If you’ve decided to invest in real estate crowdfunding like I have done, you will get a K-1 for every real estate investment you make, be it equity or debt. Having to file a K-1 is one of the downsides to real estate crowdfunding versus investing in stocks, bonds or physical real estate you completely own where there are no K-1s. That said, filing a K-1 is pretty straight forward and takes under 10 minutes per investment.
In 2017, I invested $500,000 in the RealtyShares Domestic Equity Fund. RealtyShares is one of the largest, most trusted real estate crowdfunding platform today. They were founded in San Francisco in 2012, and I’ve met with their founder, Chief Risk Officer, Chief Marketing Officer, and several other key management.
The Realty Shares Domestic Equity Fund invested in 17 different equity deals around the country. One of my worries was that I would get a K-1 for each invest. What a pain! But I was assured before investing that I would receive one consolidated K-1 instead. I had my doubts, but I’m pleased to say that receiving one K-1 was indeed the case.
As you can see from the image, I got a total of two K-1s. My initial investment with RealtyShares was a $10,000 investment in a Conshy, Pennsylvania commercial property deal to test the waters. I found the platform to be intuitive, and the investment process to be straightforward.
As a new father, I didn’t have time to take care of my baby, write on Financial Samurai, and spend time analyzing each individual real estate crowdfunding investment. Therefore, when I was told RealtyShares would launch a fund with a minimum $250,000 investment, I went for it.
I’m a big believer in investing in the heartland of America through RealtyShares. Heartland real estate is much cheaper and the net rental yields are much higher. After I sold my San Francisco rental property for $2,740,000, equal to 30X annual gross rent, I had $1.8 million in proceeds after paying off the mortgage and fees.
My $500,000 investment in the fund could conceivably generate $75,000 a year, or $15,000 MORE than what I was earning in net rent with a $2,740,000 property. This is the power of real estate crowdfunding and diversification. My goal has been to always generate as much passive income as possible in order for my wife and I never to have to go back to work again.
Below is a snapshot of our latest passive income stream. The real estate crowdfunding section is light and conservation because they are all equity investments that take 3 – 5 years to pay out.
In 2018, I invested another $300,000 in the fund for a total of $800,000. I’m glad I did because the stock market has been rocky and the real estate market has softened in expensive coastal city markets like NYC and SF. The great opportunity in my mind is Middle America real estate.
I’m thankful the tax situation is much easier than expected. Even if you have to file a K-1 for each individual investment, it takes at most 10 minutes if you using an online tax software.
Real estate will always be my favorite asset class to build wealth. With the rise of real estate crowdfunding companies, investors are able to take easily take advantage of larger real estate deals around the country much more efficiently.
If you don’t have the downpayment to buy a property, don’t want to deal with the hassle of managing real estate, or don’t want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.
Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible. For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you’re looking for strictly investing income returns.
Sign up and take a look at all the residential and commercial investment opportunities around the country Fundrise has to offer. It’s free to look.
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.
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