Share Your Crowdfunding Investment Results - The Good & The Bad

62 Replies

Real estate crowdfunding for accredited investors has been around for over 2 years now. A handful of my investments did much better than expected and a few that did much worse that projected. More than half of all crowdfunding deals in real estate have been with 506b platforms and there is almost no accountability for these investments. The SEC does not allow any public discussion while they are raising funds. The platforms have sent out cease and desist letters against sites like ours that post 506b investments after they are closed. Therefore, no one knows how crowdfunding investments perform except for the individuals who invested in specific deals. I think we could provide a great service to the crowdfunding investment community, if we would share our winner and losers.

A few members have already reached out to me about investments that did not go according to plan. I am asking BP members to either post here or contact me via pm and let me know about any of your crowdfunding investments that:

1. Beat projections by 50% of more

2. Missed projections by 50% or more

3. Crowdfunding Investments that went full cycle and you lost principle or broke even.

Please give as much detail as you can. Please include:

1. Platform & sponsor where you made the investment

2. Date when investment was made and date when the investment went full cycle

3. Projected returns

4. Actual returns

Thanks you for sharing and I will post a summary in January of 2016.

While these are not necessarily the good and the bad investments, they are a summary of my 13 investments at Realty Shares,  From my recent blog post at CrowdDD:

I thought I would give a quick update on my Realty Shares crowdfunding investments. I invested 13 times with Realty Shares over the past 2 years. I currently have 10 active investments and three have retuned my principle.

3 completed Investments

One investment was a fix and flip from Aug of 2014 (Pullman) was repaid in February of 2015 and made a 15% IRR. A Twi-west fix and flip from Aug of 2014 had it principle returned in Aug of 2015 with 9% interest. The property (Van Ness) has not sold and if it hits certain metrics, another 9% will be paid. The third closed investment was another Twi-west fix and flip (Normandie). The principle was returned, but the developer lost money and no interest was earned.

1 Almost Complete

Another early investment should go full cycle in the next week or so. The AZ Chase office investment was bought in May of 2014. The developer split off the bank parcel and sold it this summer and sold the remaining office building this week. The final accounting is not finished, but investors should see a return higher than projected.

The other 9 Projects are:

Safeway center in AZ – Investment from March of 2014 is doing slightly worse than projected, cash on cash returns are about 655 of projections. Sponsor feels they are on track to meet expectations

Single Family Fix & Flip II - This investment from July of 2014 is wrapping up and has already returned about 30% of the principle with 9% interest. It's on track to be complexly paid back within 2 years and it appears they will beat the projected IRR of 20-25%. Margins and sales have beat expectations

Manhattan Place was a retail investment from October 2015. This 5+ year hold seems to be on track.

Anderson Ferry is a medical complex from October of 2014. Occupancy is at 96% and they also seem to be on track with projections.

84 South Union is a fix and flip from Nov of 2014. They have paid the promised 9% interest each month. They seem to have a few delays, but no red flags yet. We should make another 8% at close.

Ichabod Lane is s fix and flip investment from February of 2015. They are current on the 11% interest. They too have had delays, but seem confident that they will still hit projections and we should earn another 8% at close.

Summerlin Las Vegas is a retail investment form April of 2015. It’s still early, but all updates have been positive and they are current on the 8% preferred return. Occupancy is up to 96% from 92% at close.

Broome Fix and Flip – This fix and flip fund from May of 2015 is current on their 14% interest payment. The updates have all been positive

New England High yield II – This investment form December of 2015 is too new to provide any feedback.

Overall, I am pleased with my Realty Share’s investments. I am staying away from high end fix and flips. They have been taking longer than expected to sale and they will be the first to get hit in a recession.

Realty Shares is still actively looking for new investors and will give investors $150 if they register with this URL and link their bank to their Realty Shares account.

I am in some deals, but I'd rather give you an overview of the sites from my perspective. I'll also give a general summary of performance.

Fundrise - Very good and each deal is vetted extremely well. However, I am seeing some favoritism to the cofounders as they are using it as their personal platform now as well. They work with top notch sponsors though. I invested in six different deals. 4 are performing better than their expected returns. One is in line. One is only slightly below and is still paying distributions.

Realtymogul - Also very good when it comes to vetting. Have 4 investments performing in line. They are responsive. My friend however invested in two fix and flips and he will see a positive return, but very low given the holding time.

Realtyshares - Very good and responsive. Had 8 deals with them. All performed in line or better. I been paid out on 3 of those investments.

Ifunding - This is the biggest loser here. I had two investments. Both are doing terrible. My friend also invested in two fix and flips and are complete losses. Likely to suffer 60%+ loss of principal on the investments. They are also terrible with communication. They sent out like one short message within a six month period. Horrible. I would avoid them at all cost. They are now doing only debt deals or something like that. These guys are clueless and have no idea where they want to be.

@Mark Robertson   I know both RS and RM personally and I agree with the above they vette their deals like a mortgage underwriter ( debt deals)  but the investing public does need to realize that no lender can be 100% and not 100% of all projects will work.. to expect 1000% performance from these portals is not realistic.

I do believe that being able to invest small amounts in a number of deals will greatly spread risk ( kind of like a mutual fund)  and that one would probably want to look at a weighted average per portal.

I've investing in four deals through FundThatFlip.com (where I also sit on the Board of Advisors).

Two of the deals are now closed (successfully repaid with 10-11% annualized interest) -- one was repaid after about 3 months and the other after about 5 months.  Two of the deals are still open -- one is going on a couple months and one investment I just made a couple weeks ago.

@J Scott   as a board of advisor do you actually underwrite files.. or do you advise on the big picture items ?  IE the basics. ?

Originally posted by @Jay Hinrichs :

@J Scott  as a board of advisor do you actually underwrite files.. or do you advise on the big picture items ?  IE the basics. ?

I advise on the overall business -- helping define business strategy/models, customer acquisition strategy, marketing/fundraising strategies, etc.  In the past, I have (as part of the larger team) helped to define the underwriting guidelines and processes, but I certainly don't do any underwriting myself (they have people who are much more qualified than I am at that!).  I don't have any participation in the day-to-day business, except in rare circumstances when the CEO wants my opinions/input.

@J Scott   cool... all they need to do is read your book and then reverse engineer and make sure the borrowers are qualified  :)

Interesting read. I didn't know you need crowdfunding to fund flips. What are the magnitudes of these flips? low 7 or 8 figures? Is losing investment capital allowed? Say i only get back 50 of 100 if deal goes sour?

Thanks for the OP @Mark Robertson and sharing your knowledge and experience both here and on your website.

I am relatively new to the CF niche, but so far like what I am finding.

I have made 2 CF investments thus far (1 debt and 1 equity) with Realty Mogul and getting ready to pull the trigger on a few more possibly with Patch of Land and/or Realty Shares as well.  

I have found all 3 of the above platforms professional and responsive, although as a foreign investor there were a few bureaucratic hoops to jump through in order to get up and running. (Still waiting for PoL to complete the process). 

For the Non US investors out there looking at this sector- it is not completely simple but can be done - you need a US entity (LLC or other) and a US account. Some platforms have informed me that they are not set up to handle foreign investors even with those (Fundrise for example)

The investments I have with RM are too new to judge as yet- but so far paying on schedule and looking good.

Also looking at a different model CF platform in Indiana - which is an equity chunk of an existing cash flowing portfolio of 10 SFH. I look on this as an improved alternative to a Turn Key investment - providing diversification but at the cost of direct control of the asset. Havent come across this type of model before and would be happy to hear from anybody else who has. They are also open to non-accredited.

As a foreign investor the CF platforms have streamlined my sourcing, and due diligence ability and allowed me access to diverse markets and investments that I couldn't reach before at this level of investment amount. Amongst others money lending opps, industrial and commercial equity and ground up builds.

I tend to be the crawl before I walk type when it comes to new opps and have been keeping my eyes wide open when it comes to CF investments and reading and learning while sitting on the sidelines. Were I ready to step into the fray next year does anyone have any thoughts on where, who, when and what to align myself with as a greenhorn CF investor?

I'm and accredited investor and by no means new to investing. I have an appreciable RE and stock portfolio but I'm just looking at other ways of diversifying for the near and long term future. I've been looking at doing a little more in the stock market (i.e. options, new IPO's, robotics, lithium, Marijuana related investments, etc) as I've done quite well during the past 6 to 7 years. 

However, just about anyone who could fog a mirror and took the ride up couldn't help but make money in that upwardly mobile market. But those days are over for now and I see the market  slowing down perhaps even dipping. So I'm looking for some other ways to build on my investment portfolio. 

Although somewhat cautious on sticking my toes into the honey dew  I can be somewhat of an adventurer and don't mind investing in more speculative opps in smaller $$$ increments to start with. 

However, in that event I'd want to be more hands on. As @J Scott has intimated he sits on the board of some of his investments. I tend to lean that way as well and don't mind jumping into the trenches and getting my hands dirty as I'm also a general & manufactured home contractor, manufactured home dealer and developer, real estate broker, investor and property manager. Dooe anyone know how one would get involved with investments such as this?

I'll be posting this as a general question on this and other forums as well.

@Jimmy Klein   yes I looked at the WI deals I funding did and boy that was truly amateur hour or just the buring desire to get started and throw whatever up against the wall and see what would stick.  There was one BP member who described I funding as best in Breed of the CF portals not sure how he got that impression.   RM and RS in my mind will be some of the top floors in the fix and flip space

Ground Floor has a few of those going on right now in GA.. that have come to many BP members attention.. If the allegations being made are substantiated it was again on the surface some poor underwriting up front and execution on the back end.. But who knows I am not an investor and its all hearsay.

Great to hear about the experience of others in this sector of investing. Glad you have set out to solve this problem in further giving others in depth diligence of these deals @Mark Robertson

I wish you the best of luck in your future endeavors 

Merry Christmas Eve

Patch of Land $85k (13 separate investments), Real Crowd $50k, and Crowd Street $40k are the 3 CF platforms that I have invested in and so far so good for all three! Has anyone else invested with RC or CS? I personally visited the POL offices in Westwood one day...I just stopped in with no appointment and said hello to ENTIRE staff! Everyone there was very nice to me and it felt like a very vibrant and busy start up environment. I am praying everyday that all of my investments dont go the way of Madhoff'ish-land! Everyone I talk to personally about my investments tell me one thing...if it's too good to be true it probably is and thus sit on the sidelines earning nothing on their idle cash! God I hope that I am right in the end, trusting my hard earned money with these CF platforms!!!

Originally posted by @Alex Di Savino :

Slightly off topic: If you're looking for a more passive investment wouldn't an REIT (mutual fund) trump CFs?

I think there are advantages to CF over REIT's. But yes REIT's take less work as you just invest once and then you are done. Where CF you have to look at the merits of each investment you make.

-REITS are subject to general stock market crashes since they are publicly traded, CF investments not tied to overall stock market

-CF you can cherry pick your individual investments, REIT's you cannot (REIT managers choose all the investments in the REIT)

-I think market timing is much more important with REIT's - when you get in and when you get out, you could get in right before a market crash and get out right before a recovery. CF is all based on the individual investment you make.

By the way, thanks @Mark Robertson for creating this thread.  This is a great way to find out which CF investments have gone bad.  The deals

Thanks @Jimmy Klein for your report.  60% loss of principle in a iFunding deal is by far the worse I have heard any CF investment turn out so far.  Any info what happened on that deal to make it such a bust?  

But it seems like overall the vast majority of CF deals are returning excellent yields.  The key test of CF IMO is going to be when a recession comes.  CF portals only got started 2-3 years ago and have only seen a pretty hot RE sellers market in all those years.  It will be interesting what the returns are like during an economic downturn.

Great thread. Has anyone had experience with Eastern Union Funding?  They seem to be both a debt and equity lender.  I am looking from both the investor side as well as the sponsor end

I used Realtyshares mostly, then fundrise, then on a very small scale, patchofland. So far so good. One deal on RS was extended a couple of times but was able to get all principal back plus higher interest (because they missed the original deadline). No problems with the few investments I had with Fundrise and POL so far. However, fundrise seems to have gone the eREIT route and they often try to bundle good new deals with stuff they can't sell out earlier so I haven't been able to invest anything new with them for a while.  

I am going to be more careful going forward though - now that non-accredited investors can invest as well I fear that the portals will have less incentives to do things right because money will be easier to raise for them. Also if interest rate keeps rising it may cut the profits for these flipping projects

Originally posted by @Glen Fagin :

Patch of Land $85k (13 separate investments), Real Crowd $50k, and Crowd Street $40k are the 3 CF platforms that I have invested in and so far so good for all three! Has anyone else invested with RC or CS?

I have one investment with Real Crowd. Way too early to know how's it going. But will say was a bit uneasy wiring money outside of the platform to the fund the investment and not getting any real feedback. They do however, highly responsive if you email so that's comforting. But in general RC was very slow to close and go through the whole funding and approval process and not even sure if the project has officially started yet.

I have other investments on RealtyShares and Fundrise which are mainly debt. The RealtyShares are all paying back with one even paying the principal back early. Looking at trying RealyMogul. Right now deal flow is really slow, hopefully it'll pick-up after the holidays.

  

Have a question for others. I see some of the platforms offering Preferred Equity (such as RealtyShares), does anyone know if these generate 1099 and treated as interest income (so taxed at marginal tax rate) or do they generate a K-1 which allows for tax deferral treatment on the distributions?

 I like to invest in more equity for the tax benefit and wondering if Preferred Equity also gets favorable tax treatment or not.

Thanks!

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