Unfortunately, RealtyShares is no longer accepting new investors on their platform. This post looks at the top RealtyShares real estate crowdfunding alternatives.
I first suggest taking a look at Fundrise, the pioneer in eREITs and a platform for non-accredited investors. 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.
If you are an accredited investor, take a look at CrowdStreet. CrowdStreet is way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
What Went Wrong With RealtyShares
I’m 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. I want to own assets that provide collateral and produce the highest amount of passive income.
I expected consolidation in the space, I just didn’t expect RealtyShares would be one of them given they had raised $27 million in Series C funding in September 2017 and had so much demand. But in retrospect, it looks like RealtyShares expanded too quickly (hired too many people, new large office space in 2017) 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 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 and 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 didn’t have the technology to scale quickly. RealtyShares ran a personnel intensive business to review, finalize, and manage deals. Their growth was linear, and not hyperbolic as venture capitalists like to see. I suspect part of the over-expansion was due to VCs pushing more aggressively for growth. Something to think about when you accept VC money versus bootstrapping your business.
Top RealtyShares Alternatives
Based on public funding knowledge and what I’ve observed in the real estate crowdfunding space, here are my top three RealtyShares alternatives:
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 have not only raised funding for their own company through traditional venture capital methods, but they have also done an Internet Public Offering where they raised capital from investors on their platform.
Most recently, they were the first ones to launch an Opportunity Fund in the real estate crowdfunding space to take advantage of new tax laws.
What’s also nice about Fundrise is that it’s open to non-accredited investors (e.g. everyone), unlike RealtyShares. Further, their business model of creating tailored funds like the Heartland eREIT, West Coast eREIT, etc 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.
According to Crunchbase, Fundrise has raised $55 million in capital, with the last raise occurring in February 2017 for $14.5 million. But, I’ve heard they’ve been able to secure new capital in 2018 from the Internet Public Offerings, available only to existing platform investors. Check out their Form 1-Semi Annual Report filed with the SEC. The first several pages has details of their progress.
Fundrise Review: Best Way To Invest In Real Estate
2) CrowdStreet. CrowdStreet is a way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
What’s great about CrowdStreet is that it enables investors to invest directly with the sponsor. As a result, investors eliminate platform risk. CrowdStreet has also recently launched funds, such as its Build To Rent Fund to make investing easier and more diversified.
Invest Responsibly In Commercial Real Estate
RealtyShares was my favorite real estate crowdfunding platform and I’m sad they are gone. Their closing is a good reminder to keep alternative investments to no more than 10% of your net worth, and to diversify within that 10% as well.
RealtyShares set up LLCs and operating companies for the specific purpose of managing our investments. RealtyShares, at the end of the day, was a marketplace (with an investment committee that vetted deals) and conduit to match investors with sponsors of real estate crowdfunded projects around the country. Investors in RealtyShares, the company, has no lien agains the separate LLCs set up for each of our investments on the platform.
The same should be true of all real estate crowdfunding companies. Please make sure to ask them about what happens to your investments in case their marketplace shuts down.
With all investments, there is risk. The investors in RealtyShares, the company, lost. But hopefully the investors on the platform will gain as their respective deals come to fruition.
As of 2Q2021, the assets in RealtyShares continues to be managed by IRM. There are some wins and some losses, as to be expected. With the coronavirus pandemic, there will be more losses in hospitality commercial real estate.
If I had to pick one RealtyShares alternative, it would be Fundrise due to its diversified eREITs. I also like CrowdStreet because they are focused on investing in 18-hour cities and they have learned from RealtyShares’ mistakes. I met up with CrowdStreet in Palo Alto, and like what they have to offer.
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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