Investing through Crowdfunding

[Eric Shadowens]

I recently read an article in a business journal regarding investing in real estate through crowdfunding.  Has anyone on this forum had experience dealing with Fundrise, RealCrowd or Crowdstreet?  Anyone care to discuss any bad experiences if they have made an investment through one of these websites?

[Ian Ippolito]

Wow, so much incorrect information, and much of it from people who have obviously never invested themselves in some of the things they are talking about.

I own both crowdfunding and syndicated investments. I own both passive investments and investments that I own myself and actively manage. I own REITs and non-REITs. All of them have pluses and minuses and there's no one mechanism that is perfect. There's ways to make and lose money and all of them.


>>Can anyone name 1 person who gained wealth by investing in a crowded fund?

I have and so have lots of people. It's just as ridiculous to say crowdfunding produce wealth as it is to say that syndications don't work. (They are essentially the same thing, but crowdfunding is just using the Internet instead of the country club network). There are both good and bad syndication deals and good and bad crowdfunding. You can invest in very conservative crowd funded deal or syndication and get from 6-13% in hard money loans. You can invest in extremely aggressive equity deals in both types, that aim for an IRR of 40% or more. (But in all situations, I would recommend being careful and considering that good times don't last forever, and so what will happen to your investment if a recession hits).

>> Syndications are better for newbies.

Again there are both good and bad deals in syndication as well as crowdfunding. Newbies who don't understand real estate are going to get fleeced either way. It's important to fully educate yourself before entering any deals. Some have advised outsourcing that to an advisor, and that might be the 2nd best way to go. But then I have to ask: how do you know that your advisor is doing a good job? In my opinion every investor has the responsibility to understand what they are investing in, and if they don't want to do that they really should be investing in something else.

>>The money is in the PLATFORM. The investor wont make much, they never do. just invest in a stock REIT.

The yield on the typical stock REIT is horrible at around 3-4%. Stock REITs advantages are that they are liquid so you can exit from them anytime you want. But you pay for it with the liquidity premium. Also, most of them are so heavily leveraged that you take a lot of interest rate risk. With syndications and crowdfunding, you can customize your portfolio with the risk/reward that fits your particular aims.

As an example: you can get 6% in a conservative hard money loan funds and around 11-13% for more aggressive hard money loan funds. And as I said earlier, the sky is the limit on equity funds as far as your return, but of course it comes with increased risk. It's the exact same with owning real estate yourself directly.