Has anyone used Crowd Funding ?

Question

http://fund.realtyshares.com/crowdfundingcontentpromo

Marc C. · Answer

There is a separate forum for that, I believe, but yes, I have invested through RealtyMogul, Crowdstreet, RealtyShares, and Fundrise. Crowdstreet has the most deals. Fundrise now only offers what they call eREITs, which sound interesting because your risk is spread over more properties in different areas. RealtyMogul now has MogulREIT, but I'm not impressed with the returns. These mini-REITs can be purchased by non-accredited investors, but all of the individual property deals are for accrediteds only.

I am not crazy about those that require you to buy a share in an LLC the platform sets up, with the platform as manager. Then that LLC invests in the property-holding LLC (which is managed by the sponsor's management LLC). Seems like this arrangement means you're that much farther from the property itself. And, in the event of fraud by the sponsor, it would be harder to sue the sponsor and their principals with this other LLC in the way...that LLC would have to do the suing, not you. (Not that you'd get anything.) And what control do you have over the investor LLC?

The big question is how much vetting the different platforms are doing of the individual deals. Sure, they all only use "experienced" sponsors. But that doesn't mean the sponsors aren't small time. I am not convinced that my latest investment, 2.2% of an apartment building on Crowdstreet, was so smart. I wasn't investing that much, so I didn't read the details very closely. But I Googled the sponsor's address LATER and found it was at a virtual office in Pittsburg. Someone called me from the company because they couldn't find the money my IRA administrator wired them...he was one of the principals listed in the LLC operating agreement. He called me from a Florida cell phone. Their registered address is in Delaware. The property is in Tennesee. I'm pretty ticked that Crowdstreet couldn't verify that the company at least had a real office where real people come to work every day. Seems like the LEAST amount of vetting they could do. Not that a virtual office means fraud, but it just gives it that "ick; they aren't very serious" factor.

Now, watch my suspicions be totally wrong and this investment turn out to be the best yet.

James Mc Ree · Answer

@Marc C.

I have a few thoughts I can share regarding your posting from my only 6 months of pretty favorable experience with crowdfunding across multiple platforms in small investment amounts....

You absolutely must read the contract before you invest.  The details really matter a lot.  Don't invest in the deals if you won't spend the time to understand them.  I don't think it is appropriate to complain about the platform if you don't bother to read the deal documents and the deal plays out as documented.

All of the contracts I've seen have content that says something like this:

• This is a high risk investment.
• The platform is not responsible for ensuring the investment is as represented.  You are.

They really mean those things.  They are trying to convey that they have done a certain amount of vetting to their standards (not yours!) and the terms usually shift all of the burden of understanding the investment to you.  Many of the agreements explicitly say that.  Ask the platform what they evaluate in general and for specific deals if you want to know.  Don't invest in platforms that don't respond to your standards.

I don't know that the LLC structure matters that much to the end investor (us).  Our agreements are often only with the platform if we are investing through the platform.  Many of the platforms give the end investors little to no visibility or influence on the operational side of the deal.  A fraudulent situation will likely result in investors suing the platform and the platform suing the sponsor.

The governing state law matters for your investment.  Phone numbers are somewhat portable these days - your FL contact may have gotten his number years ago in FL and moved around.  I wouldn't worry about that.  Virtual offices are very common: look at how many Fortune 500 companies are supposedly headquartered in Delaware or the Cayman Islands, but have essentially no presence there at all.

One great BP benefit I have seen is posting your questions here about a deal.  It is not uncommon to see someone post, "What do you think about this....?" and get great feedback from others with deeper insights and help those with the same question.  Definitely leverage the BP community to share and learn about specific investments.

Good luck!

Crystal Smith · Answer

We haven't used Realty Shares, but we have some clients that have sucessfully used Realty Shares for deals.

Joseph Gozlan · Answer

@Kenneth Kussman

Excuse my question but what's the point?

For me, real estate is better than investing in the stock market because I get to have a lot more control over my hard earned money.

Trusting a REIT or an LLC that funds an LLC that funds some random person I never met and never will sounds a lot like investing in a mutual fund that's managed my some person that I never met and never will...

Joseph Scorese · Answer

Hi @Kenneth Kussman,

Welcome to BP!

Use them often for my C&D Projects. Quicker and smoother in new construction I have felt. Really depends on the type of project and there foot print when it boils down to it.

Let me know if you have any questions.

Regards, Joe Scorese

Ian Ippolito · Answer

@Kenneth Kussman, there are over 100 sites to choose from. Some of them have superior features and protections for investors, and others don't.  So before choosing one platform, I recommend you get an overview of  what's available , and then choose three or four from there, and then drill down into the investments to find a platform or platforms that work best for you.

I took several months to do an in-depth review of the top platforms and made it available for free to other investors who might find it useful . BP does not allow me to link to my own site,  so if you are interested, do a Google search on "Real estate crowdfunding review top sites".

If you have any questions, just let me know.

Chad Clanton · Answer

@Kenneth Kussman, check out MassVenture, it started out here in San Antonio and is run by the attorney who was largely responsible for getting the Texas SEC to allow crowdfunding for RE in the first place (if I'm remembering all that correctly). I've met him a few times and seems like a good guy, and I know they're doing deals. Worth a look.

Kenneth Kussman · Answer

investing

Larry Fried · Answer

For raising capital or investing @Kenneth Kussman?

​Has anyone used Crowd Funding ?

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Has anyone used Crowd Funding ?