical state of the property. The current physical condition of the property is assessed as well as the business plan or capital expenditure plan to renovate the property.
  2. Income generated and occupancy relative to market. RealtyMogul thoroughly evaluates the tenant population, the vacancy and rental rates of the asset, and then benchmarks these figures against comparables in the local market.
  3. Site visit. A RealtyMogul representative visits the property ALWAYS. This is a core tenant of RealtyMogul’s due diligence.

Who Is This Platform For?

This platform caters to a wide range of investors because it offers opportunities for both accredited and non-accredited investors. That said, while you can invest in the opportunities offered by RealtyMogul, you’ll have to have enough spare cash to do so.

The minimum investment on this site is $5,000, which means it’s geared toward investors who are both able to come up with the minimum requirement and unafraid of making larger investments. That can be limiting in many cases, as smaller or novice retail investors are welcome, but may not be able to meet the requirements for the minimum investment.

Otherwise, it’s a great way for investors to find individual projects to fund or to take advantage of what the REITs offer. If you can meet the minimum investment requirement, there’s likely an opportunity for you to invest on this site.

Is RealtyMogul Safe?

As we noted above, RealtyMogul does a deep dive into the backgrounds of the potential partners and the projects they’re presenting. The focus with this platform is on safer investment opportunities, so if you’re looking for a “safe” real estate investment opportunity, chances are good that the ones on this platform have been thoroughly vetted.

In addition to the vetting process, investors are also offered deal-specific information so that they can perform their own due diligence on the investment opportunities offered on the site, which adds another layer of protection to the mix.

RealtyMogul also works to protect the privacy and confidentiality of information transmitted through its platform. Some of the central features of its security program include:

  • Internal and external review of public and non-public sites and services.
  • The use of specialized technologies such as firewalls and encryption.
  • Rigorous multi-stage testing of the operability of products and features and updates for known vulnerabilities.
  • Monitoring of systems infrastructure to detect weaknesses and potential intrusions.

How RealtyMogul Differs From the Competition

We’ve pitted RealtyMogul against the largest and most popular crowd sourced real estate platforms on the web to give you an idea of how they stack up against the competition on some key metrics.

PlatformFeesMinimum InvestmentAnnual Returns
DiversyFund$0$50011 – 18%
Crowdstreet0.50% – 2.50%$25,00017.1%
Fundrise1%$5009.47%
RealtyMogul0.50% – 3.0%$5,000up to 15%

We should also note that the Share Repurchase Program is unusual for these types of companies and investment products. It’s not typically easy to get out of a longer-term investment once you’re locked in, but this platform offers a way for investors to do that with minimal loss after one year.fdiver

Roofstock – Invest in Occupied Rental Properties w Yields up to 12%


image credit: roofstock.com

The demand for real estate investment properties has skyrocketed over the past year. With extremely low mortgage rates and a hit-or-miss stock market, real estate investments are being snatched up in a matter of days — or in some cases, before they even hit the market — in cities and destination areas across the nation.

This drive for more real estate purchases has led to a shortage of housing in many markets. Add to it the ongoing demand for short-term rentals via AirBnb or VRBO and it can be tough to get your hands on a property to invest in, even if you offer more than the asking price. So, without a ton of inventory to choose from, what’s a would-be real estate investor to do?

Enter Roofstock, a real estate buying and selling platform that caters to investors who are interested in buying single-family rental properties in order to earn rental income. This platform differs quite a bit from some of the other popular real estate investing platforms like CrowdStreet or DiversyFund.

Here’s all the insight you need into how the Roofstock platform works and what it can offer you if you’re in the market for new rental investment properties.

What is Roofstock and Who is Behind It

Compared to some of the other real estate investment platforms, Roofstock is a relatively new online marketplace. Founded as an Oakland, California-based fintech startup in 2015 by Gary Beasley, Gregor Watson, and Rich Ford, this real estate platform serves as an online marketplace for investors who are interested in purchasing leased single-family rental homes. 

Roofstock primarily specializes in helping investors find the right real estate rental investments in the right areas, but it can be utilized by both buyers or sellers who are interested in purchasing or offloading rental properties. Available rental investment properties are posted on the marketplace, which only features single-family houses available for purchase — there are no multifamily units available on this site. 

While that may seem similar to your typical online real estate market, this platform is anything but. Unlike the properties listed on other online marketplaces, the majority of the properties listed on Roofstock are already occupied with tenants.

Roofstock marketplace snapshot. Yields ranging from 7.0% to 12.0%.

That focus on occupied real estate is due to the fact that this site caters to buyers who are only interested in purchasing rental investment properties — not traditional buyers who are looking for a new home to occupy. Having a property occupied with tenants is a major plus for real estate investors, who want to jump into rental homeownership with a steady stream of income in place.

This platform not only gives buyers and sellers a place to connect, but also offers multiple investment options that cater to a wide range of buyers. Buyers on this platform have the option of purchasing individual single-family properties, multiple property portfolios, property shares, and also have the option to bring their own property to the platform. We’ll go into more detail on these options below.

In addition to offering a marketplace and a way for buyers and sellers to connect over rental housing purchases, this platform helps to facilitate full service real estate transactions from start to finish. You’ll get access to everything from underwriting to lending partners and insurance providers, right on the platform. 

All steps of the rental investment buying process, from the purchase price to the down payment and the fees you pay for your purchase, are handled right on the platform. This fully-online process not only helps buyers and sellers close transactions quickly, but helps to cut out the expensive middlemen involved in traditional real estate sales. 

These unique informational features, along with a range of investment options and a slew of other benefits, are what helps Roofstock stand out from the competition in this niche. 

Features and Benefits

One of the main benefits of using Roofstock is that it offers a wide range of buying options for investors. 

To start, Roofstock offers buyers the option to purchase individual single-family rental homes for sale. These single-family options are posted on the marketplace and are available for potential buyers to virtually tour to find the right property for their needs.

Investors who are interested in purchasing multiple properties have the option to purchase real estate portfolios in bulk from the same seller on this platform. Using the portfolio option can increase your chances of getting the best deal from the seller, though it will obviously increase the purchase price since you’re purchasing multiple rental properties in one swoop.

Below is an example of a portfolio of 12 homes for sale in the Chicago area:

This Roofstock portfolio investment provides a gross yield 10.3%.

Taking the portfolio purchase route can also increase your chances of getting the best lending rates during the financing process. Because Roofstock’s lenders are well-versed in real estate investment funding, they won’t be scared off by multiple investment property purchases the way some traditional lenders might be.

The platform also gives buyers access to Lennar Homes’ newly-constructed homes across the nation for investment. These homes offer upscale features backed by Lennar Home Warranty, which can be purchased as vacation rentals or investment rental properties. 

As with the other homes on the marketplace, you can sort through the available new construction homes from this builder, learn the nuances of these properties as they pertain to the rental market, and purchase a Lennar home through the platform.

And, there are other buying options to note as well. Aside from single and portfolio purchases, Roofstock also offers buyers a “bring your own property” option. If there is a rental property you’re interested in purchasing, you simply submit the address on the platform as a rental property investment not currently listed in the Roofstock marketplace.

The property you “bring” to the platform will then be screened by Roofstock’s underwriting technology. If approved, the platform will connect you with a vetted Roofstock local real estate agent who will email a private link that gives you access to the underwriting details and pro forma return projections — which is exactly what you’d get with other properties in the marketplace.

Investors who prefer to buy into real estate property shares will also have that option through this platform. In 2019, Roofstock launched a property shares option called Roofstock One, which allows investors to buy shares of an individual rental home for as little as $5,000.  

This option allows buyers to generate passive income without the operating responsibilities, and also allows buyers to diversify investments across multiple homes and locations. The properties are managed through Roofstock, and if you need to sell your shares, you can. This option is available to owners who need to offload their property shares at any time.

Buyers using Roofstock will start the process of vetting new rental investment properties by using custom filters to tailor the search by list price, desired return, location, or other important metrics. This makes it simple to find the right types of properties in the right areas.

You can also sign up for alerts on new property listings that match your search parameters. Doing this will allow you to be notified when a property that matches your needs becomes available — and gives you a leg up on the buyer competition.

Once you’ve found a property that matches your needs, you can virtually “tour” the property via pictures, floor plans, 3-D tour, 3-D model, and a curb view, all of which are available on the Roofstock platform. These features help to give you a clear idea of what the home looks like, both inside and out.

Buyers who use Roofstock are also offered lots of other insight into each home listed on the platform. This information is available via research, analytics, and in-house certification, all of which help to ensure that the homes listed on this site are good investment opportunities.  

You also get access to a wide range of useful tools on this platform, which can help you make the right decision when it comes to your rental investment purchases.

These tools include:

  • Neighborhood ratings — Roofstock offers buyers a system of neighborhood ratings that ranks important factors like home values, average rent, income levels, employment rates, education levels, crime data, percentage of owner-occupied homes and school district ratings. This system ranks neighborhoods on a scale of 1 to 5, with 1 being the most risky and 5 being the least risky.
  • Property inspection and valuation — Properties listed on the Roofstock platform must meet the company’s strict certification parameters and must pass a property inspection, which are conducted by a Roofstock-approved vendor within four months of the purchase date.
  • Title report and insurance quote — Roofstock also offers buyers title reports and insurance quotes as part of the buying process. 
  • A unique 30-day guarantee — Buying a home online can be tricky, which is why Roofstock offers a 30-day guarantee on purchases. If you’re not happy with your property purchase, Roofstock will re-list the property for free on our marketplace or any other channels. When the property sells, the company will refund the original purchase price at closing regardless, whether it sells for more or less than you paid for it. If the home doesn’t sell within 180 days, Roofstock will buy back the property and you will receive your refund when the property closes. 
  • Interactive cost tools — These tools help you visualize return and cost estimates so you have a clear understanding of what your costs will be, and what your potential returns will be, on each property.
  • Current lease, tenant details, and payment history — This information gives you a clear idea of the type of tenants and the type of rental history the properties have. If a tenant is late on payments or if a property has been unoccupied for long stretches of time, you’ll know from the report.
  • Built-in financing and insurance on Roofstock One — Roofstock One, Roofstock’s property shares service, also offers buyers built-in financing and insurance to help expedite the investment process.

If you find that a property matches your specifications and you want to make an offer, you do that right from the platform. If you’re financing your purchase, you can also use the platform to get pre-approved by a lender before submitting an offer. Just as it does with traditional real estate purchases, a pre-approval will strengthen your offer and set you ahead of buyers who make offers without any proof of funds.

If your offer is accepted by the seller, Roofstock’s platform allows you to complete the rental property home purchase online. The company’s service and transaction team will help to guide you from escrow through the closing process. 

Once you officially own the property, you can opt to use Roofstock’s concierge services to manage your properties. This optional service gives you access to property managers who are vetted by the platform who can handle the day-to-day management duties of your rental properties. This includes repairs and maintenance and tenant communications. These property managers make it much easier for investors to focus on the other aspects of property rental investments.

Average Return to Investors

There are multiple purchase options available to investors on this platform, which makes it tough to estimate exactly how much investors earn as returns on their property investments. How much income you earn will depend heavily on the type of investment you buy into, the rental market in the area, and other factors unique to your purchase.

That said, you aren’t expected to invest in properties on this platform without any information on the return on your investment. As noted above, Roofstock offers insight into each property on its platform.

In general, the single-family properties listed for sale on this platform typically have a cap rate of between 5% and 8%. The gross return on most properties listed on the Roofstock site is generally estimated to be between 11% and 12%, though it’s important to note that the estimate is before expenses.

You can also find the expected appreciation on each property right on the site, which gives you more data to work with when calculating the potential return on your investment. All of these factors: the cap rate, the gross return, and the potential appreciation, will play into what your return on investment is.

And, it’s important to remember that the type of property you purchase will also play a significant role in your ROI. If you’re buying a portfolio of properties from a single investor and are able to get a significant discount for your purchase, you may see returns much higher than the average. 

On the other hand, if you’re buying into property shares, you’ll have a different way of calculating the ROI on that type of investment. Ultimately, what you earn on your investment is not cut and dry with this platform because of the number of options you have for investing with Roofstock. You can learn more about calculating your return on Roofstock investments here.

Potential Drawbacks

While there are plenty of potential perks to using this platform, there are also potential drawbacks. These include:

  • Accreditation requirements for Roofstock One — If you want to invest in property shares with Roofstock One, you’ll need to be an accredited investor who is able to meet the SEC guidelines. This can be tough for smaller investors because the SEC requires accredited investors to meet one of the following requirements:
    • An individual income of more than $200,000 per year in each of the last two years and expectations to exceed the threshold in the current year
    • A joint income between spouses of more than $300,000 per year in each of the last two years and expectations to exceed the threshold in the current year
    • A net worth exceeding $1M, excluding your primary residence, either individually or jointly with your spouse
    • An investment on behalf of an entity with at least $5M in assets or an entity in which all the equity owners are accredited investors
  • A higher cost for most investors — While you do have the option to invest in property shares via this platform, the primary purpose of Roostock is to allow you to buy individual investment rental properties from sellers. Investing in these properties can be more costly than taking the REIT route, so it generally requires a larger investment from buyers for the down payment and ongoing maintenance or repair costs.
  • Longer-term investment — Unlike many other types of investments, you own the property you invest in on this platform. That requires a longer investment than buying stocks or shares of an REIT.
  • No multi-family investment options — Roofstock does not offer multifamily properties at this time. The only options for investors are single-family homes or shares of single-family homes, not apartment buildings, duplexes, or other multi-family units.

Cost Associated with Roofstock

It’s free to create an account on Roofstock. Where this platform makes its money is through buying, selling, and property management fees and associated costs.

For example, as a seller, you list your property without paying anything upfront. If your property is sold, you’ll pay a fee of either 3.0% of the sale price or $2,500, whichever is greater. That may seem pricey, but it’s typically just a fraction of the traditional 6% broker fee that is charged by most real estate agents.

It is also free for buyers to make offers on properties when using this platform. The costs trickle in when an offer is accepted. Still, it’s much less costly for buyers than sellers to use this platform. When an offer is accepted, Roofstock charges buyers a marketplace fee equal to 0.5% of the contract price or $500, whichever is higher.

You will also pay fees for the optional property management services listed on this site. These fees will vary based on the property manager you choose, but according to Roofstock, you can expect to pay a setup fee, or on boarding fee, of about $300 or less at the start of the contract. 

This fee covers the cost of setting up your account with a property management company. It may also cover an initial inspection upon closing to assess the current condition of the property. You may also pay a one-time leasing fee of between 25% to 75%, or a flat fee, whichever your property management company prefers.

Property management also includes ongoing monthly fees each month. What you pay for these fees will depend on the property management rates, which are determined by the company you choose. You may also be responsible for lease renewal fees and maintenance costs, though it will depend on the property management company you choose.

How are Roofstock’s Investments Sourced

The investments on this site are sourced primarily by sellers posting their property listings on the site. 

Sellers create a free account and then enter the property information by answering a series of questions and uploading photos of the property. They receive a free price estimate based on the information submitted to the platform.

Once Roofstock has the information it needs, the company performs up-front due diligence before it’s listed for sale, which includes securing a property inspection, ordering a preliminary title report, and gathering key documents for potential buyers.

If everything checks out, the listing is posted to the site in the marketplace to be showcased to buyers. 

The process of sourcing investments for Roofstock One is similar. Unlike REITs, which generally include several properties, Roofstock One offers investors shares of individual properties, and investors choose the properties to invest in. Sellers offer these properties for sale to Roofstock, and the company performs the same due diligence, including inspections, title reports, and key documents.

Who is this Platform For

It depends which part of Roofstock you want to utilize. If you want to use Roofstock to purchase individual properties for sale to investors, you don’t need to be accredited to do so. All you need is a desire to buy an individual single-family rental investment property, a down payment or cash for the purchase, and/or the ability to secure funding for your purchase. This opens the platform up to a wide range of investors — both large and small.

If you want to invest in property shares via Roofstock One, you’ll need to be an accredited investor. The SEC accreditation requirements can severely limit who is able to invest via this part of the platform. If you aren’t accredited and don’t meet the requirements to be accredited, you’ll need to invest in property shares on a different platform.

Is Roofstock Safe

As with any type of investment, there is risk to investing with Roofstock. That said, this platform does its due diligence with the properties it offers for sale, and you should, too. The tools are available on-site for you to vet properties thoroughly and make the best decision for your needs.

If you carefully survey the rental and tenant history as well as the other information made available to you, this platform is about as safe as any other investment. Plus, the 30-day guarantee offered by Roofstock adds some added protection to the mix. You have a full month to learn whether or not you are happy with your purchase, and if you decide it wasn’t the right move, this protection offers you a way out of your investment without significant losses.

How Roofstock Differs from the Competition

The main difference between Roofstock and the competition is that this platform offers full-service single-family rental investment purchases from start to finish. It connects you with lenders, offers underwriting in-house, does the background work for you, and walks you through the closing process, from escrow to ownership.

Having access to information like rental histories or tenant payment histories is also a unique feature. Roofstock gives you this information up front, which allows you to see a clear picture of what the history of the rental property truly is. That’s a huge plus for investors, who will know exactly what to expect from the tenant, and what to expect in the rental market, before making any purchases.

It also allows non-accredited investors to buy into property investments via the single-family investment options. You don’t have that option with most REITs, so this platform is more accessible than much of the competition. 

The fees differ from other competitors, too. Roofstock is upfront about the fees it charges to buyers and sellers, and they’re much lower than you’d get with other similar platforms. Sellers pay about half of what you’d expect to pay when selling a house, and buyers pay even less for their portion of the translation.

The 30-day guarantee is also a feature worth noting. There aren’t many investment opportunities that offer similar protections to investors, even in the real estate space. This alone sets Roofstock apart from the competition.

Final Thoughts

The only real downsides to using this platform are that the Roofstock One platform is limited to accredited investors, which severely limits who can buy into property shares via this site, and that the returns on your investment vary significantly from property to property. You also can’t purchase multi-family units on this site, which may put off buyers looking for these types of properties.

That said, this platform shouldn’t be overlooked simply because of the accreditation requirements or other limitations. The Roofstock marketplace offers a surprising amount of tools to real estate investors interested in single-family rental purchases. Those tools, coupled with the low costs and streamlined transaction process, far outweigh any potential negatives with the platform. 

As long as you do your homework, vet the properties, and use the information provided to you, Roofstock can be as safe — and potentially as lucrative — as most other types of investments.

Groundfloor – Averaging 10.5% APY for Investors!


This infographic shows the flow of funds with a Groundfloor investment. Image credit: groundfloor.us

The real estate market has seen a huge boom over the last year, thanks to historically low mortgage rates and a rise in long-term remote work in a wide range of fields. This is especially true for owner-occupied and investment properties, which in hot markets can be rented to tourists on a short-term basis for high returns.

And, real estate purchases aren’t the only property-related transactions that are booming. Real estate crowdfunding, which lets investors pool their collective funds together and lend companies the money for real estate transactions via private REITs. This type of alt-investing can be a great way for companies to crowdsource funds for large real estate purchases, as traditional lenders aren’t always open to offering this type of funding.

Real estate crowdfunding can also be great for investors, who stand to make a high rate of returns on this type of investment. But, while real estate crowdfunding can be lucrative, it isn’t generally offered by your traditional brokerages. If you want to get into real estate crowdfunding, your best bet is to take advantage of what a real estate investing platform like Groundfloor can offer you. Groundfloor offers easy access to short-term, high-yield real estate debt investments to the general public — and you can start investing on this platform with as little as $10.

The Groundfloor platform offers a number of other user perks as well, and may even offer what you’re looking for if you’ve been considering adding real estate to your portfolio. Read on to find out how this real estate investing platform can help you conquer the world of real estate investing without the laborious accreditation requirements or large financial commitments you’ll face with other platforms.

What is Groundfloor and who is behind it?

Groundfloor is a real estate investing platform aimed at both borrowers and investors. This platform specializes in offering short-term residential property loans that individual investors can fractionally invest in to real estate developers and independent home builders. Borrowers can use the money from these loans for new construction or renovation projects. Once the projects are complete, the borrowers either sell the property to repay the loan or refinance the loan money and keep the property to be leased out to tenants, while investors in the projects receive a return on their investment.

This company was first established in 2013 and is headquartered in Atlanta, Georgia. This platform is used by both borrowers who are in need of funding for real estate projects and by novice and high-volume investors alike to make short-term, high-yield, short-term real estate DEBT investments.

The minds behind this business are some of the best in the business, starting with CEO Brian Dally, a Harvard MBA and law grad, who has worked for startups in Silicon Valley, Boston, and London prior to helping co-found Groundfloor alongside Nick Bhargava, who has a financial services background.

While Groundfloor is hardly the only real estate investing platform available to investors, it does offer some unique perks to both investors and borrowers. For starters, Groundfloor was the first company to be qualified by the U.S. Securities & Exchange Commission to offer direct real estate debt investments for both non-accredited and accredited investors alike.

The investments on Groundfloor also have shorter terms than the competition. Most real estate investment platforms that allow investors to own an equity stake in real estate property via eREITS or other types of funds tend to have long investment terms. In general, it takes about three to five years to see returns or repayments from competitors.

That’s not the case with Groundfloor. The investment options on this platform are based on secured, collateralized real estate debt, and all have shorter terms. The average investment time from investment to return and repayment on Groundfloor is generally about 12-18 months. That short turnaround time is a huge perk for investors, who may not be able to tie up their money for years on end.

That’s not the only upside to a shorter investment term, either. In general, shorter investments tend to carry less risk for both the company and the investor, and that pays off in spades. According to Groundfloor, the platform has been able to generate consistent 10% returns for its investors for at least the past six years, and investor repayments are generally received in six to nine months on average.

All of these unique perks have led to a steady investment by users interested in helping to fund real estate projects. Since 2018, a total of 5,000 shareholders have invested over $16 million in the platform to help fund real estate projects.

Some of that popularity may be due to the low buy-in that Groundfloor offers. While other REIT or real estate crowdfunding platforms require at least a few hundred dollars minimum to invest, Groundfloor cuts that buy-in price to just $10.

That, coupled with a high rate of return and easy-to-navigate investments, have kept the investor money flowing for borrowers on this platform.

Features and benefits 

The main benefit of Groundfloor is that the platform offers the chance for real estate entrepreneurs and investors to invest in the residential fix-and-flip and new construction markets. This is done investing in the loans that Groundfloor offers to real estate developers. The draw of these loans is the option for borrower-friendly terms, like deferred payment options, which can give developers more control over their cash flow.

When borrowers fund a construction project through Groundfloor, they’ll get a hard-money loan for each project. The money is fronted by Groundfloor initially to the borrower, who receives the funds after their application is approved.

Once the loan is originated and the money is distributed to the borrower, the loan is transformed into a security known as a limited recourse obligation (LRO). Then, the loan is placed on the platform and made available for investment.

After the loan is available on the platform, investors can choose to invest in the projects that fit their specific parameters, $10 at a time. When an investor invests in an LRO, they are essentially “sold” a piece of the loan that was made to the borrower to finance their project.

Here are some of Groundfloor’s recent repaid investments (above).

These types of loans tend to be safer than offering money for personal loans or other types of loans because the real estate loan is backed by the tangible property that the loan is funding. Plus, the projects that these loans are funding are all projected to produce a profit, which will be used to repay the loan quickly. That makes the risk much less great than it would be with many other types of investments, including stocks or alt-coins.

As mentioned, the average time to recoup both the initial investment made with Groundfloor and the return on the investment averages between 12 and 18 months. That’s a much shorter term than you’d get with a competing platform like DiversyFund, which requires investors to tie up their money for five years, with no dividends or interest paid out during that time.

Plus, there are other benefits to using Groundfloor to invest in real estate. These include:

  • A $10 initial investment: At minimum, other real estate investment platforms require at least a few hundred dollars to get started. Groundfloor, on the other hand, lets you start investing with as little as $10. Not only is that attainable for most investors, it’s much, much lower than the $1,000 to $25,000 minimum that is required by most private REITs. It’s important to note that the minimum investment with Groundfloor is also a lot lower than the price on most reliable stock shares. 
  • Choices and control: Rather than using investor funds to invest in projects that Groundfloor deems a fit, the investors on the platform have choices of what to invest in. They can choose the LRO that fits their requirements and choose how much to invest in each project. That gives investors total control of what their money is funding.
  • Monthly interest payments: The borrowers on the platform pay a monthly interest fee, which is of benefit to the investors, who stand to make at least some return on their money while waiting for repayment of the loan.
  • A fractional system for investors: The main reason why the investment requirements are so low with this platform is because Groundfloor allows for fractional investments. As touched on above, the loans are basically divided up and funded by the totality of the investments, so there is no need for investors to come up with a large sum of money to solely fund a project.
  • Open to both accredited and non-accredited investors: Unlike most traditional REITs, Groundfloor does not require investors to be accredited before they can invest. This can be an extremely useful feature for lower-volume investors, who may have trouble meeting the accreditation requirement set by the SEC for individual investors. 

    The SEC requires a net worth of more than $1 million — not including your residence — or an annual income of at least $200,000 per individual for at least two years to become accredited. What that means for the average Joe is that it is extremely hard, if not impossible, to become accredited. That can limit investment options, but luckily, there’s no need to worry about that with this platform.  
  • A culture of transparency: Transparency is the name of the game with Groundfloor. The company regularly publishes detailed information regarding their portfolio performance, along with monthly overviews of loan repayments and asset management activities. All of this information is available right on its blog, which means it’s easy for both potential and current investors to access.
  • Diligent and thorough asset management: GROUNDFLOOR employs proactive asset management processes to help ensure that projects stay on track. Their team carefully monitors each and every loan from start to finish, measuring project progress against the stated plan and budget to help identify and catch any potential or anticipated problems, and they remain in close communication with borrowers to ensure timely follow up and completion of deadlines. GROUNDFLOOR is clear that their goal is not to never have a loan default; in fact, they often proactively place loans in default to encourage the borrower to get the project back on track.
  • Automatic investment options: One of the best perks of this platform is the automatic investing feature, which allows you to set the options for how much you want to invest in each loan — and how much you want to invest in each loan grade. Once you’ve set the parameters, Groundfloor’s system will automatically make investments for you based on your criteria once new loans become available.

    Even better? This feature can be used with automatic transfers and to reinvest the principal and interest payments you receive on your investments.

Average return to investors

As with most real estate crowdfunding investments, the returns made on Groundfloor investments can be extremely lucrative. According to Groundfloor, the platform has been able to generate consistent 10% to 10.5% returns for its investors. That figure has remained consistent over the past six years.

Plus, Groundfloor originates 60 to 70 loans a month, which means there are numerous opportunities each month to invest in the LROs that fit your needs. In total, over $12,600,000 in interest has been paid out to investors on this platform since its inception.

The return on this platform is based heavily on the grade of loan you invest in. Grade A loans, for example, offer returns of about 6% on average — as they’re the most safe bets you can make.

Grade G loans, on the other hand, are more risky. With that risk can come reward. With Grade G loans, you’ll generally be offered returns of up to 25%.

The typical rate of return for each loan grade is as follows:

  • Grade A: 6%
  • Grade B: 8%
  • Grade C: 11%
  • Grade D: 14%
  • Grade E: 18%
  • Grade F: 21%
  • Grade G: 25%

Potential drawbacks

While there are opportunities for a healthy return on your investment with this platform, there are also potential drawbacks. These include:

A higher rate of default: The general nature of hard-money lending — which is what Groundfloor does with borrowers — means that there is a higher rate of default than you’d see with your typical residential loans. That isn’t unique to Groundfloor; it’s a drawback of hard-money lending across the board.

That said, about 2% of the properties Groundfloor has funded through its portfolio have gone through foreclosure in the past. That is much higher than the national foreclosure rate during that time, which was about 0.6%. So, there is some risk with this type of investment, whether you’re using Groundfloor or another platform or REIT.

Groundfloor returns the pro rata net proceeds of such recoveries to investors. This has been necessary in only approximately 1% of the loans they’ve originated, and because of their lien on the underlying property, this has translated into a loss ratio of just 0.62% of total invested principal.

They also stress diversification and this is one reasons they have that $10 minimum – it allows for the ability to vastly diversify across multiple projects.

No mobile app: There is currently no mobile app associated with Groundfloor. They have one slated to launch this year, but for now you’re stuck with their mobile web presence if you want to manage your account on the go.

The potential for a long foreclosure process: If the borrower stops paying on their loan, Groundfloor attempts to negotiate with them before jumping into the foreclosure process. If the negotiation fails, the foreclosure process has to happen, which is expensive — and long. It can take months to make its way through court. After the property is foreclosed on, Groundfloor will then oversee the rehab and sale of the property.

The risk for high LTVs on properties: While the return on these investments can be lucrative, the reality is that there are properties with higher loan-to-value ratios on the platform. These types of loans can be risky, as investors may not recoup the money expected in the sale of the property.

Cost associated with Groundfloor

There are no costs for investors on the platform. Groundfloor makes its money by charging the borrower fees instead. The fees are based on the loan grade — the riskier the loan, the higher the fees — and the costs range between 2% and 4.5% of the loan’s principal.

Anyone with at least $10 in their pockets and interested in loaning money for real estate fix-and-flip deals can take part in this type of investment, which means that there’s a significant draw to investing on this platform.

Other than the initial investment requirement of $10 and any additional money you invest, the only costs are on the borrower end of this equation. You won’t have to foot the bill for management costs or other hidden fees, either — but the borrowers who use this platform will.

How are Groundfloor’s investments sourced?

As with most traditional lenders, Groundfloor’s borrowers find them — not the other way around. Groundfloor is a direct lender offering crowdsourced capital for short-term residential real estate loans, and the borrowers who want to obtain financing through this lender simply need to apply and be approved.

Groundfloor currently offers 6, 9, and 12 month loans to real estate investors for 1-4 Unit properties. Borrowers and properties must currently be located in the following 31 states or territories to qualify:

  • Alabama
  • Arkansas
  • Arizona
  • Colorado
  • Connecticut
  • Washington, DC
  • Florida
  • Georgia
  • Illinois
  • Kansas
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • Missouri
  • North Carolina
  • Nevada
  • New Hampshire
  • New Jersey
  • Ohio
  • Pennsylvania
  • Rhode Island
  • South Carolina
  • Texas
  • Utah
  • Virginia
  • Washington
  • Wisconsin

Groundfloor is attractive to borrowers because it offers up to 100% loan-to-cost borrowing, depending on experience and true deferred payments. The closing turnaround is short, too. It can take as little as three weeks to close on a loan through this lender — which is another perk that keeps borrowers flocking to this source of funding.

Who is this platform for?

In general, the Groundfloor platform is a great option for all types of investors — especially those who are interested in real estate crowdfunding and the perks it offers to investors. It’s also great for borrowers, who may have an easier time obtaining funding when compared to traditional lending options.

This platform isn’t a traditional REIT, so it’s also great for investors who want to invest in real estate but can’t meet the accreditation parameters set by the SEC. The number of platforms that allow non-accredited investors to buy into REITs or real estate crowdfunding are limited.

It’s also a smart move for investors who don’t have much to gamble with. The minimum investment of $10 is attainable to nearly everyone, which is part of what sets Groundfloor apart from the other investment opportunities.

Investors may also find this platform useful if they’re new to real estate investing and want to dip their toes in before making any major moves. With such a low requirement, this platform can help novice investors feel secure in this type of investing before taking a dive into a much more costly venture.

Is Groundfloor safe?

All investments can be risky. While Groundfloor can offer 10% returns on your investment, it can also cost you. If a borrower defaults, or if a property is sold for less than expected, your return may not be as high as expected. Or, in cases of foreclosure, it can take much longer to see your initial investment money returned to you.

That said, Groundfloor is a generally safe way to invest in real estate. You’ll need to hedge your bets on smart investments, but you have full control over where your money goes on this platform, and there’s ample opportunity to diversify with their low minimum of just $10. You’ll be given the information on the loan grade, and you can choose what you’re comfortable with — and what return you’re aiming for.

That grading system and the control of your investments is, more than anything, what determines how “safe” this platform is for you. You’ll have to decide whether your money is safe with a high-grade loan, or whether you’re willing to bet it all on more risky loans to reap the potential benefits.

How Groundfloor differs from the competition

The main difference between Groundfloor and the competition is that Groundfloor allows non-accredited investors to put money into real estate transactions. There aren’t many options out there that allow for this — not in the real estate investment capacity anyway, and certainly not when it comes to private REITs.

The other noteworthy difference is the low minimum investment required by this platform. For just $10, anyone interested in real estate investing can become a part of this platform. That’s a unique feature, one that could help level the playing field between novice or low-volume investors and the big guys.

Couple that with the high rate of return, the lack of fees, and the control you get over your investment strategy, and you may find that this platform is a real standout against the competition. Where else can you start out with a $10 investment with no additional fees tacked on?

Final thoughts

In a sea of crowdfunding platforms, Groundfloor is a real standout. This real estate investing platform offers a high rate of return and total transparency, which is certainly not standard in this industry. Plus, the shorter investment terms of 12 to 18 months, along with monthly interest payments to investors, can mean a quick turnaround between investment and payoff. If you’re willing to take on more risk for the higher returns, this platform could be the right move for you.

On the other hand, if you’re going to need access to your money in a shorter time frame, or if you’re worried about the risk of defaults, you may want to think twice about using this platform. While it can be a great move for some, it can prove too risky or too long-term for others.

Either way, just make sure you do your homework and understand the risks and benefits of this, or any other real estate crowdfunding platform, before investing.

DiversyFund – Earn 10-20% APY in their Growth REIT!


image credit: diversyfund.com

The investing atmosphere has changed significantly over the last decade or so thanks to advances in technology, which have made it possible to diversify investments well outside of the traditional options. Gone are the days of being limited to the stock market, bonds, or other well-known assets. These days, you can invest in just about anything.

Putting money into “alt” investments — things like cryptocurrency, altcoin, or even startups — can be just as lucrative as those traditional investments, and in some cases, even more so.

Take real estate crowdfunding, for example. This type of investing lets investors pool funds together to help fund real estate transactions through private REITs, which traditional brokerages don’t offer. Not only does this type of crowdfunding make it possible to source the cash for risky or high-cost real estate purchases, but in many cases, it offers significantly higher returns for investors.

While this type of investing was once limited to those with significant amounts of cash, the introduction of real estate crowdfunding platforms like DiversyFund have lowered the barrier for entry. DiversyFund makes it easy — and cheap — to start investing in real estate. Unlike other real estate crowdfunding platforms, this company owns and manages properties directly — and you can get started with as little as $500.

Ready to learn more about what DiversyFund offers investors? Let’s take a look at how this real estate crowdfunding platform can help you quickly and easily get started with investing in real estate without a huge financial commitment. 

What is DiversifyFund and Who is Behind it?

DiversyFund is a San Diego, California-based REIT platform that has been in business since late 2016. It was started by founders Alan Lewis and Craig Cecilio, who raised $13.8 million through a Series A to help fund the venture.

As a company, DiversyFund markets itself as a good alternative to investing in stocks or other traditional investment assets. It only offers one product, which is a public REIT, via a real estate crowdfunding platform with a low buy-in for investors. In other words, using DiversyFund gives investors access to real estate via its private REIT, which invests in real estate.

That said, DiversyFund differs quite a bit from the competition. There are plenty of REIT crowdfunding platforms available to choose from, but in most cases, the platforms simply act as brokers to help pair you with specific projects that need funding. That is not the case with DiversyFund, which owns and manages its own properties.

The REIT offered by DiversyFund generally focuses on purchasing large-scale apartment complexes in need of updates and improvements. The goal is to make improvements and resell the properties purchases with the crowdsourced funds within five years. That helps cut down on costs associated with these types of investments, including management fees, which aren’t part of DiversyFund’s fee structure for investors.

And, there are more features that set this crowdfunding platform apart. While many real estate crowdfunding platforms require you to be accredited to invest, DiversyFund welcomes nonaccredited investors. This makes the barrier for entry much lower — and much easier to meet as a novice investor.

The buy-in is low for investors, too. In May 2019, DiversyFund dropped its minimum investment from $2,500 to $500, making it easier for investors of all types to dip their toes into the DiversyFund REIT pool.

Features and Benefits

Shown above are DiversyFund’s featured growth REIT investments. IRR = Annual Yield.

The main draw of DiversyFund is that it allows investors to easily buy into its Growth REIT (featured properties shown above), a public, non-traded fund that invests in cash-flowing apartment buildings. The apartment buildings DiversyFund invests in are value-add investments that are at least 100 units in size.

Once DiversyFund obtains these cash-flowing apartment buildings, it renovates the properties and then re-positions them — marketing to a new clientele with upgraded amenities and features in hopes of attracting higher rents. The renovated, repositioned properties are later sold for a profit, which is when investors receive their principal investment back, along with a cut of the profits.

In general, it takes about five years for investors to make back their principal and reap the benefits of any profits when investing in this REIT. The soonest DiversyFund plans to sell off its current projects is 2023, which means that investors are in for a wait if they want to take advantage of what this REIT offers.

That said, if done correctly, this repositioning done by DiversyFund will pay off significantly for both the company and the investors, both of whom stand to make serious gains within a few years time. We’ll talk more about that below.

Profits aside, there are a number of other unique features and benefits of investing with DiversyFund, including:

  • A much lower minimum investment compared to the competition: DiversyFund only requires investors to shell out a minimum of $500 to invest in the REIT it owns. That is significantly lower than the $1,000 to $25,000 minimum required by other private REITs.
  • No accreditation requirement: There are quite a few real estate investment platforms that require investors to be accredited. The SEC requires a net worth of more than $1 million — not including your residence — or an annual income of at least $200,000 per individual (or $300,000 per couple) for at least two years to become accredited. That makes it tough for smaller investors to buy in.

    DiversyFund, on the other hand, doesn’t require investor accreditation, so investing on this platform is open to all U.S. resident investors who can meet the $500 minimum.
  • An invested company: DiversyFund owns and runs its own investment properties, which means that the company has a vested interest in maximizing profits. That isn’t the case for other platforms, which act as matchmakers between projects and investors. 
  • No expensive management fees: It’s common for crowdfunding real estate sites to charge management fees. These fees are meant to cover the costs associated with the platform as well as the costs incurred to pair investors with projects. These types of fees start at about 1% on average, though they vary from platform to platform.

    These fees don’t exist with DiversyFund. This platform owns and operates all of the real estate projects investors buy into, which means that there aren’t the extra management costs to cover by investors.
  • Easy investment tracking: DiversyFund currently invests in properties in three areas — California, Texas, and North Carolina — though its website notes that it makes investments nationwide. Any property that DiversyFund invests in is included in the same REIT. Investors can keep tabs on the property performance through the website, which makes it easy to keep track of where your money is going and how the investment is performing over time.

Average Return to Investors

When DiversyFund sells the properties it invests in, the investors will get their principal back and a 7% preferred return before the company receives any profits. This guarantees investors a 7% return on the money they invested in the Growth REIT. That said, the profits aren’t limited to just 7%.

If the assets are sold at a profit above 7%, subsequent profits of up to 12% will be shared between the company and the investors. Investors stand to earn 65% of the profit above 7%, while the other 35% goes to the company. Any remaining profits over 12% are split 50/50 between the investors and the company.

That means the profits can vary greatly with this REIT, and what you stand to make will depend heavily on the projects that DiversyFund has invested in. On average, though, most investors make a return of between 10% and 20% with the Growth REIT, according to the company.

Potential drawbacks

As with any type of investment, there are also potential drawbacks to investing with DiversyFund. These include:

A long investment period: Investing in the Growth REIT requires you to part with your money for a long period of time. It takes about five years for investors to receive their principal and profits from DiversyFund, which means this longer-term investment may not work for people looking for quick profits.

No dividends: Unlike other types of investments, you won’t receive cash flows or dividends from DiversyFund. Any dividends are reinvested into the fund, so you’ll have to wait until the properties are sold at the close of the project to receive any profits at all from your investment.

No option to sell your interest: Many types of investments will allow you to sell your interest to recoup your money at any point. That is not the case with DiversyFund, as there is no secondary market that allows you to sell your interest in the fund. Once you’ve invested, your money is tied up until DiversyFund sells the properties and pays out your principal and profits.

Limited control over investments: DiversyFund is in control of what they invest in from start to finish, which means you don’t have a choice in what projects you’re lending your money to. If you’re uncomfortable with the idea of a company having complete control over the projects that your money funds, you may want to choose another real estate crowdfunding platform that allows you to pick and choose by project. 

Cost Associated with DiversyFund

Unlike other real estate crowdfunding platforms, DiversyFund is fee-free because it owns the properties you are investing in. That eliminates the high cost of management fees that can come with other REITs.

When you sign up for DiversyFund, every dollar of your investment goes toward your shares. Each share is $10, and the minimum amount you can invest is $500, which gives you 50 shares in the Growth Fund.

You can choose from three different types of investor options: Starter Investor, Auto Investor, or High Growth Investor. The minimum investment for Starter or Auto is $500; the High Growth Investor minimum is $15,000. The difference between the Starter and Auto Investor options is that the Auto Investor requires you to set up monthly automatic deposits following your initial $500 deposit.

Other than that initial investment requirement (and any additional money you invest), you won’t be required to cover any other costs when investing in the Growth REIT.

How are DiversyFund’s Investments Sourced?

DiversyFund has a lot of skin in the game when sourcing investments for its real estate crowdfunding platform. It only invests in multifamily real estate — otherwise known as apartment buildings — and the properties have to meet the strict criteria set by DiversyFund’s real estate experts.

According to DiversyFund, the investments have to offer strong potential for increased value at the time of resale. The properties they acquire also have to have 100 units or more.

The downside to DiversyFund owning the properties you’re investing in is that details about the vetting process or other proprietary information hasn’t been made readily available. Aside from the primary parameters spelled out on the website, it’s unclear how DiversyFund is choosing the properties it purchases and repositions.

There are only three investment properties listed on DiversyFund’s website currently; it’s unclear whether there are more that will be sourced in the future.

Who is this Platform For?

The DiversyFund platform is a great option for investors who can’t meet the accreditation parameters set by the SEC but want to invest in real estate crowdfunding. It can be difficult to find platforms that allow non-accredited investors to buy into these types of REITs, and that’s what makes DiversyFund stand out.

Investing with DiversyFund can also lead to a solid return on your investment, but you’ll need to be certain that you can part with your money for at least five years before investing in this fund. If you can afford to invest the capital without receiving dividends or cash flow for a few years, DiversyFund is a great way to earn a high rate of return on your money.

It’s also a smart way to gain some experience in this type of investment before trying to tackle other types of real estate crowdfunding investments. If you’re a novice investor who can meet the accreditation requirements but aren’t sure about investing in REITs, DiversyFund can offer you a safe way to try it out.

Is DiversyFund Safe?

No investment is without risk. That said, it appears — at least on the surface — that DiversyFund is a relatively safe investment. There are downsides, like the lack of dividends or the long investment period, but there aren’t any red flags in regards to safety with your money.

That said, there are some red flags to note about Craig Cecilio and Alan Lewis, the founders of this REIT.

Both Cecilio and Lewis have been defendants in three different real estate-related lawsuits. It’s important to note that none of these lawsuits were related to DiversyFund transactions, so it’s wise to take the information with a grain of salt.

An SEC filing spells out more about the issues Cecilio and Lewis have faced over other real estate ventures:

“In 2015, before the Sponsor or the Company was formed, Mr. Cecilio raised capital for a project involving ground-up construction located in La Jolla, California. When the project ran into financial difficulty, with the lender threatening to foreclose, Mr. Cecilio and Mr. Lewis both personally guaranteed a loan from a new lender to protect the interests of the equity investors, although they were not obligated to do so. Although the project was completed, it was financially unsuccessful and unable to repay all the guaranteed debt. The lender has brought suit against Mr. Cecilio and Mr. Lewis for the deficient loan balance of approximately $1.9 million.

Mr. Cecilio and Mr. Lewis have asserted counterclaims against the lender. Among other things, they allege that the general contractor hired at the insistence of the lender was responsible for the failure of the project by causing significant delays and budget overruns, and that the lender and the contractor should be viewed as joint-venturers.

In the same project, an individual loaned money to the borrower entity, secured by a second lien and personal guarantees by Mr. Cecilio and Mr. Lewis. When the project ran into financial difficulty it was discovered that the second lien had not been properly recorded, resulting in a significant loss to the lender. The lender sued her lawyer for legal malpractice and the lawyer has made a cross-claim against Mr. Cecilio and Mr. Lewis relating to their personal guaranty. The amount of the cross-claim is approximately $1 million.

An equity investor in the same project has filed a lawsuit alleging that the Sponsor, Mr. Cecilio, and Mr. Lewis failed to provide adequate disclosure, were professionally negligent, and breached their fiduciary duty on several projects, all funded before the Sponsor or the Company were formed. The investor is claiming damages of approximately $774,000 in the aggregate. On a separate project, the same investor is suing on a personal guaranty of approximately $55,000.”

The California Department of Real Estate also investigated Cecilio for the following:

“The company stands accused of secret profit or undisclosed compensation, use of false or Fictitious Business Names, failing to submit independent audit report, failing to file with the BRE the Quarterly Threshold Reports, failing to supervise the real estate activities of the company, inaccurate and incomplete trust fund records, inaccurate and incomplete recording of separate record for each beneficiary or transaction, and failing to maintain the monthly reconciliation of all the separate records or transactions to the balance of the record of all trust funds received and disbursed.“

The settlement in that case included a fine paid by Cecilio, who also had his license suspended for 30 days. You can learn more information on this settlement by looking at the files for case H04876SD on the California Department of Real Estate website.

That said, none of this means there are issues with DiversyFund. It is something to weigh before investing in this REIT, though.

How DiversyFund Differs from the Competition

As noted above, the main difference between DiversyFund and the competition is that this company owns and manages properties directly. Most real estate crowdfunding platforms act as a middleman for investors and projects, but DiversyFund is all in from start to finish.

The other main difference is that it allows non-accredited investors to invest in REITs. That is not the case for most other crowdfunding real estate platforms. Most require you to meet the laborious accreditation standards set by the SEC. With DiversyFund, you only have to have $500 to invest.

DiversyFund’s lack of fees is another unusual feature. Many of the similar platforms require investors to pay a management fee starting at 1%, while DiversyFund is fee-free. 

Final Thoughts

If you’re looking for a high rate of return and can part with your money for at least five years, DiversyFund makes it possible to earn significant gains on your investment capital without having to be accredited. There are some downsides to this type of investment, of course, but there is also a lot to gain for the right investor. 

With an average return of 10% to 20%, novice investors, long-haul investors, and those who are new to real estate investing may appreciate the no-hassle, fee-free structure of this type of investment. Those looking for a quick return, or those who like to pick and choose the real estate transactions they help fund, may not find what DiversyFund offers to be nearly as appealing.