I have 2k to invest in crowd funding

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I have 2k to invest in crowd funding

Nathan Mailly
Rensselaer, NY · Member since 2017 · 11 posts · 2 votes
Hi there, I just got 2k from my tax return. Would it be smart to invest it in crowd funding? How does crowd funding work? When do you see your return? Thanks! Nate
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Andrew Johnson
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y

@Nathan Mailly Just throwing this out there: You want to invest $2K in a crowdfunding platform (there's risk in both return and liquidity) for an 8% return.  That's $160 per year or $13 per month before you take into account any fees.  You'd better have reserves/emergency fund/etc. set aside before contemplating locking up $2K for $13 per month.   

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  • Mark RobertsonPro Member
    Investor · Salisbury, NC · Member since 2014 · 313 posts · 385 votes
    9y

    Unless you are accredited (making over $200k a year or a net worth not counting your home of $1 million) there are not a lot of options. Fundrise and Realty Mogul both have "e-reits" that are similar to crowdfunding and are open to non accredited investors.  I think Realty Mogul has the better option. 

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  • Nathan Mailly
    OP
    Rensselaer, NY · Member since 2017 · 11 posts · 2 votes
    9y

    Thanks for the responses guys! So it looks like RealityMogule REIT is one of the only options for me. They have a low minimum of 1k.

    In the overview it says: "Last Distribution Rate, Annualized: 8%" Does this mean that I will get a return of 8%? I'm having a hard time figuring out when I get the return. Is it monthly? Yearly?

    Thanks

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  • Jim Groves
    Lender · Chicago, IL · Member since 2015 · 191 posts · 86 votes
    9y
    Originally posted by @Nathan Mailly:

    Thanks for the responses guys! So it looks like RealityMogule REIT is one of the only options for me. They have a low minimum of 1k.

    In the overview it says: "Last Distribution Rate, Annualized: 8%" Does this mean that I will get a return of 8%? I'm having a hard time figuring out when I get the return. Is it monthly? Yearly?

    Thanks

     The prospectus should tell you when the dividends are paid out, but in order to be competitive with public REITs, they probably pay quarterly.

    However, just because they'll take $1K doesn't mean it's a good deal when you factor in fees.  I invest in debt crowdfunding platforms through a SDIRA. The annual fees charged for the account can be pretty high as a % if I only invested $2K.  

    Also, given the high dividend yields I'm seeing in the REIT space, I don't see how Fundrise and Realty Mogul eREITs make sense. 8% is fine and all, but 10-12% is better. And I can find those yields on multiple REITs with better assets and better managers than Fundrise and Realty Mogul. And if they're publicly traded I can sell any time I want. Unlike these eREITs which offer no liquidity.

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  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Nathan Mailly Just throwing this out there: You want to invest $2K in a crowdfunding platform (there's risk in both return and liquidity) for an 8% return.  That's $160 per year or $13 per month before you take into account any fees.  You'd better have reserves/emergency fund/etc. set aside before contemplating locking up $2K for $13 per month.   

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  • Andrew Savikas
    Investor · Milford, CT · Member since 2016 · 77 posts · 55 votes
    9y

    @Nathan Mailly as @Jim Groves points out, there's good reasons to look beyond crowdfunding for that kind of investment amount.

    That said, it sounds like you're also a bit curious about crowdfunding, and it's totally reasonable to want to try something new out on a small scale (especially when -- psychologically at least -- it feels like "found money"). You may even be willing to give up a potentially higher return in exchange for the experience and education of trying out a new kind of investment. In part it depends on if (and how much) you actually enjoy the research and analysis that go along with crowdfunding, as it's quite clear that's a big part of the appeal for a lot of investors (while others are perfectly content to stick with publicly traded REITs -- not saying there's a right or wrong answer there). 

    Not sure if you're looking only at real estate, but there's also a wider ecosystem of crowdfunding choices, including P2P loans (which arguably isn't crowdfunding per se, but certainly gets lumped in with other online alternative investing), equity crowdfunding (higher risk and much lower liquidity, but potentially greater returns if you're sufficiently diversified over time). 

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  • Nathan Mailly
    OP
    Rensselaer, NY · Member since 2017 · 11 posts · 2 votes
    9y

    @Jim Groves Yes I ended up calling RealityMogul to get some of my questions answered and determined it wasn't for me at this time. My plan is to wait about a year until my credit history is good enough to get approved for an FHA loan and house hack. Until then I want to find someway to make my money work for me. Stocks and crowdfunding seemed like the best options, but with RealityMogul's RIET, like you mention @Andrew Johnson , you're locked in for around 4 years...not to mention that $13 a month isn't anything to write home about. 

    @Andrew Savikas  I definitely agree with you about the experience piece and I was very tempted to just do it and see what happens because I have a tendency to over analyze! 

    Thanks everyone for your help!

    Nate

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  • Andrew Savikas
    Investor · Milford, CT · Member since 2016 · 77 posts · 55 votes
    9y

    @Nathan Mailly I know the feeling :) FWIW there are options to start with $50 or less, and that can be a relatively painless way to just get your feet wet and get a feel for the different choices and how the various crowdfunding platforms work, while keeping the risk quite low.

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  • Ian IppolitoBusiness Member
    Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    @Nathan Mailly, neither the stock market (i.e. public reits) nor a crowdfunding REIT are appropriate investments for short term money. If you truly are looking to take it out in a year or two and need to be 100% sure of getting back the principal then I'd recommend looking someplace else.

    Public REITs are good long-term bets but not necessarily short term and their volatility correlates highly with stock market volatility ( meaning you could be subject to a loss). Also interest rates are rising and if they go up quickly, stock market REIT prices are going to get hammered in the short term.

    RealtyMogul. and the other non-accredited investor crowdfunding REITs charge you a penalty for withdrawing earlier than five or so years. 

    The Real Estate Crowdfunding Review
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  • Nathan Mailly
    OP
    Rensselaer, NY · Member since 2017 · 11 posts · 2 votes
    9y

    Yeah that looks great, thanks

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  • Andrew Savikas
    Investor · Milford, CT · Member since 2016 · 77 posts · 55 votes
    9y

    @Nathan Mailly @Ian Ippolito is absolutey right about the time horizon (my apologies for not noting that in your reply earlier). If you actually need the money (especially the principal) within 1-2 years, then crowdfunding probably isn't the right choice for now (though my point about trying it out with a very small amount -- say $50-$100 -- still stands). It's tough to swallow current Savings/CD rates, but with that time horizon a bird in the hand ...

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  • Ian IppolitoBusiness Member
    Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    @Jim Groves, I'm curious which public REITs you're recommending that yield 10 to 12%. I just read an article saying the average equity REIT is yielding about 4.01% right now.

    http://www.cnbc.com/2017/05/09/a-way-to-get-real-estate-income-without-buying-a-home-mortgage-reits.html

    The Real Estate Crowdfunding Review
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  • Nathan Mailly
    OP
    Rensselaer, NY · Member since 2017 · 11 posts · 2 votes
    9y

    @Ian Ippolito thanks for your thoughts! 

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  • Account Closed
    Investor · Plymouth, MA · Member since 2017 · 19 posts · 3 votes
    9y

    another thing to consider would be paying down some or all of your outstanding high interest bearing debt that would improve your FICO score which will help with getting approved for your home loan next year.

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  • Jim Groves
    Lender · Chicago, IL · Member since 2015 · 191 posts · 86 votes
    9y
    Originally posted by @Ian Ippolito:

    @Jim Groves, I'm curious which public REITs you're recommending that yield 10 to 12%. I just read an article saying the average equity REIT is yielding about 4.01% right now.

    http://www.cnbc.com/2017/05/09/a-way-to-get-real-estate-income-without-buying-a-home-mortgage-reits.html

     I was referring to mortgage REITs, several of which are referenced in that article.  

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  • Ian IppolitoBusiness Member
    Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    @Jim Groves,  I just did a little more research on the mortgage reits because I wasn't familiar with them before .  

    They do not seem like suitable investments for most beginnings investors  to use as the core of a real estate portfolio.  They are doing great now only because interest rates are fairly steady and there is no downturn. They are highly leveraged, and they use that debt to buy mortgage  backed securities. In other words they are double leveraged which increases risk dramatically if anything goes wrong. They also have a ton of other risks due to rising interest rates, etc. 

    The analyst in this Barron's article says:

    "It all sounds pretty great, but gets a lot more complicated once you dig into the bewildering array of risks that affect the sector. Mortgage REITs make money by borrowing short-term to buy longer-term mortgage-backed securities (MBS) and, increasingly, other kinds of credit instruments. They are highly levered and get hurt when rates rise (because the value of their holdings falls, while funding costs increase) and also when rates fall (because more mortgages get prepaid, and hedging can backfire). “There are different risks on the asset side, the funding side, and the hedging side,” says Merrill Ross, who covers the sector for Wunderlich Securities.

    Individual companies can be tough to analyze, notes Richard Daskin of RSD Advisors. “The instruments they buy and the way they hedge are different. Even if you drill down, sometimes they change strategy anyway.” He uses mortgage ETFs “sparingly,” mostly in tax-advantaged accounts, and recommends that investors don’t exceed a 3% to 5% allocation to the sector. Along with REM, the far smaller VanEck Vectors Mortgage REIT Income ETF (MORT) is an option.

    https://www.google.com/amp/www.barrons.com/amp/art...

    The Real Estate Crowdfunding Review
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  • Jim Groves
    Lender · Chicago, IL · Member since 2015 · 191 posts · 86 votes
    9y

    Fair point, but if you dig into the prospectus of the first Fundrise offering, they employ the same strategy

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