Real Estate Crowdfunding Investments Real World Results

17 Replies

I wanted to see what other BP members crowdfunding investment results have been so far. My first investment was with RealCrowd in Dec of '13. I received my first distribution and it matched the 10.5% predicated cash on cash return. So for, I've made a total of 14 investments. My 2 Patch of Land investments(1% monthly) are being paid monthly as promised.

The other 11 investments have been too recent to produce any cash flow. Communication on the investments is been pretty good on most of them. I have received either monthly or quarterly updates on each one.

Due Diligence on some projects has been interesting to say the least. One project was pulled from a portal after another BP member and myself discovered they were not disclosing all the details and terms of their mezz debt. After Discussing my findings with the CEO of the Crowdfunding portal, the investment was pulled and investors that had their funds returned.

I have called the sponsors on over 30 deals and I can not overstate how helpful this has been in the due diligence process.

Anyone else had either a positive or negative experience in a Real estate crowdfunding investment?

Also interested in others' experiences as well as I am very close to dipping my toes in the water here. Specific questions I am interested in would be if you had any problems tax wise. If you invested in a property in another state and received a K1 - did you have to file a tax return for that state? At some point I had seen a list of states where this was required, but I may be mistaken.

Also interested if you chose to set up a LLC for each property or if you just direct invested? Is a LLC necessary?

Thanks!

I have made four investments through two crowdfunding portals, one with PatchofLand and three through Groundfloor. The Patch of Land investment (13.0% for 12-months) has paid periodic interest as scheduled. The three Groundfloor investments are all 6-month deals paying 10%, 11%, and 12%, respectively, accrued and paid at maturity. Communication and responsiveness from both have been excellent. If I continue investing through these portals (and for me it's all about yield), I doubt I'll move away from the debt deals. Also, unless my cash position significantly increases, I'll stick to deals with 12-month maturities or less. Stay tuned...

David Begley, Real Estate Agent in GA (#357208)

Thanks for sharing folks. I am interested in seeing more about experiences with the different portals. Any thoughts/comments about iFunding? That is the only portal I have raised funds from thus far.

We'll be starting our own marketplace later this year. I'll share more details once we get things in order!

@Gautam Venkatesan, @Todd B., @Mark Robertson The two I've invested with, along with 3-4 others I joined and performed cursory due diligence but haven't invested, are very clear and strict regarding solicitations and offerings to non-accredited investors. All portals I interacted with strictly required proof / documentation of one's accredited investor status before any investment can be made. I'd be very leery of any that didn't.

David Begley, Real Estate Agent in GA (#357208)

@Gautam Venkatesan It depends on what regulation is being followed by the portals, 506(b) or 506(c). If they follow 506c they can advertise their investments to anyone, but you can not invest until THEY verify you are accredited. If they follow 506b, they can not advertise the investments and you can not see the projects until YOU tell them you are accredited.

Real Crowd, Fundrise, and Patch of Land follow 506c. Realty Mogul follows 506b (except for their Hard Rock investment).

@Todd B. I see no need to form an LLC just to invest. Every deal I have seen you are investing as a limitied partner and you are only liable up to the amount invested. The jury is still out on taxes. you may have to pay tax in the state that has the property. It will depend on how the deal is structured.

@Bryan Hancock The only ifunding deal I have invested in was your deal. Its hard to overcome the 5% fee they charge when their are so many other deals they do not charge the investor. What really gets me about ifunding is how they present "net return" in their pro forma's. For example, assume they have a project with 8% preferred return & a 70/30 split. If their pro forma predicts the investment makes 9%, they will say "net return" is 8.7%. Its really 3.7% and your the preferred rate is really 3%, not 8%. The 5% fee charged to investors is not included in the cost or the 'Net returns" of the investment. (interestingly, they did not present the returns on your project this way...that's why I invested in your deal)

This post has been removed.

@Scott L. That would be great! When I spoke to someone at ifunding about this issue before, the gentleman I spoke to said that in all his years working for hedge funds etc.. that no one looks at fees this way, and I should not take the ifunding fee into account in calculating my return. He was going to do me the favor of talking to his underwriter about this, but he is sure I am not looking at this in the right way. I guess the definition of "Net Returns" changed since I got my MBA in finance way back in '88. :)

@Mark Robertson

I'm glad we have direct communications to look for a time to discuss. Of course, we're interested in all investors' and operators' feedback and will share clarifications and ideas with the Bigger Pockets community shortly. Regards, Scott

@Mark Robertson @Scott L. Of course the funding fee must be taken into account when calculating the Net Returns! I didn't get my MBA that long ago either, but doubtful that calculation changed. Even if not bound by Reg Z type disclosures and rate calculations, I would think the scrutiny these portals are under would lead the compliance folks to walk the most conservative path possible. Excluding fees from the advertised returns or yield calculations would seem to me a very unnecessary risk for a portal owner, and as an investor would make me very skeptical.

David Begley, Real Estate Agent in GA (#357208)

Here is my experience so far:

I've invested in 4 equity deals, one each with RealCrowd, Fundrise, RealtyShares and CrowdMason. The RealCrowd investment is the same as the OP and I agree that the communication and quarterly payment was timely. The Fundrise investment was timely and also was near the original 11% cash on cash return promised. RealtyShares investment closed last month, so I don't expect anything for a while. The last, CrowdMason, I was put into contact with the sponsor and never heard from CrowdMason again. This sponsor is not good at quarterly updates and I have to send emails to ask about it. I don't expect any payment on this, though, as it is a development in NYC and should be paid back next year. I've since tried to go back to CrowdMason, but my password and username don't work and repeated emails get no answer. Crickets...

I've done a commercial loan with Fundrise that I expect to be paid off within 2 months. The sponsor there has been very good at updating us on the progress and just this past week sent pictures of the finished product that is now on the market. I've now done 5 loans with RealtyShares, one of which was repaid earlier this month. All of them pay their interest on time. I invested in 2 loan deals with RealtyMogul, one had some principal returned and the other should return principal soon as the property was put on the market last month I believe. I have been in contact with the rehabber on that and awaiting an update. Finally, I have done one deal with POL and in keeping with the theme, they too paid interest out as promised. Updates have been slower to get with POL though, although I have only asked for one update so far.

I did join iFunding to see their deals, but the strange way of calculating return mentioned above has me concerned. I was told last week that it was being looked into and haven't heard a peep since. More crickets? I agree with Mark and David above -- these are simple calculations and should be presented very simply and honestly.

One thing I would like to see is periodic updates on the loan side of the business. The crowdfund sites update us when the properties close, and then nothing unless you ask for an update. Both RealtyShares and RealtyMogul have been very quick at updating me when I request them--always the same day. I've even asked for pictures and get those too. Would be great if these sponsors could update the crowdfund sites with pictures in the middle of the rehab and then at the end. Keeps investors informed which is highly important to me.

I agree, @Mark K. , I haven't received much in way of updates on the four debt deals I've invested. I'm setting an alert in the MLS for each deal to see which sends me a notification of the property finished and for sale, the multiple listing service or the crowdfund portal. If I hear that the project is finished and on the market from the MLS first, that particular portal will have a hard time convincing me to invest further. I'd prefer more frequent updates along with timeline project estimates when appropriate.

David Begley, Real Estate Agent in GA (#357208)

@David Begley that sounds like a good idea to watch the MLS. However, it would probably be helpful to know how your sponsor sells their particular property. Some will obviously be thorough the MLS, but others already have a buyers list. One of the sponsors I've connected with sells almost all his stuff to Japanese cash flow investors and those will probably not show up on the MLS.

This post has been removed.

A small victory for the investor today. Thanks to @Scott L. I had a conference call concerning my issues with ifunding's reported "Net Returns" and how they treated The ifunding 5% transaction fee. Until now, the 5% fee was not included as part of the project and the listed preferred return was overstated. They will now included the 5% in all new projects cost and the preferred return does not start until we as investors "earn" that fee back form the project's "profit". The new North Carolina ifunding investment reflects the company's new policy.

Unfortunately, most investments made in the past with ifunding will not include the 5% fee into the project cost and your lower returns will reflect that. I would like to thank ifunding's management team for listening to their investors.

Mark

@David Begley

I am glad to see that RealtyShares is being proactive here in what we talked about.  Today, they sent out a new offering and as usual, I checked it out.  I see they have updated their dashboard and now have a page where updates are placed.  Lo and behold, one of the loans I did with them had an update with pictures!  I sent an email thanking them for this and they told me more updates are coming on other properties.  I am pleased that RealtyShares continues to provide offerings with experienced sponsors and also great communication with their investors.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.