≡ Menu

Is Real Estate Crowdfunding Sustainable? RealtyShares Shuts Down

{ 64 comments }

real estate crowdfunding RealtyShares shuts downThere is bad news in the RE crowdfunding world. RealtyShares, one of the leading real estate crowdfunding platforms, has shut down part of their operation. That’s very scary for investors. I’m an investor at RealtyShares and I was a vocal supporter. After all, one of my financial goals this year was to increase my RE crowdfunding investment to $100,000. Now, other investors and I are very nervous and we have a lot of questions. What went wrong? Is real estate crowdfunding sustainable? There aren’t many answers at this point, but I’ll add what I know in this post. It’ll be a good learning experience for investors who are looking for alternative investments.

Do you know about real estate crowdfunding? I’ll quickly go over the basics, share my experience, then analyze the bad news.

What is real estate crowdfunding?

Basically, investors pool their resources to invest in a real estate project. I’m one of these investors. I want to invest in commercial real estate, but I don’t have enough money or the expertise to invest in strip malls and apartments by myself. This is where the RE crowdfunding companies come in. The RE crowdfunding platform puts investors together with a developer. The local developer wants to work on a commercial property, but they don’t have the funds to do so. The investors provide part of the down payment to help acquire that property. Typically, the developer provides part of the down payment as well. This shows the investors that the developer has some skin in the game. On my projects, the developers have 10% to 50% of the equity.

real estate crowdfunding

Making money

The developer makes money by charging a management fee. The developer also collects part of the rent because they have a stake in the equity. The developer’s goal is to sell the property in a few years. Hopefully, the price will increase. That’s when everyone cashes out and the big bucks are generated.

The investors receive part of the rent every quarter. We’ll make a profit when the project is sold.

The RE crowdfunding platforms make money by charging a fee to the investors and/or developers, typically 1-2%. Some platforms charge a listing fee to the developers.

My RE crowdfunding investment

I learned about RE crowdfunding in 2017 and I was intrigued. Real estate investment has been good for us, but I don’t want to spend a lot of time on it. Previously, I invested in local rental properties and REITs. The local rentals are doing well, but I don’t want to be a landlord anymore. It takes time and adds stress to my life. REITs are easier, but they correlate to the stock market too much. When the stock market crashed, REITs followed. The bottom line is I want to invest in real estate, but I don’t want the headache of being a landlord. Yes, I’ve had property managers. They helped a bit, but we still had plenty of headaches.

So that’s why I invested in RE crowdfunding. I planned to increase our RE crowdfunding investment to $100,000 this year. However, I was slow with this ramp up. After all, we didn’t have $100,000 lying around. I’ve been investing as money became available through our various income streams. By the end of October, I had invested $65,000. However, two of those projects hadn’t started quite yet.

When RealtyShares shut down their acquisition branch, they canceled the project that hasn’t started. Anyway, they wired $27,000 back to my checking account. Whew, this is one time I’m glad that I’m behind with a financial goal. Currently, I have $38,000 invested in 5 projects at RealtyShares. You can see more detail at my real estate crowdfunding page.

Bad news from RealtyShares

Last week, RealtyShares sent an email to all their investors. Here it is.

To our platform investors and operating partners:

Five years ago, RealtyShares was founded with a mission to connect capital to opportunity. With over $870 million invested across more than 1,100 projects, we have built one of the top online real estate investment platforms. We’re helping investors meet their financial goals and deploying capital to real estate operating companies to execute value-add and development strategies for properties across the U.S.

As an early stage company, we have relied upon venture capital to fund our operations. Over the past six months, RealtyShares aggressively pursued a number of financing options to continue growing the business. Unfortunately, despite our best efforts, we were unable to secure additional capital. As a result, we will not offer new investments or accept new investors on the RealtyShares platform.

From this point forward, RealtyShares’ focus will be servicing our existing investors and approximately $400 million of assets under management. 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.

We are committed to serving our existing investors and sponsors and have a team dedicated to supporting our ongoing operations.

The RealtyShares Team

Wow, that was a bombshell. RealtyShares is one of the big players in the RE crowdfunding. I’m shocked they couldn’t secure more funding. There must be some serious problems that regular investors are not privy to. This email is very scary for investors. We have lots of questions and there aren’t many answers. I’ll attempt to address some of these concerns here.

Will we get our money back?

This is my main concern. I have $38,000 with them. That’s not a huge amount like some people have invested, but they were hard earned dollars just the same. We don’t have a lot of information right now, but here is what we do know.

RS is shutting down of their acquisition team and stopping all new deals. However, they (or a third party) will continue to service existing investments. Each project is run by a developing company. As long as the developing company continues to honor the deal, it should work out fine. On each of the projects I invested in, the developers have a stake in the project. A reputable company will work with investors and close out each project in a timely manner. That’s the best case scenario.

There are many things that can go wrong, though. The developing company could go out of business, screw up the project, or real estate could crash. In this case, the investors would recover a part of their investment after the project is liquidated. The team at RS will facilitate with this.

A developer could also stop making payments and renege on the deal. In this case, RS will work with a lawyer to motivate the developer to honor the deal. For example, I read that one developer stopped payment and RS filed an injunction to vacate the property. Hopefully, the team left will be able to support the existing projects in this way.

I’m an optimist, but we’ll have to be prepared to lose part of our investment. Some unscrupulous developers may try to take advantage of the situation.

What went wrong?

At this point, we don’t know exactly what went wrong. Obviously, if they run out of funding, it means they were spending too much money. We can infer from the communication that the acquisition arm of the company is bleeding cash. From what I read, it costs thousands to attract investors and developers. RS needs to advertise, retain a staff of excellent employees, and improve the user experience. All of these are expensive. They probably burned through their operating fund too quickly and couldn’t work out a deal with the VC. I believed they raised $27 million in 2017. Their burn rate must be incredible.

From what I read, none of the RE crowdfunding companies are generating profit at this time. It seems the fees alone aren’t enough to fund the companies. Of course, RE crowdfunding is very new. Some companies won’t make it. Hopefully, a few can figure out how to run a sustainable business and keep this investment option open for individual investors.

Also, I read that Nav Athwal, RealtyShares’ co-founder and CEO, left recently. That might have interfered with their ability to raise more funds. It’s just speculation, I don’t know.

Is RE crowdfunding sustainable?

This is my next question. RS is one of the leading RE crowdfunding companies. If they couldn’t make it work, can the other companies become profitable? It seems like the acquisition part of the business needs a ton of fund to operate. What about the loan servicing team? Can that part be sustainable? It seems like the business will become easier to handle as each project closes out. However, the income will be reduced and they’ll have to get rid of some employees. If I was on that team, I’d be looking for another job. Nobody wants to work in a company with an expiration date. In 5 years, all projects will be closed out. Will there be anyone left to turn off the lights?

I guess we’ll see if RS can keep this part of the business going. Maybe another RE crowdfunding company can buy this part of the business and merge it with their team. This would be the best case scenario to me.

Would I continue to invest in RE crowdfunding?

I’m scared at this point. The stock market is already volatile this year. I was hoping for some stability in RE crowdfunding, but that turned out to be a false hope. I still like RE crowdfunding. However, I’ll probably wait a bit to see how things shake out. If none of the RE crowdfunding platforms become profitable in a few years, then the future looks bleak for this form of investment. Funding will probably continue to dry up as the stock market continues to gyrate. The economy is great now, but nobody knows what’s going to happen next. The real estate market is already softening in expensive coastal cities. We might be in for a correction soon. At that point, it’ll be survival of the fittest.

In any case, I limit our asset allocation in alternative investment to less than 5%. Alternative investments are always more risky, especially if they are new. Over 95% of our investment is in low-cost passive index funds and solid dividend stocks. I encourage you to do the same.

Where can we get more info?

There isn’t a lot of information at this time. I’ve been checking the news and Financial Samurai’s forum. Sam has over $800,000 invested in RE crowdfunding with RealtyShares so he’s trying his best to get more info for us. He also has connections within the company.

Here is a link to Financial Samurai’s real estate crowdfunding forum. Check it out if you’re an investor with RS.

Sam’s post about RealtyShares shutting down part of their business.

Real Estate Crowdfunding Industry Ponders The Future at Crowdfund Insider.

More to come

I’ll keep this post updated as we receive more information. I really hope RealtyShares can continue to service the existing loans. Best of luck to all the investors out there.

Image by Micah Williams

The following two tabs change content below.
Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, the job became too stressful and Joe retired from his engineering career to become a stay-at-home dad/blogger at 38. Today, he blogs about financial independence, early retirement, investing, and living a frugal lifestyle.

Passive income is the key to early retirement. This year, Joe is increasing his investment in real estate with CrowdStreet. He can invest in projects across the U.S. and diversify his real estate portfolio. There are many interesting projects available so sign up and check them out.

Joe also highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help DIY investors analyze their portfolio and plan for retirement.

Latest posts by retirebyforty (see all)

Get update via email:
Sign up to receive new articles via email
We hate spam just as much as you
{ 64 comments… add one }
  • Steve March 9, 2019, 10:49 am

    Thanks for the article. As an investor, I have not received my distributions since January, as I’m sure is the case for everyone who has open investments. I’ve been told by someone at the company (who finally replied to my emails), that they are in the process of “onboarding to a fund manager”. I think it’s time we investors circle the wagons. Frankly, when I made these investments, the thought that Realty Shares would go bankrupt seemed ludicrous, but clearly the company was horribly managed by greedy people, as (I’m learning) seems to be so often the case with startups. How much of that $60M went to line the pockets of management? I’m not a lawyer, but I think they need to have their cage rattled. Perhaps we investors need to gather together as a singular force? Any thoughts on how to start a group on the internet for an open chat about this with other investors?

  • Alex November 20, 2018, 11:50 am

    Would be interesting to see a unified theory around all these alternative investments that have gone bust over the last few years. From this, to peer to peer lending, all the way to the other end at crypto and such. People chasing too high a yield with the mainstream equities priced so high, but as interest rates go up and the economy slows (or worse), they are squeezed, and the mainstream investments start to look good as the newer more questionable investments are washed out.
    “You only find out who is swimming naked when the tide goes out.”

  • Rodney Allen Hampton November 18, 2018, 6:39 am

    Scary situation to have $38k at risk. I did not take the plunge into real estate crowdfunding, and now I can see the due diligence before plopping the cash down will take even more effort. Better than any of the initial coin offerings / cryptocurrencies though – that’s the real wild west.

  • Tracy November 15, 2018, 2:02 pm

    I sold 3 duplexes last year in one transaction. I didn’t want to be a landlord any longer. Within 4 days of listing them, I received a low ball cash-offer from an LLC. I’m fairly certain it was a crowd funding group. The offer was for much less than the balance of my mortgages. There were no contingencies for inspections (which never happened) and no walk-throughs by the “purchaser.” I was happy to fund the transaction with lots of cash to get out of being a landlord. I have thought about investing in real estate because of your blogs but will wait to hear how your experience goes. I was floored that my transaction closed within 1 month with hardly any due diligence done on their part. My properties needed lots of attention and as I very happy to get out of it. Based on your latest post, it’s not all that surprising that this may not be the best way to invest in real estate.

    • retirebyforty November 16, 2018, 6:17 am

      Wow, it sounds like you lost some money. Sorry to hear that. But it’s good that you achieved your goal. I’m trying to consolidate too. Being a landlord is another stressor that I don’t need.
      I’ll research more about RE crowdfunding. Maybe they could fix your rentals up for a lower cost. Hiring contractors is the expensive part of renovating. Thank you for your input.

  • snowcanyon November 14, 2018, 12:42 pm

    So, people basically invested in privately held deals that underwent a minimum amount of vetting by a non-public company (RealtyShares) that was highly dependent on venture capital and that also had no public accounting?

    We can all get sucked into Ponzi schemes and poorly run investments, and we all must do our diligence. I posted on multiple FIRE blogs asking about this investment, and did not receive a single well-informed answer as to the financing and guarantees behind either RealtyShares OR their investments. Most people talked about “reputation”, something Bernie Madoff also had in abundance.

    If you can’t see the financing and it doesn’t have public accounting, don’t invest in it, folks. Caveat emptor.

  • Young and the Invested November 14, 2018, 5:30 am

    Joe,

    I’m sorry to hear RealtyShares had problems securing another round of financing to support its on-going operations. I know a lot of bloggers have money tied up in the platform invested in numerous deals. I hope you can retrieve your money after the developers turn projects around and you receive your share of the proceeds.

    I had a similar fear a couple years back with LendingClub when their CEO departed unexpectedly. The company faced an existential crisis and there was fear the trading platform would become insolvent and the notes investors would lose all of their money. Fortunately, I had done some due diligence before investing and saw the platform would transfer to a third party in the event of a financial collapse for LendingClub, the company. Many people sold their high quality notes for steep discounts and I was all too happy to take them off their hands. I’ve had some serious alpha since.

    Maybe this option is available for RealtyShares if there’s a secondary market for these offerings? I’m not recommending doing it as I have no background on the company’s performance history or likelihood of their future success winding down their business. It’s just an option which could be available if you have the belief the company will operate through conclusion and have a higher risk tolerance.

    Best of luck and please let us know how things go for you.

  • GYM November 14, 2018, 12:09 am

    Geez, scary stuff, sorry to hear, that’s a lot of money $38K is no chump change!
    I hope you find out more news soon and get your money back.
    I haven’t invested in RE crowdfunding, I just stick to the basics. I was considering something like Lending Loop or Peer to Peer Lending but need to research further.

  • Eric @ Flip n Finances November 13, 2018, 7:42 am

    Hey Joe,

    Coincidentally I went to try and sign up for RealtyShares last week and wasn’t able to for this exact reason of them not accepting any new investors. Bummer.

    I do love real estate and plan to invest in a multifamily unit in the next year or so. Aside from that, I would like to get into RE Crowdfunding, but we will see what the best option is 1-2 years out once I am ready to invest seriously into a nice within the RE world.

    Thanks for sharing what you know about it 🙂

  • MrFireby2023 November 12, 2018, 7:07 pm

    There seems to be quite a few RE Crowdfunding naysayers on here. I’m not one of them as I believe that despite the Realtyshares debacle, this asset class is viable. I have $50k currently invested in two RS projects, and another $410k invested in http://www.crowdstreet.com projects.
    RS obviously burned through cash and failed, and so did Lehman Bro’s. Other banks thrived and I’m certain that other crowdfunding platforms will also thrive. CrowdStreet always seemed to me the most promising due to the quality of their offerings.
    I’m always a little concerned about the macroeconomic environment and how it’ll affect real estate (& my personal investments) going forward. Rising rates will have an effect, so will a recession. Those are risks that have been present for awhile thanks to the FED.
    Just as we all invest our money in capable managers (mutual funds), I feel I’ve invested with very capable real estate investment managers. The great thing about crowdfunding is that I can cherry-pick and choose what I feel are the most compelling deals/projects.

    • retirebyforty November 13, 2018, 11:30 am

      Thanks for your input. I’m just afraid that the cost of acquisition is too high. How did RS burn through their operating fund so quickly? It’s crazy.
      I will try to meet with CrowdStreet soon. Their office is in Portland and I heard good things about them. Best wishes.

  • Helen November 12, 2018, 6:17 pm

    Hi Joe, I hope your investment is safe, at least you get your principle back. Your post reminds me the investment risks. It’s always there. Diversification mitigates the risks in some way.

  • JP November 12, 2018, 5:26 pm

    This reminds me of the companies that back in the 80s used to sell you “great locations” to put your vending machines. All you had to do is buy the machines from them. The question was always “if they know of great locations, why don’t they just install them themselves?”

    • Financial Orchid November 12, 2018, 7:02 pm

      I wandered to a franchisee expo one time out of curiosity. I have a lot of fun roaming around expos while everyone’s trying to sell stuff/idea/business…
      One guy was selling vending coffee machines. All I saw was money converted into a metal box. Hard to compete with Starbucks at every major city corner.

  • JP November 12, 2018, 5:23 pm

    For over a year I considered investing in RE crowf; but I always thought we were at record highs; it was not sustainable.

    I always late for homeruns; glad I sat this one out altogether.

  • Financial Orchid November 12, 2018, 4:40 pm

    “Lobbyists” for lack of better word have been trying to campaign for RE crowdfunding platforms in other G5 nations but is under tight regulation (in the big white north for instance).

    It’s a great concept since the days when small business owners/factory workers with not a lot of money pooled funds together with coworkers, siblings, relatives to buy 1 building and started collecting rent cheques,
    but think who would lose out when RE crowd funding democraticizes at scale?

    Maybe a small older elite group with major influence in policy, regulation, not to mention which way $$$ flows.

    Somehow I speculate there could be political factors and not just strictly investment decision for VC to stop funding.

    Maybe I’m thinking too much?

  • Lily | The Frugal Gene November 12, 2018, 4:03 pm

    This was a big shock! I think hubby told me about it last week but in my busy haze I didn’t even register it until I came to check your post. We moved another $7000 dollars into treasury bonds this weekend. The market recovered – suspiciously quickly – so it’s definitely been volatile. I hope you get all your funds released. How did they determine how much to give back?

    I’m surprised they couldn’t secure more funding either. We hesitated to jump in because RE is always extra scary to me because I’m less knowledgeable in that sector but it seemed like a great idea. Terrible execution and budgeting then? Hopefully, someone else does it better. Seems like a clever idea nevertheless.

  • Dr. McFrugal November 12, 2018, 2:58 pm

    Hope you get your money back, Joe. I’ve been a long time bystander with RE crowdfunding. Always hesitant to jump in. I’m relieved I didn’t.

  • David Michael November 12, 2018, 1:21 pm

    Thanks for sharing about your experiences with RS. Sorry to hear about some of the changes. I must admit that I made a number of real estate and oil/gas lease deals over the years that depended on group investing. Most never panned out to my satisfaction. Several failed.

    However, while I was doing that, my colleagues (fellow college teachers) where I worked all had purchased an extra house or two and rented them out (Bay Area). They are now multimillionaires. All of them without exception. They held on for 30 years or so and when they retired the houses had increased from $30-50,000 to over $1,000,000 each. Actually, some are valued at $2,000,000. Amazing!

    So, in conclusion, I trust my own work and decisions. One or two rental houses are enough, with or without a property manager to make a comfortable retirement. I did well on P2P in the beginning returning 10-12%, but now it’s down to 5%. I have moved my monies to REITS, Utilities, and BDC Stocks where I average an easy 8% dividends. When they go down in the next recession, most will still pay their dividends and I will just buy more at a lower price.

    Although you may lose some funds in the RS environment, your excellent diversification will protect you from any steep losses. Keep the faith!

  • Xrayvsn November 12, 2018, 11:56 am

    When I first heard the news about RS I was shocked. Thought they were one of the biggest in the arena and had great growth. I think they are a victim of their own success and tried to expand too quickly.

    I invested with RS and did 3 debt funds with them which exited as promised. Hopefully the deals will close for you on similar terms but I have to say it would make me certainly uneasy.

    There are talks of we are getting close to am end of real estate cycle. Rising interest rates are going to put some pressure on this asset class. Hopefully it perseveres as it is a great class to smooth out the volatility of the stock market

  • FromUSA November 12, 2018, 11:16 am

    Anyway, they wired $27,000 back to my checking account.
    ———–

    Since the stock markets have fallen off a cliff, perhaps you can put that money to good use and buy some bargains now.

    #GreatEconomy

  • Angela @ Tread Lightly Retire Early November 12, 2018, 10:31 am

    I have to wonder if this is the real estate crowdfunding that did them in or if this is more a reflection of the current stupid high costs / oversupply that’s making itself known in the multifamily construction market right now. Five years ago I don’t think they would have faced the same problems. Two years ago, even.

  • Haight November 12, 2018, 8:48 am

    I knew it. I knew it. My gut was telling me that this company seemed like a scam! Their investment plans were not sustainable! I’m so glad I didn’t get into it !!

  • Randy @ Emusements November 12, 2018, 8:36 am

    We’ve been considering diversifying some of our portfolio into real estate via the PeerStreet crowdfunding platform. The news about RealtyShares definitely throws some cold water on those plans. I wish Joe, Sam and everyone else the best of luck in recovering their investments.

  • Susan @ FI Ideas November 12, 2018, 8:09 am

    Just as we have also hit a point that we are tired of being landlords, this option looks dicey. The lesson is that passive investing is very difficult to find.

  • Tom @ Dividends Diversify November 12, 2018, 8:06 am

    Interesting Joe. Being a capitalist, the crowd funding concept is great. It provides a means for funds to flow from those who have it and want a return to those who have a concept and can deploy the funds in pursuit of profit. That said Joe, you probably know by now I’m not much of a real estate investor. I just don’t have an eye or a passion for it. One single family residence and a few REITs is plenty for me. And some day I won’t mind exiting from the residence for an alternative life style. The real estate markets are important to our economy. I hope this says more about the company and its business model execution than about the state of real estate. Hopefully there are safeguards in place where your investments are safe from fraud even if the company has decided to stop growing. Tom

  • Lazy Man and Money November 12, 2018, 8:02 am

    I never quite got why RS crowdfunding was better than REITs. RS crowdfunding feels like investing in an individual stock (with a bunch of people) while REITs are like an index fund. If you pick the right real estate project (or stock), you’ll do well. If you don’t, you’ll wish you went the index, which is hard to beat.

    This question of the crowd platform going out of business has come up time and time again in the P2P lending space. Fortunately, the big players have been able to stay afloat, but they’ve each had scares like this. I would think someone would buy them out for pennies on the dollar at some point.

    • retirebyforty November 13, 2018, 11:12 am

      In theory, RE crowdfunding shouldn’t be impacted by market fluctuation. REITs pricing is more volatile. Although, it should impact their business model.

  • Jim @ Route To Retire November 12, 2018, 6:45 am

    Real estate crowdfunding has been on my list to dig more into, but RealtyShares shutting down was a bit of a wake-up call for me. I think I’ll wait a while to let the dust settle and see what happens in this area. I’ll stick with our duplex and allocating a small percentage of my portfolio to REITs in the meantime. 🙂

    I think your feeling about being optimistic but still prepared to lose part of your investment makes sense. I hope things work out for you!

    — Jim

    • retirebyforty November 13, 2018, 11:11 am

      I’ll probably do that too. Let’s see if we get some money back first…

  • Ms. Frugal Asian Finance November 12, 2018, 6:41 am

    Wow that is scary. I thought about investing in RE crowdfunding when I have money in the future. I told Mr. FAF, but he wasn’t thrilled with the idea since there’s no property to show for the money. Basically, we didn’t invest because we didn’t have the money.

    I’m also curious how it’s gonna turn out in a couple of years or in the long run though. Thanks for sharing your thoughts and insight, Joe!

    • retirebyforty November 13, 2018, 11:11 am

      There is property tied to the investment. You can go see those projects if you’d like. It’s just many investors pooling their investments.

  • Adam November 12, 2018, 6:22 am

    Man, that’s disappointing. Here’s hoping they take care of you as best they can.

    Funny you mention REITs. I have about $20k in VGSLX in a ROTH IRA almost as an afterthought, and it’s been surprisingly stable even through last month’s market shenanigans. Take into account the 4%+ yield and it’s all the income I could need from that sector with zero effort on my part. I guess we’ll see what happens in a decade when I start taking income rather than reinvesting it.

  • FullTimeFinance November 12, 2018, 5:07 am

    Sadly feeling a bit prescient on this one. On Monday I say I want to wait to invest in crowdfunding real estate until I’ve seen a company survive a downturn. A few days later Realty Shares announces. I still like the space but I’m glad I’m still dragging my feet.

    • retirebyforty November 13, 2018, 11:09 am

      Good call. I’ll have to research a bit more to see if other companies are doing better. I heard CrowdStreet is pretty good. Or wait a few years until the industry shakes out.

      • snowcanyon November 14, 2018, 12:47 pm

        What turns me off isn’t the specific company, but the lack of regulation. CrowdStreet doesn’t have any more regulation, public accounting, or transparency than RealtyShares, so it’s equally dangerous and equally unappealing to me. What do you think is different? Would you invest if it were’t for the affiliate links?

        • retirebyforty November 15, 2018, 9:19 am

          Ok, I see your objection. There aren’t enough oversight and regulation. I will check CrowdStreet out more, but probably won’t invest much over the next few years. I’d probably have invested without the affiliate connection. I was looking for this type of investment. However, I’m not optimistic about the industry anymore. Thank you for your input.

  • Dave in Sunny FL November 12, 2018, 4:49 am

    I’m not yet an accredited investor, so private placement is not something I am familiar with, beyond reading and study. What I did read, however, suggested that successful syndication deals come from the same partners working together deal after deal. That would keep the financing acquisition costs down, reduce opportunities for misunderstanding, and—notably—was exactly the opposite of the “smorgasbord” model of RealtyShares. I hope the projects pan out; but the debt and equity partners will likely need the market to stay really hot through the refinance and cash out time frames, for everyone’s numbers to work out. Good luck!

    • retirebyforty November 13, 2018, 11:09 am

      I think you’re right. That model should work better locally.

  • Team CF November 12, 2018, 3:50 am

    Hope all works out well for you and the other investors. That being said, it show that every type of investment comes with risks. Albeit it might be hard to assess and quantify those risks properly. Keep up posted!

  • Caroline November 12, 2018, 3:37 am

    After reading some of your updates, I was considering investing some money in it! Glad I was (also) slow.
    Maybe I will have to stay in the landlord business after all!
    Hope you get all of your money back.

    • retirebyforty November 13, 2018, 11:08 am

      Thanks. I hope so too. It was going well so far. I’m just surprised they burned through their operating fund so quickly.

  • Dave @ Accidental FIRE November 12, 2018, 3:09 am

    I hope you get your money back Joe!

  • Michael @ Finanially Alert November 12, 2018, 2:17 am

    Hi Joe, I guess I’m one of the lucky ones. I’ve done over a dozen deals with RS in the past, but I’ve sat idly for the past year and a half. I wasn’t seeing the deals that I liked previously.

    I hope the individual deals are able to transition without RS managing them. Theoretically, it should be able to function independently by appointing new managers, but I guess we’ll see, right?

  • I get the feeling we will have anemic markets for the next while as interest rates go up eroding inflated prices , baby boomers wind down and go defensive, and they unwind government over debt… not sure what it will take to shake out of it but a trade deal with China etc would help ….

  • Mr. Tako November 12, 2018, 1:24 am

    It might take awhile to get your money back Joe.

    I was approached by RealityShares awhile back (one maybe two years ago?) . They asked me if I wanted to invest and do an affiliate promotion like you did, but I turned them down.

    Why? The business looked ripe for fraud and mismanagement, and the economic model looked sketchy. It blew up even faster than I expected.

    I sure hope this works out OK for the investors. You might want to get the name of a good real estate attorney.

    • retirebyforty November 13, 2018, 11:06 am

      The longest projects I invested in is targeted to exit in 5 years. We’ll see how it goes.

  • Kenny November 11, 2018, 11:36 pm

    Guys, after I saw articles written on many blog sites, I did a side by side comparison of all of the available choices. This is an unregulated industry. Private REIT is what this is. Yes, it is still a REIT in all terms, without any regulation. Fees were all over the place. The write-up were vague and even though I could write and did get answers, there was no commitment on the part of the writers. In addition, once I signed up with my email, the solicitation was enough to tell me that “they need me”, and “it is not something I should jump in”.

    So, further investigation pursued. I looked into the projects that they were investing into, in my local market. I checked into some of the projects they were renovating in terms of housing / apartments which is an area I understand well. Then I looked at how much they were planning to invest. Holy Cow! No good. It was a series of townhomes that they wanted to upgrade (not naming names here), and they were going to put in some exhorbitant amount of money. This meant that for that area they will have to really get some upscale customers as rentals and then sell off the property. Well, it will NEVER rent enough to make it completely profitable and therefore, would NEVER recoup the total investment.

    In summary, BAD ROI computations, but it was OTHER PEOPLE’s MONEY (and not bank money which OPM usually stands for). It is truly ‘other people in the crowd’ that sourced the funds. And, therefore, the Property or Fund or REIT Manager was being careless in this ONE example I analyzed.

    Therefore, I continued with my own journey of finding more agents to find me properties that I could invest into, and after that, invested $200K into a home, got it for less, renovated it, put it for rental, and now have a net ROI on it of (let me look it up) 12.07% without any capital growth on it. This is one SFH, and now I am replicating this model with more government, short sale and other distressed sale properties (GOING ON IN PLENTY in my big-city) to do it myself.

    Yes, it is Rental Management which if setup correctly takes 2-4 hours per month per property using ‘contractors’ (and not lifting anything but a screw-driver and plier at times). And, no, I am not full time in real estate or real estate professional, but a full time IT Outsourcing person with a 50-60 hour responsibility, so don’t have daytime hours to roam around properties.

    Hope this gives you a realistic (one example) view of my analysis, and one example view (of my investment), to compare and stop the worry of ‘what happens if’ since in my case it is a real asset ownership in my name (and even though many things can go wrong), it is a much more direct ownership model.

    PS: Blackrock and other biggies bid against the homes of us little guys, so you have to work hard to bid and win these properties. I have another Short Sale Bid going on right now against Fannie Mae and they are being tough for a gap of $12K, otherwise that other home would be mine, and it almost needs nothing more than paint and few touch ups, and it is 1/2 the price of what it would sell in the market (optimistically) so, I can easily buy, renovate a bit, rent or sell. It will probably be a rental!

    • Joe November 12, 2018, 12:28 am

      Which city are you in? Thanks…

    • retirebyforty November 13, 2018, 11:05 am

      Thank you for your input. It’s tough to do thorough research when you’re not local. Most developers have some money invested in the projects. It’s not solely OPM, right? On another hand, who knows where that money comes from. It could be hard money loan from local investors or something like that. It’s tough to make any profit from rentals in our area now. That’s why I was looking at RE crowdfunding. Good luck with your rentals. It sounds like it’s going well.
      I really appreciate your comment.

  • Financial Samurai November 11, 2018, 11:22 pm

    Yes, you are confusing RealtyShares raising capital to fund RealtyShares, the company, versus RealtyShares raising crowdfunded capital on their platform to help Sponsors acquire/remodel real estate projects around the country.

    I do wonder how many more people are confused by this.

  • steve @ familyonfire.org November 11, 2018, 11:15 pm

    Definitely scary. I was seriously considering testing the waters in re investing next year. RS were one of the big beasts so it doesn’t look good for the sector.

    • retirebyforty November 13, 2018, 11:02 am

      I hope some of the other companies can make it work somehow. It’s a nice option for individual investors.

  • Hermann Peterscheck November 11, 2018, 11:12 pm

    Yeah. I started leaving both the RE crowdfunding and before that the personal lending side.

    I’m also more or less out of corporate bonds (esp high yield) and to a large degree all other bond and debt instruments.

    I’m far from an expert but I think that the general problem is cheap debt + yield seeking.

    A lot of people and institutions NEED 5-7% yields minimum to make things work. That is simply not easily achievable in this environment and so debt instruments with higher yield start to look way less risky than they really are. That fuels the hunger to create more products which drives down the cost and drives up the risk.

    Stocks are also elevated so they look less exciting. Commodities have languished and cash always seems like a waste.

    It’s a strange climate.

    I think companies/businesses/orgs that need cheap debt to run their business… Or roll it over… Or fund low return growth are going to get killed when interest rates go up.

    We just saw a pretty nasty drop in emerging markets and some of this is because of dollar debt suddenly becoming more expensive.

    I’m avoiding things that rely on leverage as much as possible for a while.

    • Financial Orchid November 12, 2018, 6:39 pm

      Cash looks great right now as interest rates head up, bond prices go down, and equity is expensive. I can’t even imagine what the state of economy will look like when 10 year T-Bills hit 4%. Investors can enjoy their happy 4% SWR risk free. Why would retirees/pensioners/boomers/early retiree genX-ers continue buying equities?
      Bad news for millennials again. Hope they are good to their parents.

    • retirebyforty November 13, 2018, 11:01 am

      Good call. I’m still invested in index bond funds. I think that’s okay. It’s flexible and I can cash out if I need to. It’s just for diversification. Thanks for your input. It’s a good time to deleverage.

  • David @iretiredyoung November 11, 2018, 10:45 pm

    Perhaps I’m naïve, but I imagined that the point of crowdfunding was that it was the “crowd” that provided the funding for the projects. I was surprised to hear that RealtyShares were using venture capital funds, or have I misunderstood something?

    • mary w November 12, 2018, 1:13 pm

      Yes, but…they had to spend money attracting real estate deals and investors; evaluate deals; service and account for payments;, etc.

    • Financial Orchid November 12, 2018, 6:31 pm

      Need to front load spending for user acquisition as any start up whether it’s offering really attractive affiliate marketing commission or wine and dining influencers to get the brand out like any start up op.

    • retirebyforty November 13, 2018, 11:00 am

      The “crowd” fund the real estate projects.
      The VS fund the company ie. RealtyShares.
      Regular investors like us don’t invest in RealtyShares, the company. We invest in real estate projects.

      • Financial Orchid November 13, 2018, 4:21 pm

        Don’t they charge fees for each transaction to offset transaction costs?

  • WTK November 11, 2018, 10:13 pm

    Hi RB40,

    I guess that the risk is not limited solely on crowdfunding. This can happen to any investments which also include stocks. There are no guarantee that a business will continue to be profitable and generate dividends for us on a long term basis. The best approach is to spread the eggs (invested fund) into as many baskets (investment vehicles) as possible so that one will not affected by the failure of few businesses. In addition, it is worthwhile to keep some fund in the form of cash as a contingency measure.

    Be flexible in the annual expense and I believe that one will be able to sustain the lifestyle with the earned dividends. One will have the option to work because he/she want to do so.

    My two cents worth of views.

    WTK

    • retirebyforty November 13, 2018, 10:59 am

      Exactly, that’s why I limited my alternative investment to 5%. It’s okay to dabble, but I’m too conservative to bet big now.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.