This is a follow-up post to my previous post, Beginner’s Guide to Real Estate Crowdfunding. In this post, I will share a lot more details about my experience with RealtyShares. I’ll give you a sneak peek under the hood of RealtyShares and show you some specific investment examples of how it’s helping me to earn a healthy return on my capital.
It’s been two years since I made my first investment through RealtyShares. I first learned about RealtyShares on a website forum (SDCIA.com) which is a local real estate investment club I am a part of. I was looking for alternative ways to invest in real estate since my new daytime activities as a stay-at-home father left me with little time to go out and find deals in person.
Real estate crowdfunding was the best of both worlds it seemed. I could participate in deals alongside other real estate investors and split my investments across several to limit my risk! However, I was pretty weary in the beginning. It sounded a bit too good to be true.
But after I took a few months to review some of the deal flow and details, I felt that it was time to take action.
At the time RealtyShares and RealtyMogul were the two largest upstarts in the real estate crowdfunding space. I opened accounts at both companies and reviewed the deals at both. In the end, RealtyShares seemed to have better deals for me and I’ve stuck with them ever since. To date, I’ve done a total of 8 deals with them ranging from $5000 to $15,000.
So without disclosing identifiable information, I’ll share with you a couple deals that I did with RealtyShares that have and/or are performing well for me.
Investment #1 – VN
Deal Type: Debt
Synopsis: A developer needed short-term capital to fund a rebuild of a single family home in an upscale neighborhood of Los Angeles. Investors will receive an 11% monthly interest payment plus an 8% annualized return upon sale of the home in 8-10 months for a total annualized return of 19%. The developer is an experienced residential real estate investment company focused on value-add properties in Los Angeles County and has completed over 90 successful purchases and 65 dispositions in the last 30 months.
Capital Committed: $10,000
Actual Return: The term of the debt was a little longer than 10 months, but I had my full $10,000 returned within 13 months. I received $91.67/month for the term of the note and payments were paid through ACH and very consistent. I also received a kicker at the end of $314.14.
So, I made a total of $1692.24 on $10,000 over 13 months. This is an annual rate of return of 15.48% which I was very happy to have!
Investment #2 – MN
Deal Type: Equity
Synopsis: In this particular deal, a developer was looking to rebuild an existing property in Manhattan Beach. Since the property was older, the developer was able to get the home at a discount. After getting permits, the developer was able to begin construction on a two-story residence effectively doubling the square footage of the previous home. In order to raise capital, the developer offered an equity position to RealtyShares investors with ongoing distributions.
Capital Committed: $15,000
Actual Return: The term of this deal was estimated at 13 months. To date, I have earned $1,186.67 thus far. Although I anticipate getting my full capital back upon the sale of the property, there have been some delays. It’s not a big deal given the current market conditions, but you need to be aware that deals like this are dynamic and may or may not hit the target completion date. I’m happy to collect interest for a little bit longer as the developer continues to market and sell the property at the best price since as we will all benefit in that scenario.
The main dashboard when you log into RealtyShares shows you a quick synopsis of your capital committed, active capital, and returned capital.
Here you can also find out specific updates and news about a specific investment.
Overall I am very happy with the performance of my investments through RealtyShares. However, there is always that possibility that one or more investments could go belly up, so if you’re an accredited investor and looking to get a solid return, you will certainly need to weigh the risk to reward ratio.
Also, if you do invest with them, be prepared to sign a ton of disclosures acknowledging the risks involved.
Due diligence is simply a part of RealtyShares‘ deal flow. They scrutinize each developer’s application thoroughly to ensure the best performance for their investors.
HOWEVER, it’s still my responsibility to do additional due diligence on a potential investment. Performing this step can save you huge money. If something doesn’t “add up”, then go with your gut and pass it up. There will always be more deals that come along.
On the flip, don’t get stuck on the other side either! If you’re on the fence and simply stuck in analysis paralysis, it may behoove you to jump in and get your feet wet. Take it from me. It gets much easier after the first one.
Equity vs. Debt
A quick note about equity vs. debt investments. Typically, equity investments pay distributions on a quarterly basis, while debt investments usually payout on a monthly schedule. Equity investments typically allow you to pick up additional appreciation when the property is sold, while a debt investment may only involve the specified interest payments and the return of your capital.
Finally, each investment has its own tax implications. Interest income is typically taxed as ordinary income, so consider how that will affect your specific tax situation. At some point, I am considering holding these type of investments in a self-directed IRA so I can benefit from tax deferrals and exemptions.
Also if you take an equity position, you will become a partner in an LLC held by RealtyShares for that specific investment. So, you will likely get a K1 at the end of the tax year as a member. This can be helpful as you can possibly deduct net real estate losses that are subject to passive activity loss rules. This, of course, will depend on the situation, and everyone’s tax situation is different. Consult with a CPA to determine how it could affect you.
As I’m finishing up this post, I realize that there is A LOT of “jargon” involved here. If you’re lost, don’t worry. There was a time in the not so distant past I was in your same spot. But, guess how I came to understand these concepts over time?
Yup, you guessed it. By reading of course! I’m still learning a lot too.
Take the time to read things that you don’t understand and you will eventually begin to absorb new ideas and concepts “automagically”.
Remember, preparation is the mother of luck. Don’t wait for things to fall into your lap, or you may waiting your whole life.
Readers, was it helpful to see further details of a crowd funded real estate investment? Do you believe there should be restrictions on these types of investments (i.e. only available to accredited investors, or open to all?)
*Please note that I am an affiliate partner for RealtyShares. As always, I will ONLY recommend services or products that I use or believe in personally.
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