The sexy appeal of investing in the crowd?

Question

So here is an issue that I have been struggling with over the last 6 months.

I work full time at a busy stressful job. I enjoy it, but it does not leave me a lot of time for my suppressed passion of real estate. I have managed to purchase 3 rental units, two are multi units and one SFH. In total, 15 units. I have a property manager and she is wonderful. I struggle with growing this as my area seems to have some opportunities, but it takes time to source the deals!

Then there are turn-key solutions. I struggle here as well. They all sound great, but I need to be able to see my properties at least once every couple of months and I hate the idea of investing long distance. I have and am considering something here, but to date have not pulled the trigger. I have a pretty decent market in Columbus Ohio within an hour's drive.

Then there is real estate crowd funding. This seem sexy to me - most of the deals meet my cash on cash return requirements when I buy and hold. I do not get appreciation or the tax breaks, but I do not expect appreciation in my area anyway. The ease of these programs are very intriguing to me! I get to have a professional vet the investments and I get to own little pieces of a bunch of properties. I could just invest in an established REIT, but where is the fun in that? I do have some money invested here. My problem is, I will consistently have to work these assets as the loans/equity are typically less than 5 years in tenure.

I would love to see some discussion on this topic. Is this a good subject for #ASKBP ?

Anyone else out there dealing with the same dilemma?

Thanks!Dave

Jay Hinrichs · Answer

@Charles Worth  right now I see them spread all over the country to competition in any one market will be negligable.. but if one decided to concentrate on a market and they bring in cheaper capital.. they will cream the best players and deals as the flippers who are getting squeezed on profit will be looking for cheaper capital..

But for that to happen they would have to commit as I said to a specfic city or region. to take market share.. right now when you look at the deals its one here one there.

Jay Hinrichs · Answer

Once the new rules come in and non accrediteds can invest I predict this industry will blow up... the established portals will turn into huge HML ers and equity partners with those that don't want to take the time expense etc to try to raise funds themselves through a PPM

Trevor Ewen · Answer

@David Hendrix

It's always nice to read a post and think 'this person has the same thoughts I do, all the time.'

I think we may be the smaller half of the BP crowd, but I do work full-time and have no intention of leaving my job. As a result, real estate become a 'suppressed' passion as you refer to it. I think this is the struggle we will always feel. On the flip side, we have sources of income that come from outside the real estate market... there are plenty of partners looking to have us on the money side of the deal.

In regards to your comment on REITS, in addition to being boring like you say, I actually don't consider them to be part of a physical real estate investing strategy. I wrote a post on the matter here.

As for crowd funding. Smaller scale syndicated deals with 10 or less investors still manage to provide a small sense of involvement without the hands-on risk of running the flips/rentals/etc. This is something I have grown to like with our last deal. In the future, I see myself adding value to these deals by bringing in other investors from my network.

Brandon Schlichter · Answer

What kind of deals are you guys looking for on syndications (ROIs and capital requirements)? It's something we are actively pursuing, as far as already talking to new exchanges that are a good fit and filing with the requirements needed to do such a venture. My concern is always the deal structure - I LOVE getting deals and always want to be in the lead, however bringing other like-minded people could potentially be difficult as everyone is trying to get a deal of some sort.

Charles Worth · Answer

@David Hendrix

I don't think crowd funding is sexy at all compared to flipping or owning. It is certainly less interesting. Of course its also much more passive and I think easier but than again I was never one for party conversation.

Charles Worth · Answer

@Jay Hinrichs

is probably correct it will get bigger though that might be a double edge sword as less scrupulous actors come onto the scene and "retail" investors start losing money.  For lending I have already seen rates starting to come down on the capital raises I track. I would assume that keeps going if demand goes up.

Would be very curious Jay how you think that affects HML lenders that have been around for a while as you know the industry as well as anyone one here.

Michael Hicks · Answer

I think you would probably see a better return acting as a private lender.  I guess there could be more risk.  When I borrow private money, I have a security deed ready and in the hand of the lender when I take possession of the check.  I feel this is a pretty safe venture as the funds are immediately backed by the real estate.  I also keep my all in below 70% ARV so the investor is usually in at 50-60% ARV.  Just a thought.  Crowd funding does seem sexy but if I were putting my money out there I'd want to know exactly what it was and be secured by the property itself and your relationship with your borrower.  I guess I want a more personal relationship.  Good Luck

David Hendrix · Answer

@Trevor Ewen

Thanks for sharing the REIT post. I like the definitions!

@Benjamin Von Blon

Real estate crowdfunding is an online platform that brings those with the ability to find and execute on real estate deals with investors that would like to fund the transaction. As an investor, you can invest a small portion of the total deal while others within the crowd invest the rest. As an investor, it limits your exposure of risk to any single transaction. Currently, only accredited investors are able to invest in the crowdfunding sites that I a aware of. Take a look at Realtyshares.com (sponsor of BP) or, Realtymogal.com for more information and to see the definition of an accredited investor.  You are correct that each property would establish an LLC and all of the investors would own a portion of that LLC. Payouts depend on how the sponsor structures the offering. Some are pure debt deals and the payment of the stated interest rate is paid regularly, some are equity deals with preferred interest and an equity kicker at the end.

Benjamin Von Blon · Answer

Hi David, I am new to BP and still learning plenty about investing so please excuse any ignorance.

Can you explain more about the crowd funding idea? I think I understand the idea of basically having a property with multiple parts to ownership, each owning a portion.  I will take any clarification on that, but where I get lost is in the financial aspect. Would each property simply be owned by an LLC? How would you foresee payouts? Would it function like a dividend with payouts to owners at set times? Each individual would then be responsible for income taxes? (I am actually unsure about taxes for a property owned by an individual under an LLC)

As some one just starting I like this idea as a way to get into a few properties without massive upfront costs. Any answers or direction to posts that might include more in depth information would be great!

Brandon Turner · Answer

Great topic for #AskBP, @David Hendrix! I'll add it to the list. And hopefully others here will jump on and share their thoughts as well.

The sexy appeal of investing in the crowd?

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