Update Nov 7, 2018: Unfortunately, RealtyShares is no longer accepting new investors on their platform. I suggest taking a look at Fundrise, the pioneer in eREITs. They are also currently working on an Opportunity Fund to take advantage of tax-efficient Opportunity Zones. Fundrise was founded in 2012 and is open to all investors – accredited and non-accredited alike.
RealtyShares is one of the leading real estate crowdsourcing platforms today. They are based in San Francisco, and was founded in early 2013 by Nav Athwal, a fellow alumni at UC Berkeley’s Haas School of Business.
I’ve personally investing $810,000 on the RealtyShares platform because I believe the arbitrage opportunity of making a higher return in the heartland states of America now that Donald Trump is president and now that the new tax policy for 2018 will slow down expensive real estate markets by capping SALT deductions to $10,000 and the mortgage interest deduction to mortgages of only $750,000.
In the past, it was very difficult to efficiently invest in properties in Texas or Utah or Missouri while living in a different state. Now, individuals can invest as little as $5,000 to take advantage of the higher cap rates compared to the coastal cities of America.
I recently met with the new CEO Ed Forst, VP of Finance, and Director of Marketing to get an update on how their business is doing for 2018. The key points are that their growth has surpassed expectations with over $700 million invested across over $1,000 deals.
I recommend signing up to explore various investment opportunities that were once only available to developers or very wealth individuals. It’s free to explore.
RealtyShares Management Profiles
RealtyShares Investment Project History
- RealtyShares has funded more than $700 million in real estate projects since inception, across more than 1,000 deals as of 1Q2018.
- Average deal size is just under $500,000 ($493,000) across all asset classes.
- Average commercial deal is more than $850,000.
- Average Residential deal is more than $430,000.
- Have more than 35,000 registered investors on the platform
REAL ESTATE INVESTMENT SOLUTION
RealtyShares offers a mix of fix-and-flip loans, preferred equity and mezzanine products, joint venture equity and commercial loans. Those commercial buildings with higher returns that were once out of reach are now more readily available. So far, RealtyShares has had over $170 million go through its platform from investors like myself investing in over 2,000 properties.
One of the best things about RealtyShares is how vigorous their vetting process is of deals that make it on their platform. Only 5% of the deals they see are approved, giving more confidence to investors that what they are reviewing has already been thoroughly reviewed already.
REALTYSHARES SIGN UP PROCESS
The sign up process is easy and free.
Step 1: Input your first name, last name, telephone number
Step 2: Self accredit by choosing how you are accredited: income, net worth, joint income, or business
Step 3: Link a checking account or skip to first explore the various investments.
Step 4: Verify your e-mail address.
Step 5: Reach The Cooling Off period. This is a great step for all new investors. The Cooling Off period is suggested by the SEC for all investors to get comfortable with an investment before deploying capital. It’s not mandatory, just recommended. After you fill out the questionnaire, you’ll get a phone call from someone at RealtyShares to talk about the product and answer all your questions.
GROWTH OR INCOME?
You’re either looking to invest in growth or income on the RealtyShares platform. My main focus is income given I’m satisfied with my current financial nut.
Three main investment categories:
1) Single family residential property. Target 9% – 11% annual return. You are the senior debt holder (first position on lien). The investment duration is usually 6 – 24 months and income usually paid out monthly. This product is considered their least risky investment for investors and has been around since the beginning. Roughly 40% – 45% of total investments on the platform are in this category.
2) Preferred Equity/Mezzanine debt. Target 12% – 14% annual return. You provide bridge loan for sponsors and are a lower position in the capital stack. The investment period is usually 2 -3 years. Investments are mostly in commercial property. Roughly 20% – 25% of total investments on the platform are in this category. This is where I will probably focus most of my investments since I already own single family residences.
3) Joint venture equity. Target 10% – 16% annual return. You are an equity owner alongside the sponsor and take part in profits once preferred returns are hit. Typical duration is 5 years, but can be as short as 3 years. Income is usually paid quarterly once the deal is closed. This category accounts for roughly 25% – 30% of all investments.
OTHER IMPORTANT INFORMATION
Real estate crowdsourcing is considered an Alternative asset class. Many private wealth advisors recommend a 10% – 20% allocation. Meanwhile, we know that some large university endowments invest 50% or greater in Alternatives. The whole idea of investing in Alternatives is to capture outsized returns from inefficient markets.
The minimum investment is usually $5,000, but it can go as low as $1,000 for certain investment opportunities. Equity investment minimums are usually higher because there can only be a total of 99 investors per deal, and the sponsor may require more capital depending on the deal.
To generate revenue, RealtyShares take a 2.5% to 3% origination fee on the debt it raises for projects. On equity investments the company takes a cost reimbursement and makes a 1% to 2% percent management fee. That’s better than me paying a property manager one month’s rent (8.33%).
Finally, there have been 134 investments successfully completed so far, and there are currently 240+ active investments on the platform. I want to find cap rates in the Midwest or South that are over 10% compared to just 2% – 4% in SF and Honolulu for diversification purposes.
Below is a map of RealtyShares’ current investment offerings. The arrows are where I’m focused on deploying capital. Texas, Alabama, Utah, Nebraska, Mississippi, Louisiana, and Georgia are my top picks due to higher cap rates (returns). If anybody is from one of these states, please share how the real estate investment environment is.
SURGICALLY DEPLOYING CAPITAL
Instead of overly concentrating new money into one very expensive property where valuations are at peak levels, it’s better to surgically deploy capital into multiple types of investments with potentially greater returns, less hassle, and more liquidity across the country.
If you’re looking for yield in this low interest rate environment, don’t want the hassle of managing rental properties, don’t have the downpayment for a physical property, want to more easily allocate real estate dollars around the country, and are looking to diversify your investment portfolio with real estate exposure, take a look at the RealtyShares platform.
About the Author: Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $200,000 a year in passive income (50% from real estate). He spends time playing tennis, hanging out with family, consulting for leading fintech companies and writing online to help others achieve financial freedom.
About Financial Samurai: Based in San Francisco, FinancialSamurai.com was started in 2009 and is one of the most trusted personal finance sites today with over 1 million pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal.