The Sad Demise Of RealtyShares: What’s Next, Alternatives, And Lessons

What happened to RealtyShares closing down? What's next, alternatives, and lessons learned

When I found out RealtyShares was closing its doors to new investors on Nov 7, 2018, I was shocked and saddened. Given they are based in San Francisco, I had met multiple people from RealtyShares since mid-2016 and developed some good relationships.

I feel terrible for the people who will no longer have jobs as we enter the holidays. In a way, I feel like I've lost a job and colleagues as well since they were a business partner.

On Wednesday, October 24, I had lunch with their CMO at Townhall restaurant. She told me they had just revamped their website and rebranded the company's name with a new color scheme and logo. I even got a new shirt.

Further, I was told they would be launching a second fund, with a minimum $25,000 investment (vs. $250,000 for their first), to be more accessible to more investors. Their second fund would act like an index fund for all the deals they vetted onto their platform.

Obviously, the new fund is no longer launching. All that will remain will be an asset management and operations team who will be responsible for servicing existing investors and their approximately $400 million of assets under management until scheduled completion.

RealtyShare wrote in their e-mail, “This transition will have no impact on the underlying real estate investments. Investments will continue to be managed and distributions will continue to be made. Investors will continue to receive asset management updates and year-end tax information.

What Went Wrong At RealtyShares

I expected consolidation in the space, I just didn't expect RealtyShares would be one of them so soon given they had raised $27 million in Series C round in September 2017 and had so much demand. That's a lot of cash to go through in 13 months. I’m hopeful they still have a cash cushion left for the transition.

In retrospect, it looks like RealtyShares expanded too quickly (personnel, got in and out of residential at a high price etc) without an equal amount of supply.

Ever since I joined their platform in 2016, most of their deals were quickly filled. This was part of the reason why I invested in the Domestic Equity fund instead because the fund would always get first dibs on the best deals. I didn't have time to log in every day to check.

But if you consistently have excess demand, your customer acquisition cost (CAC) will start to go higher because your new customers will just be sitting there without deploying any or as much capital. Hence, finding that supply and demand balance is key.

Further, they probably didn't have the technology optimized to scale quickly. RealtyShares ran a people intensive business to review, finalize, and manage deals. Their growth was more linear, rather than hyperbolic as venture capitalists like to see. I suspect part of the over-expansion was due to VCs always pushing more aggressively for growth.

I truly believe the vast majority of RealtyShares employees had no idea their next round of funding wouldn't come through until it was pulled last minute. I truly appreciate my time working with Kristina, Brian, Amy, and Alyssa. I wish them all the very best. I'm sure our paths will cross again.

For Investors On The RealtyShares Platform

Like many investors, I followed up to get more details about what will happen to our investments on the RealtyShares platform, despite their reassurances in the initial e-mail. After all, I invested $810,000 on the platform (not in the company).

This was one person's response:

Please rest assured that your investment in the DME Fund will be taken care of. We are in the process of transitioning all of our active investments to a fund administrator, who will handle distributions. We will certainly keep you posted as we continue to firm up the transition plan.

We are focused on making the transition as seamless as possible and the asset management fees we charge should cover this until maturity.

It's important to remind ourselves that we are not investors in RealtyShares, the business that could no longer raise money to keep expanding. We are investors in individual real estate investments. RealtyShares, at the end of the day, was a marketplace to match investors with sponsors of real estate projects around the country.

According to RealtyShares, RealtyShares created an LLC for each investment as a subsidiary of RealtyShares to invest in equity and preferred equity deals. Investors in RealtyShares (Cross Creek, Blue Mountain, Union Square Ventures, Menlo Ventures, General Catalyst, 500 Startups, etc), the company, have no claim against these LLCs during a wind down. The fund administrator, NES Financial, will be paid to manage and operate these specific investments and the DME fund until scheduled completion.

It is up to the sponsors to do their jobs and provide investors with the best return possible. They can't just disappear because RealtyShares was often just one of several investment sources for their respective deals. Further, sponsors always invested some their own money in their deals because investors wanted to see skin in the game.

The sponsor's incentive is aligned with RealtyShares platform investors to do the best they can to make their deals work. If their deals perform poorly, they'll make less money or lose money, hurt their reputation, and have a tougher time raising capital in the future.

In the meantime, I recommend everybody write down in detail each deal they own and the contact information of each sponsor for your records. This is extremely important given the governing oversight of RealtyShares may be diminished. For existing investors, nothing should really change except for not being able to invest in new deals.

Log in to RS, click on “Documents” then “Investment Documents” – you can download the full package for the active investments right there to keep handy. Here's a link where I have gathered all the sponsor and deal profiles of the RealtyShares DME Fund and one individual investment I made in Conshy, PA. There are a total of 18 deals I've recorded, which may help some of you.

If you calculate a 1% – 1.25% average asset management fee on $400 million in assets under management, RealtyShares should earn roughly $4 – $5 million a year to keep a team of people to manage their existing assets until their respective target exits. By going from ~100 employees down to ~15 employees and cutting all new customer acquisition efforts, they should have a sustainable business that should last. They just can't grow like the VCs wanted. I'm assuming they'll also downsize to a smaller office space to further reduce expenses.

RealtyShares Alternatives

I'm still a believer in the real estate crowdfunding space because it allows us to arbitrage real estate profits around the country. As someone who is sitting in expensive San Francisco, I want to use my expensive SF money to buy inexpensive heartland real estate property with lower valuations and higher cap rates.

Not having to source and manage these properties while earning a higher income is a core thesis of my Buy Utility, Rent Luxury strategy (BURL). I want to own assets that provide collateral and produce the highest amount of passive income.

Based on public funding knowledge and what I've observed in the real estate crowdfunding space, here are a couple RealtyShares alternatives. All companies are private, so I do not have knowledge of their financials.


1) Fundrise. I've worked with Fundrise since 2016, and they've consistently impressed me with their innovation. They were founded in 2012 and are the pioneers of the eREIT product. They've not only raised $55 million from venture capital, but they also found a way to directly raise capital through their “Internet Public Offerings” directly from investors on their platform (past 9 months).

More recently, they were the first ones to launch an Opportunity Fund in the real estate crowdfunding space to take advantage of new tax laws.

Fundrise is open to non-accredited investors (e.g. everyone), unlike RealtyShares. Further, their business model of creating tailored funds like the Heartland eREIT is attractive to someone who wants to diversify into real estate, but who doesn't want to pick and choose individual investments on the platform, despite these investments also being carefully vetted first.

Check out their Form 1-Semi Annual Report filed with the SEC. The first several pages has details of their progress. In September 2018, they surpassed $400 million in assets under management under the Sponsored Programs, and I hope they keep on going.

You can check out my latest Fundrise overview here. Fundrise is my favorite real estate crowdfunding platform for all investors.


2) CrowdStreet: After a tremendous amount of research and meeting with the people at CrowdStreet, I believe CrowdStreet is an excellent real estate crowdfunding platform. It focuses on deals in 18-hour cities and also moved its HQ to Austin, Texas.

Post-pandemic, lower-cost areas of the country are seeing tremendous demand because more employees can now work from home. CrowdStreet has a healthy pipeline of individual deals and funds, such as a Build-To-Rent Fund focused on single family rentals.

Here is my latest CrowdStreet review. CrowdStreet is for accredited investors only.


RealtyMogul was also founded in 2012 and offers accredited investors a way to invest in debt or equity commercial real estate offerings. They also have a couple eREITs for non-accredited investors. So far, they have distributed over $100M, have 220K members, and have funded over $3B in property deals.

I spoke to their CEO, Jilliene Helman at length on Nov 9 and she mentioned how she wants to build a multi-decade long business not a flip. Instead of growth at all cost, she's focused on growth at a reasonable pace to ensure long-term profitability.

Her firm is extremely focused on the underwriting process, uses technology to automate more cumbersome areas of the business, and has higher origination fees for sponsors to account for the costs of doing business. They also focus on investments larger than $1M.

Realty Mogul has a smaller team at ~55 people. They also stopped investing in hotels and single family flips in 2015 because they viewed them as more risky and/or cumbersome to manage. 65% of their deals are in bread and butter multi-unit residential property.

Given they have higher barriers for whom they do business with, it feels like they really are focused on hitting singles and doubles instead of home runs, which is more in line with how I like to operate my own business. Here is my latest RealtyMogul overview post for more details.

Needless to say, please only invest if you have thoroughly done your due diligence and know what the contingency plans are. I would take your time understanding the platform and asking other people about their experiences.

The Future Of Real Estate Crowdfunding

Long term, there will likely only be a handful of winners in the real estate crowdfunding space. It's the company that gets its technology and supply/demand matching right that will emerge victorious.

As news of RealtyShares' closing spreads, investors will take pause and reevaluate their alternative investment strategies and do more due diligence on respective real estate crowdfunding platforms like I am right now.

Further, I expect real estate crowdfunding platforms to do work to improve their balance sheets, increase their supply of deals, tighten up their underwriting standards, improve their technology, and improve their messaging. All of these things are good for platform investors long term.

I'm confident RealtyShares will do the right thing and see existing investments through to scheduled completion. They've got ongoing asset management revenue of $4M+, an asset management team, and a fund administrator in place. I have faith that the co-CEOs, Alexis de Belloy and Ed Forst will do the right thing. If not, trouble awaits for their careers.

Please remember that real people who tried really hard to make something successful have lost their jobs. Some have families to support while all had hopes for a brighter future.

Some Learning Points

We must learn from every unfortunate situation if we are to improve. Here are some takeaways from RealtyShares' demise:

1) We often hear advice to just start and pivot later. This works if you want to build a lifestyle business, but if you plan to build a VC-backed company heavily relying on technology to scale, it's worth spending more time getting the technology right first before aggressively launch. Going back to try and fix or optimize your foundation is really costly.

2) Taking VC money means you no longer have full control of your company. Never look down on a fully bootstrapped company that is cash flow positive because they are the masters of their own destiny.

3) Limit alternative investments to no more than 10% of your net worth. Further, diversify your 10% as well. Alternative investments are usually not as liquid as old fashion stocks and bonds. The rewards can be much higher, but so can the uncertainty and headache. Related: Just Say No To Angel Investing

4) Recognize real estate is late cycle as we enter 2019. Inventory is rising, interest rates are rising, and prices are flatlining or going down. Expensive coastal city real estate is already softening. If things get really bad, eventually, less expensive real estate markets will also take a hit, despite long term demographic shifts toward lower cost areas of the country. It usually takes 3-5 years for the real estate market to work its way through a down cycle.

5) You must forecast the health of the real estate market when your equity investments plan to exit. Based on your forecast, you must adjust your IRR expectations accordingly. Don't believe any of the advertised IRR rates. They are almost always blue sky scenarios, and we know rain and thunder showers inevitably come.

6) Nothing is ever as rosy as it seems. There were a couple small red flags in 2018 that I observed, namely the one month dearth of deals on RS's platform during the summer and a couple personnel departures, but nothing which would make me suspect they were burning through so much cash that they wouldn't last through the year. All guidance they gave pointed to continued growth and success.

With Financial Samurai, maybe from the outside, it may seem like writing all these articles, managing the forum, doing podcasts, responding to requests, and building business relationships looks easy. But I assure you that sometimes it is extremely difficult to keep things going smoothly, especially if you've got a little one to take care of as well.

This week I had multiple nights where I only slept 3-4 hours because my wife fell seriously ill with food poisoning for 36 hours, our babysitter canceled on us last minute (we had planned 2 or 3 days for 3 hours each day), my boy now has the same sickness, and the RealtyShares news hit. At one point I felt like the last man standing facing a 1,000 person army. But I kept fighting because that's the only thing I could do.

7) Stay humble as an investor. It's sometimes easy to think we are the best investors in the world thanks to such a wonderful bull market. But bad things happen all the time, especially when we least expect it. Certainly don't take delight in the suffering of others because you might also meet an unfortunate circumstance one day. Try to be humble in everything you do no matter how much success you have.

8) Keep taking calculated risks. Once we accept that bad things will always happen, we will become better investors because we'll take into consideration exogenous variables during our due diligence process. Those who keep taking calculated risks should be rewarded over time. We've just got to take the hits, learn from our mistakes, and keep on going.

9) Salvage what you have. A $400 million investment portfolio that generates $4M – $5M a year in fees is significant. I suspect the portfolio could easily be sold to a competitor or money manager for $5M. After five years, the acquirer would earn a healthy IRR return while also having a potential new set of accredited investors to do more business with. Meanwhile, investors in RealtyShares, the company, would recoup some of their $60M+.

I hope this article has been helpful. It’s been a very difficult week for me, and I appreciate your patience and understanding. I will update this post with more information as it comes in. If you discover any more useful information, please share here or in the FS Forum. Thanks.

Ranking The Best Passive Income Investments – A look at all the passive income options out there ranked by risk, liquidity, return, and more.

Real Estate Crowdfunding Learning Center – A collection of important real estate crowdfunding pages I put together to learn about the various nuances of the space.

Career Advice For Startup Employees: Sleep With One Eye Open – It's tough getting rich working for startups since most don't hit it big.

Example Of What A Bad Real Estate Crowdfunding Loss Looks Like – Here's a post I wrote in Oct, 2017 about a deal the RS DME fund made which I did not like.

Update 5/13/2019: They hired a fund administrator named Assure and announced they have sold most, if not all of their assets to IIRR Management Services. During my latest retirement income streams analysis, I also got about $50,000 of capital returned out of $800,000 invested in the DME fund as the Austin Multifamily property paid off.

Here is the letter sent out to platform investors:

RealtyShares was founded with a mission to connect capital to opportunity. With your support, we built one of the top online real estate investment platforms, with over $870 million invested across more than 1,100 projects. 

In November 2018, we shared that we had ceased adding new investors and offerings to the platform due to our inability to secure additional capital. Since then, our resources have been focused on servicing existing investors, managing assets and actively exploring long-term solutions to ensure that investments are managed to their terms.

Today, we are pleased to announce that we have contracted with IIRR Management Services, LLC to manage the remaining investments and investors on the RealtyShares platform, and to purchase certain assets of RealtyShares and its subsidiaries. IIRR is a joint venture formed through a partnership between RREAF, a leading real estate sponsor and developer based in Texas, and iintoo, a global real estate investment platform. Both firms have significant real estate and asset management experience and are deeply committed to looking after the RealtyShares platform investments and investors. Both RREAF and iintoo will also offer new investments through their respective platforms. You can find details for these organizations below.

IIRR Management Services, LLC will leverage current RealtyShares staff and partners (including Assure Services, our Fund Administrator) to continue servicing investors and assets through the RealtyShares platform. They will augment existing Asset Management and Investor Services teams with additional real estate professionals to manage the portfolio, communicate updates, and provide timely distributions. This contract management transition does not change your rights in or the structure of the underlying real estate investments. You can continue to reach us at

RealtyShares has experienced tremendous change over the last few months and  we recognize that the transition has been challenging, both for us and our investors. We apologize to those of you who may have experienced delays in distributions or reduced levels of communication, as we have been working with limited resources since our announcement in November. We are very confident that IIRR Management Services will bring unparalleled experience and expertise in managing the RealtyShares investment portfolio for the benefit of our investors.

We thank you again for your support.

Update October 2, 2021: The RealtyShares investments are still slowly being worked out. The pandemic derailed a lot of original plans for hospitality and office in particular. But things are recovering, thankfully. The DME fund has paid out 52% of capital so far. It probably has another two years to go.

Related: How To Properly Evaluate Online Real Estate Investing Platforms

About The Author

41 thoughts on “The Sad Demise Of RealtyShares: What’s Next, Alternatives, And Lessons”

  1. Thank you for this. It’s good to see you mentioning Realty Mogul. I spoke with them when they first launched and they seem like a competent bunch (although I haven’t invested with them yet). After a bad experience with Lending Club, I like to keep tighter control.

  2. Has anyone here heard of YieldStreet? My experience with their customer service support has been abysmal. Communication is only by email. It takes them several days to call you back. I have read a lot of positives on their investing approach. But their customer service is subpar.

    I will move on and continue my search for an accredited investment opportunity.

  3. I have $65K spread between deals at Realtyshares, and it is quite disheartening to hear about their demise. Even more so to hear about the burn rate of the company and how much cash was used up so quickly. Doesn’t speak well for the fact that this same company was at the helm in “underwriting” the deals that many of us are invested in.

    I really hate using HOPE as my investment strategy, but hopeful is what I am regarding Realtyshares in that they will stand by their word and see the existing deals to fruition.

    My gut told me a while back (mid summer) to go to cash in most retirement accounts/brokerage, and at the same time I passed on every Realtyshares investment as they became less and less attractive (i.e., “common equity” apartment complex deals). Even when I inquired in writing to RS about these deals and the fact that there were less and less of them (which seemed odd), I was told they were merely selective about new investments overall. What a crock of BS it now turns out.

    The truth to the current situation is this. The markets are floating at the tops of their ranges, and it is during these “good times” that many investors make foolish decisions in order to cash in on high yields that are a “sure thing” since they’ve been vetted, etc.

    Despite physical real estate’s demand for time and active involvement, the reality is that true passive investment is quite unicorn-like. For that reason this all makes me reconsider more rental property despite the headaches!

    1. Indeed. I am quite disheartened as well, but I’m keeping the faith.

      One of the ideal situations we can hope for is that an established real estate firm buy’s RS’s $400M book of business that is generating $4M – $5M in revenue given there is definitely value their, and rolls up the business in their existing asset management team.

      Let’s say over a 5 year time frame, the $400M business will generate $18M in asset management revenue. If a firm can buy the business for $10M, for example, they would stand to gain an 80% total return over 5 years, or 15% a year. The firm will also purchase the existing sponsor relationships, and may build tremendous good will with the existing RS investors who might invest with the new platform as well.

      Possibility. I can only hope.

  4. I feel your anxiety Sam and hope the family is feeling better! I put $350k into a small investment similar to this concept and sometimes have worried about whether or not I’ll see the money back. Thankfully it was with local people buying a local apartment complex who has 30% of the skin in the game. (The group owns multiple properties locally) I like that I was able to drive to the complex and check it out. Their model is buy and hold, renovate, and move the price point of the rentals up overtime by dramatically upgrading the units. Targeting mid-level properties, in higher end communities. So far so good, investment started in 2014, in the next 2 years all 100+ units will have been upgraded, I’ve received about $140k in distributions and would conservatively estimate that they could recap the property and return our initial capital and we still own it. Their philosophy is to own it forever or until they receive a deal too good to be true, only issue is liquidity, I have next to no control over getting the initial capital back, but if it ends up shaking out like it looks like it will be an IRR in the mid to high teens I’ll be very pleased…plus where the hell else would I park the money right now and get a steady return like this? Timing I believe is everything and they started backing out of new deals in late 2016, the additional deals I was offered over those 2 years were increasingly less attractive. Hopefully you get most of your money back, sucks that it is going to be tied up for years and is a cautionary tale indeed on real estate investing.

  5. I hadn’t really put much thought in to what percentage of my net worth should be in alternative investments. No idea, it’s an obvious thought to have now that I see it.

    I like the 10% idea. Currently I’m at 15% and will probably stay in the 10% – 15% range.

    Sam, in light of recent events – would you consider physical real estate/landlording again if you don’t want to keep such a high percentage of your networth in crowdfunding?

    I like crowdfunding because it obviously gets me out of the management of the properties. But it’s an alternative strategy with unforeseen risks. Maybe grabbing a few rentals again in the future isn’t such a bad idea to diversify my holdings.

    Have you thought about going that direction again?

  6. I am not here to gloat but I did look at RealtyShares and FundRise a while ago when I was looking for investing opportunities in commercial real-estate. In the end, I ended up with a new Blackstone non-traded REIT called BREIT. While BREIT is in core (meaning slow growth but less risk) real-estate and it has restrictions on redemptions, it is from Blackstone BX. BX is the most trusted name in private equity and a big player in commercial real-estate. You’ll pay a bit more in terms of incentive fees with them but you will have the name and trust of a well-known institution that won’t shutter its shop. Just my two cents!

  7. Sorry to hear you had a tough week Sam! I was so surprised to read RealtyShares stopped taking new customers. I think it’s for the best even though 800k is a lot. A smaller firm means more controlled and your real estate investments will probably be just fine if not great! I think this will be a better move in the long run for sure, plus the basic idea is still good. Execution you can always tweak! Unlike a bad idea from the start is a bad idea to the end! :)

    “But I kept fighting because that’s the only thing I could do.” Love this quote!

    1. Thanks. Yeah, it’s like a private closed fund now, so the remaining asset management and operations team can just focus on the existing investments and not anything new anymore. Could be good. I expect my fund to perform the way it would have always performed. I’ll provide quarterly updates and see how it goes.

      Maybe I’ll join the asset management team and see if I can help next year. Could be good.

  8. Well you had real skin in the game when you recommended this company. Which is a lot more than you can say about many recommendations in the world.

  9. Simple Money Man

    Sorry to hear about RealtyShares and hope the company bounces back and becomes even stronger in the future. I’m glad your wife is feeling better. You’ll get used to fewer hours of sleep anyway like me. :-)

  10. MrFireby2023

    I’m in a deal with RS (12 Loop Houston townhomes). Maturity date was supposed to be 10/31. The latest investor notification from RS mentioned they’ve tried reaching out to sponsor (RREAF) to no avail. Also, the sponsor has been very poor at providing quarterly reporting to RS. I smell a rat! I’m not sure who to reach out to at RS? Amy? David Mitchell?

    1. Unresponsive sponsors happens all the time. Some of them don’t listen, if ever, until the platform files a lawsuit. The question here is, is RealtyShares going to file any lawsuits anymore?

      1. This is one of my many concerns. One of my investments had defaulted months ago and is going to auction at the end of this month. The communicated plan was that RS would likely be the winning bidder, and would then proceed to put the property on the market to ensure minimal loss to investors. Now…?

    2. I’m in 3 projects with RREAF as the sponsor. Two of them are performing above and one below expectation. They have been communicative on my deals if that helps.

      I’m also in an SFR Fund in New England by Alliance Realty Capital that is in the middle of litigation for fraud. Several employees of RS also invested in this deal, so hopefully, the battle continues.

      I am a little worried about the appropriate legal oversight for a few of the underperforming projects.

  11. I had an open investment on ifunding when that platform failed back in 2017. The sponsor also failed shortly after ifunding failed. So I have been in a zombie deal for the past year where I do not expect to get my invested capital back. It made me acutely aware of platform risk. I think the value proposition of real estate crowdfunding is that it allows investors to make smaller investments in less liquid investments so they can diversify to reduce sponsor specific risks. However, crowdfunding creates platform risk where several investments can fail because of a single platform failure.

    I think for the near term, crowdfunding sites like RealCrowd that facilitate investors participating directly with sponsors, rather than buying parts of deals and then slicing them into smaller pieces for investors, are the best way to participate in real estate crowdfunding. Investors will definitely face higher minimums (25k+) but reduce their counterparty risk by investing directly with the sponsor.

    I would be interested to hear Sam’s thoughts on why he invests on crowdfunding platforms (although I know he invested in their fund) when his investments are large enough to invest directly via sponsors and avoid taking on additional platform risk.

    1. Sorry about your zombie investment on ifunding. What was your reason for investing in your specific ifunding investment and what were the investment rationale mistakes you made?

      I invested in a fund for convenience, their investment thesis, diversification, and target returns. I enjoy earning passive income because I’m crunched for time as a SAHD.

      I do wonder whether there might be confusion between investment risk and platform risk.

      1. Regarding my zombie deal, I learned a lot and it has definitely changed the way I perform due diligence. I spend a considerable amount time trying to figure out if I think the platform has enough of a financial runway to operate until the maturity date of my investment. I also make sure they have a bankruptcy remote entity to increase the likelihood that my investment has a chance to survive in the event the platform fails.

        I wrote a blog post that goes through my ifunding nightmare which I have included the link.

  12. I’m hoping another company can take over RS’ portfolio of projects. I understand your point that it’ll be easier to service existing deals as time goes on. However, who wants to work in a team that has an expiration date. The income will keep dropping as the project wraps up. They’ll have to keep reducing the size of the team every year, right?
    Thanks for the info.

    1. Not sure. I know the average turnover here in the SF Bay Area is 2-3 years. All it takes is an attractive enough compensation to keep people. With the fund administrator in place, that will at least be stable. But of course, NES could also get into trouble. No guarantees when it comes to investments.

      Let’s say there are 7 people on the asset management team each earning $200,000. That’s $1.4M, with $3M left in revenue to pay for whatever.

      It would be cool if another established player bought their assets and rolled it into theirs. Let’s see. A possibility for sure.

  13. I had actually signed up for RealtyShares but had yet to invest in it. Thks for your insight on RealtyShares and the future of crowdfunding

  14. Very good article. It’s nice to read a logic based article in a time of strive (personal and business).

    I own real estate through some small syndicates and the jury is out if it’s a good investment. But I do know they are not liquid at all. Is that true of RealtyShares, Fundrise, etc?

    1. For my investments, the time horizon for the fund was five years. Given the fun launched in 2016, the fund should wind down by the end of 2021.

      I baked in this lack of liquidity until then. But obviously, I’m hoping for there to be regular distributions as normal by then, As RS shutting their doors to new investments shouldn’t negatively affect the performance of a Dallas hotel property for example.

  15. Hi Sam, hope you recover well from the week.

    I became concerned about RealtyShares starting several months ago. One of the deals I invested in defaulted. After reviewing more background details, I was surprised how poorly the deal was vetted. I’m guessing they were desparately trying to increase supply volume to meet demand volume. So unlike you I don’t have much confidence about the remaining underlying investments.

    1. Sorry to hear. My plan was to always just invest in a fund so they could pick the best deals for me in exchange for me paying a fee. The whole goal was to try to be as hands-off and as passive as possible. I believed their committee could pick deals better than I could.

      Without any new deals in the pipeline, the asset management team should theoretically have an easier time to manage the existing assets.

      1. One potential problem I see is that RealtyShare’s interests aren’t that well-aligned with investors.They originally didn’t have much skin in the game other than payoff from an IPO or a buyout if they executed well overall. That incentive is gone now as well.

        In my investment that defaulted, the property was only partially developed and the sponsor just walked away. If RealtyShare had an interest in maximizing recovery, they would foreclose, complete the development and try for top dollar. However, I am guessing that they will just foreclose and firesale the property to close the books.

        I have invested in similar types of deals through private partnerships with the managing partner having a significant investment stake. In that type of situation, I have more confidence that the managing partner would do their best to maximize recovery.

        Oh well, I will hold onto some hope for my remaining investments with them.

        1. For sure. Let’s hope the sponsors do their jobs. Once RS matched investors with the respective sponsors, most of the results of the investment performance was up to the sponsor. RS’s work was 80%+ done once an investor commits. But RS did try and follow up and manage underperforming deals.

          I presume several of my 18 deals will underperform. But I’m hopefully that my overall portfolio will provide a positive compound annual return in the end. My strategy was to invest in an actively run diversified fund. Time will tell.

          Here’s one of my deals that I gave a thumbs down on and wrote about it:

  16. Gosh I’m so sorry to hear that. I certainly didn’t anticipate them having to close doors to new inventors, especially this year. It’s also unfortunate for those who lost jobs, so sad. Hopefully they will be back on their feet in new positions soon. I’m glad to hear nothing should happen to existing investors assets. Hang in there!

  17. I have significant (25% of net worth) investments in P2P platforms myself. Therefore, I constantly monitor KPIs for them to the extent that I have access–employees, originations, VC funding rounds, news from related sites, etc. I’ve chosen to stay mostly with the most established platforms (LC, Prosper) and a few with higher returns that appear to be more solid. I also read carefully or speak with leadership to determine the process, vehicles if they fail. I got an account with RealtyShares but never really liked the platform for some reason. I went with Fundrise instead but eventually pulled funds out of that one also. I didn’t see anything particularly wrong but felt like real estate cycle was near the top and didn’t want as much concentration there. Best, Brian

  18. Sounds like your schedule this past week lined up with the same level of time commitment for an IPO deal back in your IB days. Except this time, it’s health-, personal finance-, and sanity-related. I’m sorry to hear your week was less than pleasant. It’s times like these when you realize you have to know the valleys to appreciate the mountains.

    A couple years back, LendingClub had an existential crisis when it was revealed their then-CEO had some strong conflicts of interest and he had to be ousted. The company’s stock and future spiraled into a tailwind and many note investors on their platform panicked. They sold some really high-quality notes at steep discounts because shoot first, ask questions later.

    I had looked into their contingency plan in the event their company experienced financial problems before investing and saw, much like RealtyShares, they would transfer the notes platform to a third party to manage to maturity. I don’t think many of the note investors knew this and I was able to take advantage of some undeployed capital to buy some great notes which have yielded some great alpha for me since.

    I don’t know if RealtyShares has a similar secondary market for properties (or if you have the belief this third-party platform administrator will be able to self-fund on the existing property portfolios’ cash flow), but this might be an interesting opportunity for you.

    Having said this, I can’t stress this enough, but I have done NO due diligence on Realty Shares and am not recommending this course of action. I am merely highlighting this opportunity because you have a much better feel for the company’s future and it might be something to consider. It might be an opportunity to turn a dire situation into a profitable decision.

    Here’s to hoping this coming week is better than your last.

  19. Larry Ludwig

    I too was surprised in the demise of RealtyShares. I didn’t have anywhere near the amount you have invested.

    Consolidation and folding of companies is expected though since we are going up on the rate curve. Companies that were created because of low-interest rates are going to have a tough time in higher risk-free returns. The misallocation of capital continues.

  20. Thank you for sharing your inside. Sorry to hear about the closing and the difficulties that are going on with your family.

    Good to hear they are going to make good on everybody is existing investments and have a team in place to keep managing them.

    At the end of the day, everybody has to make their own decision on where to invest and risk their capital. Always invest with eyes wide open.

    Thanks for being upfront and honest about your thoughts and feelings. It is in times of difficulty where you either step up or shy away. Thanks for stepping up.

  21. My spidey senses told me that they were in trouble, so I wasn’t too surprised to receive that email.

    I have one investment with Realty Shares. I have several with CrowdStreet and a handful of investments directly with sponsors. I also have money with Fundrise, which seems like a good alternative to a REIT.

    Does anybody know the tax consequences for Fundrise? Investments in real estate can be great because of the tax benefits. However, REIT dividends are often treated as ordinary income. 2018 will be my first full year with Fundrise and I have received dividends equal to 5% so far ytd.

    Will Fundrise dividends be treated like ordinary income or will they be able to use depreciation and other write offs to reduce the taxes that I pay?

    1. First off, thanks, Sam, for sharing. Hope things get better for you.
      John, I use fundrise, and use it’s taxed as ordinary income. I however don’t know yet how the tax law change that affected reits will change things. I’ve been happy with fundrise; I’ve emailed them several times with suggestions on how they could improve the visibility of their investments, and they’ve make good changes to keep investors up to date on the status of projects. I also like how they do the leg work for me; I did look at realty shares and dipped my toes with peer street, and quickly saw that I couldn’t get the good deals nor did I have the expertise to vet them, other than gut feel.

  22. Sorry about the health of your wife and kid. Food poisoning can really knock you off your feet.

    I was shocked when I first heard about RealtyShares closing its doors. I thought that they were one of the bigger fish in the crowdfunding arena and had one of the higher chances of success as a longterm survivor. Just goes to show you that it is hard to catch lightening in the a bottle and sometimes deliberate slow growth can trump expanding too fast too soon.

    I have invested with RealtyShares in the past, had 3 completed debt deals, and had no issues with them at all. You are correct saying that the deals tended to fill up rapidly and it was almost like you had to constantly check to get in on the latest offering.

    I transitioned to private syndication for real estate investing. Deals tend to be held longer so I am not constantly looking to redeploy cash, and the offerings tend to be larger.

    I have also heard about being in the late stages of this current real estate cycle and wonder how this asset class is going to do in the upcoming years. Interest rates are definitely going to rise. This will make selling these assets tougher as you can’t go too low on the CAP rate before people will decide to instead park it in T-bills etc.

  23. I hope everything will turn out OK for the existing investors, and that the employees will be able to find new work quickly. It’s always sad when a company goes under so suddenly. And get some rest, Sam. Sounds like a very rough week.

  24. Sam
    Very appreciative of your insight. Sorry for the tough week. Keep the faith

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