Crowdfunding RE - Peerstreet, Patchofland, etc...

14 Replies

Is anyone on BP currently investing in Peerstreet or Patchofland or other RE Crowdfunding sites and what has your experience has been?  Thanks for any advice, suggestions, or experience you've had.

Originally posted by @Carol D. :

Is anyone on BP currently investing in Peerstreet or Patchofland or other RE Crowdfunding sites and what has your experience has been?  Thanks for any advice, suggestions, or experience you've had.

 LlI interact with thousands of investors across all of the platforms.
PatchofLandused to be one of the most popular but has become one of the most complained about. Investors claim that the default rate has skyrocketed versus the old days. 

I interact with thousands of investors across all of the platforms. PatchofLand used to be one of the most popular but has become one of the most complained about. Investors claim that the default rate has skyrocketed versus the old days.

PeerStreet became very popular after POL started to decline in popularity and still has many fans. However it too is now starting to get more complaints. Some investors are claiming that there are a lot more loans that are greater than 90 days late in paying (versus before). With these types of loans, it is a balloon payment, so if you don’t get paid the final payment is the largest and a big deal.

However, if you are new I would not actually recommend starting at the platform level. Otherwise your portfolio may end up very unbalanced versus if you take a top down approach. I would instead recommend figuring out what percent of your portfolio you want in real estate, and then dividing that up into the different strategies asset classes etc. (Core vs core plus versus value added versus opportunistic ... Equity versus debt... Multi family versus retail versus industrial versus self Storage etc). And then once you have that, then I would recommend taking a look at the top 2 to 3 platforms in each area to find investments.


Interesting feedback, @Ian Ippolito .  I do a lot of syndicating and private money funding, but haven't really looked into the crowdfunding pieces.  It's kind of a shame that these tools - which could really help a lot of investors - aren't working as well as they could.  Thanks for your insight.

Originally posted by @Scott Meyers :

Interesting feedback, @Ian Ippolito.  I do a lot of syndicating and private money funding, but haven't really looked into the crowdfunding pieces.  It's kind of a shame that these tools - which could really help a lot of investors - aren't working as well as they could.  Thanks for your insight.

 You're welcome. I wouldn't go so far as to say that crowdfunding isn't working well. I'm a conservative investor and have a considerable portfolio invested in these kinds of passive investments and I am very happy with them.  I am also picking different investments than a very aggressive investor would.

Also, that isn't to say an aggressive investor can't do well either. I know of an aggressive investor who has taken $1 million and split it up into $25,000 pieces and invested into many different crowdfunding offerings. Ironically he's gotten about the same return that I have (but with a lot more home runs and a lot more duds). So there are many ways to do things.

Originally posted by @Ian Ippolito :
Originally posted by @Scott Meyers:

Interesting feedback, @Ian Ippolito.  I do a lot of syndicating and private money funding, but haven't really looked into the crowdfunding pieces.  It's kind of a shame that these tools - which could really help a lot of investors - aren't working as well as they could.  Thanks for your insight.

 You're welcome. I wouldn't go so far as to say that crowdfunding isn't working well. I'm a conservative investor and have a considerable portfolio invested in these kinds of passive investments and I am very happy with them.  I am also picking different investments than a very aggressive investor would.

Also, that isn't to say an aggressive investor can't do well either. I know of an aggressive investor who has taken $1 million and split it up into $25,000 pieces and invested into many different crowdfunding offerings. Ironically he's gotten about the same return that I have (but with a lot more home runs and a lot more duds). So there are many ways to do things.

In a general sense, would you say you prefer publicly crowdfunded investments to private syndications? 

 

Originally posted by @Taylor L. :
Originally posted by @Ian Ippolito:
Originally posted by @Scott Meyers:

Interesting feedback, @Ian Ippolito.  I do a lot of syndicating and private money funding, but haven't really looked into the crowdfunding pieces.  It's kind of a shame that these tools - which could really help a lot of investors - aren't working as well as they could.  Thanks for your insight.

 You're welcome. I wouldn't go so far as to say that crowdfunding isn't working well. I'm a conservative investor and have a considerable portfolio invested in these kinds of passive investments and I am very happy with them.  I am also picking different investments than a very aggressive investor would.

Also, that isn't to say an aggressive investor can't do well either. I know of an aggressive investor who has taken $1 million and split it up into $25,000 pieces and invested into many different crowdfunding offerings. Ironically he's gotten about the same return that I have (but with a lot more home runs and a lot more duds). So there are many ways to do things.

In a general sense, would you say you prefer publicly crowdfunded investments to private syndications? 

 

Structurally they're both very similar. (Crowdfunding deals are essentially syndication deals that are allowed to market on the Internet).

But I do have a preference right now for a different reason. As a conservative investor, at this stage of the cycle I'm only interested in the most experienced sponsors (i.e. who have gone through a full real estate cycle) and with either little or no money lost. Those types of sponsors have typically built very enthusiastic customer bases over a long period of time, and oversubscribe their deals very quickly. So they have no need to pay commissions to a crowdfunding site and generally won't be found there. Instead I find them through networking/investor club.

However, a more aggressive investor who is fine with even a slightly less experienced sponsor will find that crowdfunding allows them to get access to a lot more deal flow than they ever could otherwise. And after the cycle resets, I will be taking a lot closer look at those types of sponsors as well.

 

Originally posted by @Ian Ippolito :
Originally posted by @Taylor L.:
Originally posted by @Ian Ippolito:
Originally posted by @Scott Meyers:

Interesting feedback, @Ian Ippolito.  I do a lot of syndicating and private money funding, but haven't really looked into the crowdfunding pieces.  It's kind of a shame that these tools - which could really help a lot of investors - aren't working as well as they could.  Thanks for your insight.

 You're welcome. I wouldn't go so far as to say that crowdfunding isn't working well. I'm a conservative investor and have a considerable portfolio invested in these kinds of passive investments and I am very happy with them.  I am also picking different investments than a very aggressive investor would.

Also, that isn't to say an aggressive investor can't do well either. I know of an aggressive investor who has taken $1 million and split it up into $25,000 pieces and invested into many different crowdfunding offerings. Ironically he's gotten about the same return that I have (but with a lot more home runs and a lot more duds). So there are many ways to do things.

In a general sense, would you say you prefer publicly crowdfunded investments to private syndications? 

 

Structurally they're both very similar. (Crowdfunding deals are essentially syndication deals that are allowed to market on the Internet).

But I do have a preference right now for a different reason. As a conservative investor, at this stage of the cycle I'm only interested in the most experienced sponsors (i.e. who have gone through a full real estate cycle) and with either little or no money lost. Those types of sponsors have typically built very enthusiastic customer bases over a long period of time, and oversubscribe their deals very quickly. So they have no need to pay commissions to a crowdfunding site and generally won't be found there. Instead I find them through networking/investor club.

However, a more aggressive investor who is fine with even a slightly less experienced sponsor will find that crowdfunding allows them to get access to a lot more deal flow than they ever could otherwise. And after the cycle resets, I will be taking a lot closer look at those types of sponsors as well.  

That makes a lot of sense, thank you. I appreciate your insight into the most experienced sponsors already having their investor list built. Building a solid rack of investor relationships is difficult. Have you found any differences between asset classes? i.e. more or less experienced sponsors in self storage vs multifamily?

What I like about the crowdfunding over syndication is that I can invest a very small amount in each project ($1000).  With syndication you have to put a significant amount into a single project.  So, I was curious what others on BP members were experiencing with crowdfunding like PoL or PS.  

Carol,
While having access to offering that start at a lower point is an advantage for some folks, you should do your due diligence very carefully as @Ian Ippolito repeatedly pointed out above in his posts since there's a potential for market correction. Hence the offerings with low barrier entry these days typically entail less experienced sponsors that are unable to raise the needed capital outside of these platforms. 


Originally posted by @Carol D. :

What I like about the crowdfunding over syndication is that I can invest a very small amount in each project ($1000).  With syndication you have to put a significant amount into a single project.  So, I was curious what others on BP members were experiencing with crowdfunding like PoL or PS.  

 

I have over 35 years' experience in real estate investment and finance and today work exclusively in the real estate crowdfunding space as an educator. 

Not all sponsors on crowdfunding sites are 'less experienced' and not all sponsors off crowdfunding sites are experienced. The conflate the two concepts is to oversimplify which will lead you to bad decisions. You must consider each sponsor on their own merits and not rank them based on how they decide to raise capital, which is, after all, the lifeblood of all real estate transactions. 

In fact, any sponsor who is not open to taking in new investors because they resist change by refusing to use the internet (which is all crowdfunding is) will ultimately cease to exist. 

Indeed, there are some extraordinarily experienced sponsors on crowdfunding sites - and the most forward thinking also raise capital online independently of and in support of the platforms. Those I know personally, recognize that the opportunity to raise capital from alternate sources i.e. the 'crowd,' gives them a competitive edge in the industry - and you always want to be working with sponsors that know how to beat out the competition. 

Here's why. 

During the last downturn I handled over $8bn of failed real estate investments for some of the largest banks and private equity funds in the world. Everyone was hit by the downturn, experienced and inexperienced alike. The winners were those with access to capital. Period. 

Institutions had stopped investing, the usual 'private syndications' had dried up, and 'crowdfunding' was prohibited. Yet the opportunities for those with capital to buy distressed deals was huge. 

Today, experienced, forward thinking sponsors recognize that a recession is near again. They are insulating their current deal flow and portfolios from that risk, and are exploring new ways to capitalize on the next downturn - which means tapping into sources of capital previously off limits i.e. by raising capital online either on crowdfunding platforms or directly. 

These are the ones you want to be looking at.  

Put another way, you should look for sponsors who actively encourage new investors to join them. Learn who they are, read their blogs, research their history and deal flow, and get to know them - maybe even invest a small amount with them today so you can be on the inside of a deal and see how that works out both now and when the recession hits.  

Those sponsors will be the best positioned to buy heavily discounted distressed real estate when the next downturn hits because they'll have you as a partner (and others like you).

[Oh, and BTW, it is vastly more expensive to raise capital OFF a crowdfunding site than on one, irrespective of the fees. Why? Because time is money. Every savvy investor knows that one of the greatest drains on a sponsors time is the constant hunt for capital. By streamlining that process and taking it online (again, crowdfunding is nothing more than the adoption of technology to solve a problem) sophisticated sponsors are freeing up their time, their most valuable asset, so they can spend more of it on finding good deals and executing on good business plans for their investors.]

Originally posted by @Adam Gower :


[Oh, and BTW, it is vastly more expensive to raise capital OFF a crowdfunding site than on one, irrespective of the fees. Why? Because time is money. Every savvy investor knows that one of the greatest drains on a sponsors time is the constant hunt for capital. By streamlining that process and taking it online (again, crowdfunding is nothing more than the adoption of technology to solve a problem) sophisticated sponsors are freeing up their time, their most valuable asset, so they can spend more of it on finding good deals and executing on good business plans for their investors.]

Hi Adam,

I think maybe you are not realizing how easy, fast and cheap it is for the most experienced sponsors to raise money. They have built up very loyal followings over multiple decades of performance. So when they simply send out an email to their investor list they will typically oversubscribe within 24 to 48 hours (and have to turn away people). And this is doing deals that are sometimes 5x+ larger than the average deal on a crowdfunding site (which on average might take a month or more to close and involve doing a webinar, etc.).

It is only the sponsors who do not have that loyal following that experience the huge drain on time hunting for capital. In the current low interest rate environment with so many investors having a problem of too much cash, the most experienced sponsors (who generally are also very picky on deals) are typically in the opposite situation of turning money away.

Hi Ian,

Good to see you as always.  

It's not as easy as you seem to think it is to raise capital.  

There is always a frenzy of excess cash at the end of a cycle - that's what causes bubbles to inflate.

Investors seduced into jumping into a deal for fear of missing out (FOMO) because a sponsor 'will sell out in 24 hours' will lose their shirts in the next downturn.

Enjoy the ride.  

It's going to be bumpy.

Adam

Originally posted by @Taylor L. :
Originally posted by @Ian Ippolito:
Originally posted by @Taylor L.:
Originally posted by @Ian Ippolito:
Originally posted by @Scott Meyers:

Interesting feedback, @Ian Ippolito.  I do a lot of syndicating and private money funding, but haven't really looked into the crowdfunding pieces.  It's kind of a shame that these tools - which could really help a lot of investors - aren't working as well as they could.  Thanks for your insight.

 You're welcome. I wouldn't go so far as to say that crowdfunding isn't working well. I'm a conservative investor and have a considerable portfolio invested in these kinds of passive investments and I am very happy with them.  I am also picking different investments than a very aggressive investor would.

Also, that isn't to say an aggressive investor can't do well either. I know of an aggressive investor who has taken $1 million and split it up into $25,000 pieces and invested into many different crowdfunding offerings. Ironically he's gotten about the same return that I have (but with a lot more home runs and a lot more duds). So there are many ways to do things.

In a general sense, would you say you prefer publicly crowdfunded investments to private syndications? 

 

Structurally they're both very similar. (Crowdfunding deals are essentially syndication deals that are allowed to market on the Internet).

But I do have a preference right now for a different reason. As a conservative investor, at this stage of the cycle I'm only interested in the most experienced sponsors (i.e. who have gone through a full real estate cycle) and with either little or no money lost. Those types of sponsors have typically built very enthusiastic customer bases over a long period of time, and oversubscribe their deals very quickly. So they have no need to pay commissions to a crowdfunding site and generally won't be found there. Instead I find them through networking/investor club.

However, a more aggressive investor who is fine with even a slightly less experienced sponsor will find that crowdfunding allows them to get access to a lot more deal flow than they ever could otherwise. And after the cycle resets, I will be taking a lot closer look at those types of sponsors as well.  

That makes a lot of sense, thank you. I appreciate your insight into the most experienced sponsors already having their investor list built. Building a solid rack of investor relationships is difficult. Have you found any differences between asset classes? i.e. more or less experienced sponsors in self storage vs multifamily?

You're welcome Taylor. Yes I do find there is a difference between asset classes. Multifamily is by far the most common. So there's a lot of sponsors to choose from and it's (relatively) easier to find those gems with full real estate cycle experience.

With self storage I know of only one with a current offering that has full real estate cycle experience: Reliant. They may be closing that soon though. With more obscure asset classes like mobile home parks, it's even harder to find that kind of experience and the vast majority putting out deals today typically have only a handful of years under their belts. 

Not that there is not good information provided here, but in an effort to steer the conversation back to @Carol D. 's original question: I have been investing in PeerStreet since July 2018 and have found it works quite well for my purposes.  Each month I have lots of different accounts that I put savings into and I find that PeerStreet is a good way to diversify from equity real estate investments and/or the stock market.

In PeerStreet I have 33 active investments and 17 investments that have been paid off.  I have yet to lose principal or any of the expected interest.  That being said, I have had several deals go 30/60/90 days late and even a few go into default but in the end I got everything back (default interest included) even if I had to wait longer than expected for it.  Of my 33 active investments, 7 are currently late (four 30 days late and three 60 days late), but based on my time spent with the platform that does not greatly concern me.  A market correction does make this (and most) real estate investments more risky so be aware if you are of the belief that the bubble will burst and cause significant disruption.

My favorite thing about PeerStreet is the low minimums which means that every month when I contribute (and twice monthly when I get paid out), that cash goes to work almost instantly and creates a lot of diversity since I have a lot of small investments instead of one or two larger ones.

Hello @Carol D.

Much like @Steve O'Keefe , I’ve been investing on PeerStreet since 2017 which a decent amount of success. I define success at never having lost a loan and principal; however, the number of defaults and/or late loans is trending higher.

The trick to successful investing on this platform is Automated Investing will controlled risk parameters. Personally, I never invest more than $5000 in any loan and the LTV is always below 70%. Also, I don't invest in loans greater than 12 months. While this criteria reduces the number of loans meeting my criteria, I can say with 34 open positions on the platform, just one is LATE 60 (this is the status given on the platform) and the other is REO. This REO is scheduled to be sold at the end of November and I'm confident I will receive my principal and deferred interest.

Long story short, I believe in the platform but I control my risk, like all things in investing and real estate its all comes down to controlling the risks.

Happy Investing!!!

Lee

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