Crowdfunding - Good idea for a new investor???

[Christina Shackleton]

Hi,

As a new investor who is just starting out, I don't have a huge amount of capital to get my first project off the ground. I've read about crowdfunding. Has anyone had any experience with this form of investing and what do you think about it?

Thank you,

Christina

[Ian Ippolito]

Hi Christina, it depends on what your particular goals and situation are. But yes, it can be a very good form of investing if it is a fit for you. Unlike buying properties directly, you can diversify nationally, and at a fraction of the price of purchasing entire apartment buildings, etc. The downside is that you have to be comfortable selecting a manager for the investment who will not be you, and who you have to turn control over too. 

Are you an accredited investor?

[Christina Shackleton]

Thanks Ian for the information. I am not accredited yet...but will be looking to get my accreditation. I am just starting out and trying to figure out the best way to get started as I am building my capital for my own projects.  At the moment I have very limited funds so I wasn't sure if someone in my situation who is looking to grow funds to later invest into their own projects would be able to jump in this way as a way to get started. 

Also Thank you for sending me the link to your website.  I looked around it a little and when I get more time later today will go thru it further.  It definitely has a lot of useful information.  I recently looked at LendingClub myself and thought it was an interesting idea.  Do you manage any crowdfunding investments yourself?

Have a good day,

Christina  

[Jay Hinrichs]

@Christina Shackleton  accredited in the context @Ian Ippolito  is talking about. is financial you either are or your not at least at a moment in time.

Accredited investor=  ( I could be off a tad but I think this is correct)  Makes 200k a year and or has a net worth of 1 million their personal resi excluded.  if that's not exact its close.

so you either meet these financial thresholds or you don't  most crowd funding deals only allow accredited investors but there are some new rules coming out that will allow anyone regardless of income or net worth.. not sure the status on those  maybe Ian the expert on this can shed light.

[Ayodeji Kuponiyi]

@Christina Shackleton crowdfunding is one way, I've never used it but have considered it. Have you done any research on it? Sites like patchofland.com, fundrise.com, and realtymogul offer what you're looking for. 

Have you considered looking for deals and getting financing from family, friends, and co workers first? You'd be surprise how much of your inner circle has an interest in real estate but no knowledge on it. You can be that source knowledge. Read and gather information and share what you're doing with people around you. Best of luck!

[Mike Moles]

I am a new investor and I decided to begin this way since it's very hands off after you do your research and I have a very demanding full time job.  I just pulled the trigger in February on three investments, we will see how they pan out.  To be accredited you need to have made over $200k for the last 2 years and plan on it next year ($300k if investing as married but you can invest as single even if you are married).  Or you need to have a net worth of $1M excluding your primary residence as @Jay Hinrichs says.  In researching platforms @Ian Ippolito's website with REI crowd funding platform reviews was an excellent resource for me (thanks Ian!). I also found other resources online. You definitely want to understand the differences between the numerous platforms and choose the one that best fits your needs.

[Brandon Romano]

@Christina Shackleton Just to add to @Ian Ippolito's post, crowdfunding is a great way to diversify locally in addition to nationally. More and more crowdfunding platforms are focusing on specific regions that a team has particular knowledge of. Local knowledge is, of course, a huge asset in real estate investing.

Depending on the platform, you can also diversify among single-family, multi-family, apartments, small-and-large commercial assets, etc, as well as in debt, equity, or mezzanine investments. 

You do have to place more trust in a quality platform team. But if the team is experienced in real estate investing/development and tech-functionality -- in essence knows what they're doing, has a proven track record of generating returns for investors on a range of projects, and is capable of doing robust diligence on real estate companies -- then you ought to be in good hands. Passive investing allows you to live your life while your $1,000 minimum investment works for you. :)

[Brandon Romano]

Also the new rules that @Jay Hinrichs alluded to go into effect May 16. Crowdfunding platforms/portals that register under those rules can offer investments to non-accredited investors, with select limitations:

-If your annual income or net worth is less than $100K you can invest the greater of $2,000; or 5% of the lesser of your annual income or net worth. 
-If your annual income and net worth are both at least $100K you can invest the lesser of $100K; or 10% of the lesser of your annual income or net worth. 

Between these new rules (Title III) and rules that went into effect last year (Title IV/Reg A+), pretty much everyone accredited and non-accredited alike will soon be able to invest in crowdfunding projects. Hope this helps :)

[Larry Fried]

@Christina Shackleton I found a unique crowdfunding platform that allowed me to buy into and co-own with the managers a portfolio of 10 SF rental properties. It is pretty much open to all investors.  I wrote a blog article about it last week and you can read it here. 

[Ian Ippolito]

@Christina Shackleton, it's my pleasure. If you have any questions just let me know. Yes I do manage my crowdfunding investments myself. Also, I do invest pretty extensively in Lendingclub as well and find it's a good diversification from real estate, because the 2 are driven by separate cycles (employment cycle versus the real estate cycle).

@Mike Moles, you're very welcome and glad you enjoy the site.

@Larry Fried, it's great that you like that particular crowdfunding site so much that you are promoting it on multiple threads and a blog posting. However, it's not accurate to say that it's unique. Several of the portals have had funds that also invest in multiple single-family home rental properties. And they invest in hundreds of properties spread out across the nation, instead of just 10 in a single city. So in my opinion, the better features and increased diversity makes them a much better fit for most investors.

[Jackson Stephens]

Ian Ippolito which platforms are you referring to? I'm considering investing in the one referenced above but would like to research others.

Thanks.

[Ian Ippolito]

@Jackson Stephens,  I've seen residential equity funds on Realty Mogul, Realty Shares, Real Crowd etc.. (I.e. most of the nonspecialist platforms). Most funds on these platforms will post up the opportunity, and fill up within several months, so the particular fund you get into is a little bit of a matter of luck. But fortunately there seem to be a lot of new ones always popping up, So you just have to keep an eye out for them.

Also, if you're a larger investor looking to put in a few hundred thousand dollars into it, there are several larger private REITs that are always accepting new money, such as Broadstone Homes.

[Christina Shackleton]

Thank you for all of the great advice @Ian Ippolito, @Brandon Romano, @Mike Moles, @Ayodeji Kuponiyi, @Jay Hinrichs and @Larry Fried.  I'm really glad I found this community and to know that there are great people who don't mind giving advice and helping a newbie (Who now that I know what an accredited investor is WILL some day be one :-) ) 

Have a great day everyone.  I look forward to getting to building my business and someday being able to help others the way you have helped me. 

If anyone has other advice for new investors, I am all ears.   I'm a single mom with 2 teenagers doing it on my own. I'm doing well on the day to day, its building for the future that I am focusing on now.

Christina

[Larry Fried]

@Ian Ippolito It is unique from what I've seen and even based on what you say about "similar" crowdfunding deals. In my view it isn't just about holding equity in a diversified portfolio of SFRs that makes it so. It is also that the investor becomes a co-owner with the owners of the crowdfunding site, who also Manage the properties; that it offers double digit cash flow returns, with a medium term exit projections to increase the IRR; that investors buy in at deep discounts to FMV, and that it is open to all investors (accredited and non-accredited alike) with low entry points. I actually wish it wasn't so unique as I would like to see this model closely duplicated in other markets.

I will check out some of the crowdfunding sites you mention above, but from what you say it sounds like a pretty hit and miss deal, where one might have to comb through a lot of sites over time to participate in the kind of equity funds you mention.  

[Saul L.]

@larry fried @ian ippolito

I am invested in some of the funds Ian mentions above and have looked seriously at the platform Larry is referring to. 

IMO the main difference between them is the scale and ability to do DD.  The 10 property portfolio is an existing portfolio of cash flowing properties, each if which can be transparently analysed and assessed. I think it is more like buying Turnkey, but instead of putting 40-50 K into one property with all the risk that gos with that, you can put in as much as you like and get instant diversification across 10 properties with management continuing to be co-invested at 30%.

I think the funds Ian mentions are more comparable to Reits. You are putting your money into a fund that will be aquiring 10s or 100s of homes without any control or specifics for the small time investor. It's more a bet on the management and method than on the real estate.

[Ian Ippolito]

@Saul L., Yes, I agree. 

Both options invest in individual residential real estate rental properties. Both of them projects similar returns. And both options have sponsors with skin in the game via the coinvestment.

I think that the platform that Larry promotes, is nice because the coinvestment of 30% is much larger than typical. Personally, I don't like the fact that it's only limited to one particular city, which is too much single city risk for my needs. And I feel more comfortable with a higher profile sponsor and that also has experience in the current format that spans at least one or 2 recessions. But I understand how it could be appropriate for others.

I almost forgot: there's another option as well, which is slightly different than both of these options. There is a brand-new company called Roof Stock, that provides investors with investments in specific residential real estate properties across the nation. The site lets you purchase existing, cash flowing rental properties  (that private equity firms are selling). So it's like a turnkey provider, except it's national and you can see all the properties on the Internet and review them in great detail (down to a site plan and review the inspection report on each of them). These guys are backed by some serious venture capital ($13.3 million) and the principals are experienced residential real estate private equity people, so you know they're going to be around for a while. They also provide rock-bottom fees on the brokerage fee, property management, etc. (or you can choose your own property manager).