Crowdfunding Results - First Year

27 Replies

It's now been one year since I initially invested in a crowdfunded offering. What a learning year it has been--types of deals offered, changes in the market, which portal stands out (from an investors standpoint,) what is the mindset of the crowd, etc. That last aspectis an ever growing collection of data and of interest to me.

Mostly, this post is to give an update of real world results of investments. It's only been a year and probably not long enough to judge adequately all the equity deals done, but it's a start.

Debt deals:

Patch of Land - 2 deals funded, both at or below 50% LTV, 12-13% APR. Both have paid monthly interest regularly. One deal was estimated to last only 6 months, but the borrower keeps changing his mind on whether to sell or refinance. Note term is 12 months, so borrower still has a little time to decide, so I cannot complain.

RealtyMogul - 2 deals funded, one was paid off in less than 6 months, the other matures at the end of this month (1 year term.) Interest paid regularly, no problems.  Stated return on repaid loan is just under 9% APR.

RealtyShares - 8 deals funded, one has paid off in less than 4 months, the others are all in full swing and expected to all be repaid by early summer. Stated return on the paid off note - 9% APR. It came in right at this, even though my funds were sitting in escrow for a month.  RealtyShares paid out interest for that month. All notes pay interest and bonus interest on time. A couple of these aren't technically debt deals as they are preferred equity (or 2nd position) but they only pay fixed return. Two of them also have an equity kicker once the property is sold.

Fundrise - 1 deal funded and repaid. This was a 2nd position note and the borrower paid interest one time and paid the note back once everything was sold. 12% APR stated return, but actual cash return to me was closer to 10.5% since my cash was sitting in escrow for a month before fully closing.

Equity Deals:

RealCrowd - 1 deal funded through them, office property in DC, continues to pay but just slightly below expected first year return of 12%. Still have this quarter to go, but I expect we will come in at 11% cash on cash. Not going to cry home about this, as already the property has been improved and returns should do the same within a year.

RealtyShares - 1 deal funded, multi-property rehab fund, pay expected 8% cash on cash each month. It's new, so I don't expect to see increases until end of 1st quarter next year once they start selling off homes and equity share kicks in.

Fundrise - 1 deal funded, retail in Indianapolis. It too was estimated to pay 12% first year, but coming in at 10.5% right now. There was little to no improvement needed here -- this was NNN type of deal.

Portal Comments:

Patch of Land: excellent communication and fixing problems (every portal experiences bank transfer issues, etc.) I am told they are trying to implement a better system to keep investors updated on progress. For now, I just ask and usually they respond to my request within a day. They continue to bring good deals for the investor and very good rates -- most deals I see above 11% are snapped up within a few hours. Had an excellent conversation with their top underwriter and I feel he knows what he is doing.

RealtyShares: top notch portal. Excellent offerings and most of their deals fund very quickly too--even the larger equity deals. The have a nice system in place that updates investors on borrowers progress. With pictures! This is what we asked them for and they have it going now. They are by far the fastest at communication. Almost all my emails are responded to within the hour. Any questions we have for the borrower, they send along and usually get quick answers.

RealtyMogul: I haven't done anything new with them since late last year, mainly because their focus has been on equity and I have enough of that for now. The quality of their deals seem to be high still and they fund fairly quickly.  Communication is good with them too, but of the two investments I did, I had to ask for updates.  I imagine with all portals, their equity updates are standard every quarter.

Fundrise: I have also not funded anything new with them, as I am steering away from 2nd position. If I can get the same or better rates in 1st position then offerings of 2nd position don't interest me. Risk/Reward.

I think these above 4 portals stand out from the rest for the investor. Going to be interesting to see how they once again change with the market over 2015. I am looking forward to it.  Investors are going to have more knowledge now and I think most are going towards to leaders of the pack.

Thanks for posting this! I really like the idea of crowdfund investing. I am constantly getting emails from Fundrise of new deals and I always take the time to read the prospectuses but haven't pulled the trigger. Glad to see that someone has and come back to tell the story. This makes me a little more confident in maybe doing a deal through one of those portals in the future. 

Awesome info Mark.  I have only used RM for equity deals, have not started on any debt deals yet.   Thanks for sharing!!  Using crowdfunding to get my feet wet in RE investing.   My goal is to own some mix use and multi-family in NYC(Queens).   Thanks!  

I started Real Estate crowdfunding investing in Jan of 2014.  Of the 31 deals I invested about half were debt and half equity.  For the most part they have been good investments, some better than others. The key is to do your due diligence.  The only bad one was very much preventable. I just made a mistake by investing in it.

My Investments;

Patch of Land - 9 Investments. - I invested about once a month into their debt deals.  All have paid on time and I have averaged over 12% interest. One was paid back in about 6 months. Very pleased with Patch of Land

RealtyShares - 9 Investments - 5 debt and 4 equity. They have all paid on time and close to projected cash on cash returns. One hybrid debt/deal is delayed, but they are current and have paid a 20% return to date.  I agree with Mark they have great communication. Another top notch platform.

Real Crowd - 5 Investments - all equity. All 5 are preforming to expectations. one is paying about 1% more than projected and one is lagging 1%.  The one lagging is 8% preferred, so It should come later.  Real Crowd vets the Sponsor more so than the deals.  They only allow the experienced large players on the platform.  They charge NO fees to investors and I love that.

Realty Mogul - 4 Investments - all equity. 3 investments are on track and on projections. One investment has been a home run. My very first investment was  a shopping center, Westpark plaza. The game plan was a 3-5 year hold.  They hoped to refinance in 3 years and return 80% of our investment. Things went better than planned and after just 10 months they refinanced the project and returned 100% of my investment plus a 6% return. Now I still keep my equity %, but have no skin in the game.  I am very pleased with Realty Mogul.  They do a great deal of Due diligence up front, but they charge for it. The platform fee is 1-2% annully.

IFunding - 3 Investments - 1 equity and 2 debt. One investment is paying on time and on projection.  A ground up development is 3 months behind schedule. The third investment has not gone according to their plan, but I should have never invested in it. That mistake is on me.  ifunding has changed its fee model over 4 times since I joined. That concerns me.

Fundrise - 1 Investment - equity - It is a commercial building at UNC - Chapel Hill, my Alma mater.  Its beating projections by about 5%.  It looks like Fundrise has changed its focus from equity deals to debt deals.  They set it up so you could join "networks" of large developers. I joined quite a few and have not had any correspondence from the networks.  That seems to be dying on the vine.

I agree with Mark that his 4 portals stand out in the crowd.  I would add RealCrowd to that list.

I too have had great experiences with my investments in the Patch of Land portal.  Another excellent crowdfunding portal not mentioned is www.groundfloor.us  I think you'll find their deals and overall due diligence excellent and their communication, like Patch of Land, is also top notch.  

I'm curious - how many state tax returns will you have to file after doing so many of these?

Great feedback.  Thans for sharing.  I have just started a few projects with iFunding --and too soon to tell.

How are these guys funding in NC for non accredited investors? The NC crowdfunding state regulations for non accredited investors was declined by the feds. Thanks, Matt

Great info! Do all of these require qualified investor status to invest with them? 

Thanks for the feedback. I signed up with 4-5 of these sites and have been monitoring the deals but haven't invested yet. I have doing mostly low LTV hard money lending 1st's in CA though HM brokers who source the loans for me. I feel I have a lot more control over my investments doing this vs. crowdfunding. But I have been looking at crowdfunding closely.

For the people who invest in large commercial projects through crowdfunding.  How can you really do proper due diligence on the deal unless you understand commercial real estate really well?  Even then, how do you know the market dynamics of all these locations where you do not live and know well?  Or do you just just rely on the crowdfunding platform to have done the property due diligence?   I guess I'm just too much of a control freak, I would have a hard time letting go of my cash on some distant office project or development deal.  Even on the smaller residential deals in distant cities, I would have a hard time investing unless I knew the area and the local market dynamics.

For those in this thread with many investments can you tell what your annualized return is on your investments?  An estimate is fine.  

@Matt R.   You have to be accredited to invest in North Carolina

@Rob Cee   Cee ert Szalay   All The platforms except Fundrise require investors to be accredited.  Fundrise will probably not do another non accredited deal until the SEC finishes the rules for non-accredited investments.  They spent over $500,000 to raise $300,000 when they did it under the old rules. 

@David C.    Too soon to know about taxes.  It may be a nightmare. Stay tuned.  I know guys that have done 20+ syndication deals and have not filed in other states.  However, as they say..... consult your accountant.

@Bryan Hancock My debt deals have returned (Or should) 12% to 20% on an annual basis. For the equity deals it too soon to tell. I try to stay away from deals without a minimum of 8% preferred and a 70/30 split or higher, I do not touch deals with sponsor "catch up" provisions. The only exception is a mobile home park fund that has a 10% preferred return and a 50/50 split. Even with the hard to stomach 50/50 split, their previous deals have netted investors 20%+ IRR's. I See you started a crowdfunding platform. Good luck with that. My suggestions would be to keep annual investors fees at 1% or lower.

Rob Cee  - As far as Due Diligence the most important factor is doing DD on the sponsor.  Call them, you will be surprised at what you can learn from a phone call.

Mark, Fundrise has entry points starting at $100....it does not seem like any accredited investor would touch that....what am I missing? Thanks, Matt

@Matt R.  They raised over $30 million in VC money for themselves this year, so I guess they know what they are doing.  From my standpoint, their business plan is seems to be in flux. 5 of the last 6 deals have been mezzanine debt deals, 2nd position and deals have been very slow coming out.  I suspect the "starting at $100" is just a marketing ploy.  I think it is form their roots of crowdfunding from everyone.  The economics just don't work yet for raising from the non-accredited. 

Originally posted by @Mark Robertson:

@Rob Cee  Cee ert Szalay   All The platforms except Fundrise require investors to be accredited.  Fundrise will probably not do another non accredited deal until the SEC finishes the rules for non-accredited investments.  They spent over $500,000 to raise $300,000 when they did it under the old rules. 

Rob Cee  - As far as Due Diligence the most important factor is doing DD on the sponsor.  Call them, you will be surprised at what you can learn from a phone call.

Yes I do know you have to be accredited, not sure what part of my post asked about being accredited? Sure you can call the sponsors, but I doubt 95% of the investors know what to ask or can analyze what they are being told. But my guess is 95% of the investors investing in these crowdfunding deals are just pretty much "investing and praying". Kind of like when investors buy mutual funds, they are investing mostly on "hope". They are just putting their faith in the CF portal and the sponsors resume. I doubt 95% of the investors have the skill or knowledge to say break down a office complex deal and Dallas and really tell if it is a good deal or not or what the level of risk is. Even a simple fix and flip deal is not easy to analyze & check if it's a good deal or not if you live in say LA and the flip is in Alabama. It is hard enough right in your local market where you might have full MLS access to do a deep check on comps and know every neighborhood extremely well to tell if a flip is a safe investment. Not saying these are not good investments. Just saying there is a lot of "faith based" investing going on, where folks think they are doing due diligence just by reading the sponsors resume & look at some numbers on the portal.

Maybe they applied some alternative method of fund raising in NC. There is no federally approved non accredited crowd funding allowed yet in NC. To spend 500k to raise 300k must have been an alternative old way....maybe a small business type of regulated funding of sorts, IDK. Obviously that old way is not going to work out. I am sure when NC re applies for excemption it will pass with flying colors.

@Rob Cee  the first answer was response to @Robert Szalay, not sure how it was mislabeled. I can't even make the @ symbol work on this post.

Anyway, I am not a commercial real estate guy, but I do study the numbers:  the growth assumptions, occupancy assumptions, the location, the fees including:  asset fees, management fees, acquisition fees, sponsor fees, platform fees,  etc..   I've looked at over 150 deals in the past 10 months and you get a feel for what is reasonable and what is not. The internet has completely changed the due diligence process.

With that said, there is a huge problem for the average investor to determine the difference between a good, a bad, and an ugly crowdfunding investment.  That's the main reason I have spent the last 7 months developing a free website where accredited investors can share due diligence and rate crowdfunding deals . It should be out of beta in a couple of weeks.

@Mark Robertson  Thanks Mark that is good.  Please keep me up to date on your web site.  It would be great to have a network of independent 3rd party local experts across the U.S. (not affiliated with the CF portal or the sponsor) that could give your their opinion on the deal.  

The DD is my hesitancy on crowdfunding.  Someone can look can look at numbers until they are blue in the face, but it's very difficult to analyze a big commercial deal or development deal in some distant city, especially if you have never been the principle on a investing directly asset class like this in your life.  If you have never owned say a mobile home park and know little about this asset class, how can you effectively decide to invest in a MHP fund?  Even if you are experienced in commercial (which I'm sure 99% of even accredited CF investors are not), I think it's a stretch.  A lot of success will be about market timing and the economic picture of a region.  Something you cannot really dig into in a few hours of DD.  There were plenty of very experienced developers and commercial investors with decades long resumes that were very bullish in 2006.  We know how that ended.

I think I would look at some rehab equity or debt deals that pop up on CF portals in areas I'm familiar with (CA and WA). But if I can get 9-12% funding my own HML's through HM brokers and owning the WHOLE note where I make all the decisions, not sure why I would get into a CF debt deal. Unless I start not being able to find HML's to fund.

At the end of the day no matter how much DD you do, a lot of CF investing will be on blind faith.  There is just no way to avoid that for most people.

@Rob Cee   For me I really did not have access to real estate deal flow before crowdfunding.  It opened up a lot of new doors.  Funny you should mention the Mobile home park fund.  I went to a 3 day seminar they put on for people that want to buy individual parks just to see how they do it.  I would never try and run one myself, but I walked away with a great deal of confidence in the operators of the fund.  They spent  a day and half going over how they do their DD.  They know their sh** and I learned a thing or 2 about doing DD over the internet.  They can come to about 95% of their decision about buying a park just using tools from the internet and not physically going to the park.  They do at the end of course.

@Mark K. @Mark Robertson

Thanks for posting your feedback regarding the sites - it's great to know. As you know, I'm an Advisor for Realty Mogul so it's great to hear that they made your Top 4-5 lists. I'm on their Investment Committee on the equity side and I can tell you that they definitely do very thorough due diligence before an opportunity is posted (unfortunately I can't share details due to my NDA with them but it's worth noting that I'm a very conservative, picky, and thorough equity investor myself so I don't make these comments lightly, as I have been investing in managed equity opportunities for 13 years).

For anyone considering any of the crowdfunding sites/opportunities, regardless of whether they are debt or equity, be 100% sure to do your own due diligence, as in the end what counts is both the crowdfunding platform's execution AND the Sponsor's execution (in many cases the Sponsor's execution is as or more important than the crowdfunding platform's execution) so it's important to do your own due diligence to be sure that you end up 100% comfortable with a given opportunity. I think a lot of investors tend to lose sight of the fact that who is managing an opportunity is more important than the asset itself so doing in-depth due diligence before you invest is always very important (similar to how Mark Robertson took a course that the Mobile Home Park Sponsors taught before he invested - I have coincidentally taken that course numerous times myself and I have invested in 4 of their Funds).

Good luck to everyone. I hope this is helpful. 

Happy Holidays,
Jeremy Roll

Trying to understand these returns, I would check out the offerings but don't meet definition of accredited so presume I would not get to view them. If they are accessible I would love a link (or PM) so I could answer these question for myself.

EQUITY: How is the equity paying returns from year 1, is it distributing equity proceeds? I would expect there to be some rehab (seems that value-add is necessary to generate such high returns) and time to stabilize before there are sufficient cash reserves.

[@Mark Robertson  It is great to hear about your 100% refi in 10 months. I hope to hit some home runs like that with my deals.] 

DEBT: I am curious why experienced Sponsors would take debt at 12% rates? Plus deal with the added time, cost and brain damage of a crowdfunding platform? Don't they have bank options? Or are these deals (or Sponsors) not financeable? What am I missing? 

@Brian Moore  The equity deals are all over the map.  It depends on what cap rate they purchase the asset and if its value add etc.. A 7 cap project with 75% debt & a 4.5% loan can start with a yield of 9%+ in year 1. There are value added deals that have a 8% preferred return, but only pay 5% the first year or less and yield catches up in the following years as the turn around happens. 

An example was a mobile park fund I invested in earlier this year.  The MHP fund purchases most of its parks at a 10% cap and they can get 70% debt at 5%.  That's why the yield is 10%+ in year 1.  

I personally invest in deals with current yield of 8% of more with the potential for higher IRR. If the business plan/projections do not work out, I still have my 8% yield. Assuming they don't really muck up the project.

Debt Sponsors that have short term flips with 30%+ margins are willing to pay 12% plus for 6-9 month debt because of the sped and consistency of the cash I would assume.  Patch of Land will prefund the loan in 2 weeks or less.

>>I'm curious - how many state tax returns will you have to file after doing so many of these?

Each state that has an income tax (i..e Florida doesn't), and for which you meet/exceed some miniumum $ amount of earnings for reporting, will require an out-of-state/non-resident tax return to be filed.  Thus you should build into your required return the extra cost of filing and paying out of state income tax, whether via your accountant or via your preferred tax program such as TurboTax.

An update to finish off 2014

RealtyMogul note deal that was supposed to mature on Nov 30 did so and the borrower chose to refinance with them for a second time.  The new note paid investors an extra 1% per year and is a 6 month note with one 6 month extension.  RM raised the funds within a couple of hours.  I chose, rather, to cash in and the funds were returned today with all interest paid to the closing of the new note which happened this past Monday.

RealtyShares had a deal exit early. The sponsor on this deal sold the house early to a homeowner who wanted to finish the project himself. They were informed of a payoff late Nov and we received our principal and interest (with interest booster) this week. About 18% IRR for this project, and right in line with what we expected.

As Jeremy stated, sponsor execution is critical in the CF sphere and the above two portals execution speaks for themselves.  Both those companies CEO's have always treated me with respect when I had questions and even concerns on their deals.  Honesty and integrity go a long way in business and seems even more important in the CF space.

Thanks Mark for the update.  Please keep updating us on how things go.  On these CF opportunities that sell out so fast, how do you have time to do DD on the deal?

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