Equity Crowdfunding Investment Results 2014 - RealtyShares

This is the fourth in a series of blog post about returns and tax implications from my crowdfunding investments from 2014. The first three post were about my investments from ifunding, Realty Mogul, and Real Crowd. Today’s post is about my five investments with Realty Shares. In general, my Realty Shares investments have meet or beat expectations.

INVESTMENT 1 – Safeway Anchored Retail Center, Phoenix, AZ

This was my first Realty Share investment from March of 2014. This was a NNN retail project that was over 95% occupied. The project debt was only 53% and the sponsor equity was 10%. This project is unique in that the sponsor will not earn any additional fees for sourcing, improving, managing and ultimately disposing of the Property. It was projected to have an average 9% cash on cash return and a mid teen IRR. There is an 80/20 spit of profit when property is sold.

Results – We have received 2 updates on this project. They resigned a few leases and have a couple of new leases as well. Things seem to basically be on track. The tax bill is higher than budgeted and they have hired a vendor to fight for a reduction. The first 2 distributions were about 5%, which is below the 8% first year projection. It will be interesting to see if they catch up with the next 2 distributions.

Tax consequences –For every $10,000 invested $350 was paid out in 2014. The K1 (after depreciation etc.) reports a loss of $180 for each $10,000 invested. The net effect for investor in a combined 40% tax bracket is $350 is tax deferred “dividends” and $72 decrease in is taxes owed from the reported “loss”.

Investment 2 –  Normandie Ave Los Angeles, CA

This investment from April of 2014 has a very high 20% preferred return plus 10% of the profit on this high end fix & flip in Los Angeles. The sponsor contributed 20% of the equity. The project included adding 600 sq. feet of living space and a new pool.

Results - The project has had a few delays with the city and permits. These issues caused a delay of 3 to 4 months. In October the sponsor paid a 10% payout to investors. This equals 6 months of the 20% preferred return. The project went on the market in March of 2015 at about 200k above the pro-forma asking price. It was recently reduced by $100k. There seems to be another $200k margin for error before the 20% preferred return is in jeopardy. Hopefully, it will go under contract soon.

Tax consequences - For every $10,000 invested $1000 was paid out in distributions during 2014. The K1 (after depreciation etc.) reports a gain of $0 for each $10,000 invested. The net effect for investor in a combined 40% tax bracket is $1000 is tax deferred “dividends” and $0 increase in is taxes owed from the reported “gain”.

Investment 3 – Chase Building AZ

This investment from May of 2014 is going according to plan. This project was unique because there were 2 potential scenarios. The office building contained a Chase branch and the sponsors plan was to sub divide and make the chase portion a NNN condominium. They would then sell the Chase portion within a year and return equity to its investors. The cash on cash yield was projected a 10-11% and the IRR ranged from 10% – 28%. The high end of the IRR was dependent on selling the Chase portion early. Getting all the approvals for the subdivision was the great unknown.

Results – It took almost a year, but the sponsor was able to separate the Chase condominium and they have received several offers above the pro-forma selling price. It has not closed as of this writing. In addition to the Chase success, they have added a number of new tenants and occupancy is above projections.

Tax consequences - For every $10,000 invested $0 was paid out in distributions during 2014. The K1 (after depreciation etc.) reports a loss of $1680 for each $10,000 invested. The net effect for investor in a combined 40% tax bracket is $0 is tax deferred “dividends” and $672 decrease in is taxes owed from the reported “loss”.

Investment 4– Single Family Home Flip Fund

This investment from May of 2014 is a mezzanine equity investment in a Fix and flip fund. This 2 year investment pays a 9% monthly preferred return plus 10% of the profits from properties purchased and sold in the fund. The IRR is 17.6% to 25% depending on the number of homes flipped

Results – As of February they had sold 4 homes, and had 10 under contract. They do not go over 30 homes in inventory. According to their updates, they appear to be on target. They have paid the 9% preferred return every month.

Tax consequences - For every $10,000 invested $418 was paid out in distributions during 2014. The K1 (after depreciation etc.) reports a loss of $33 for each $10,000 invested. The net effect for investor in a combined 40% tax bracket is $418 is tax deferred “dividends” and $13 decrease in is taxes owed from the reported “loss”.

Investment 5 –   Los Angeles

This investment from August of 2014. This is another high end fix and flip. Investors receive 11% monthly interest payment plus an 8% annualized return upon the sale of the property. The projected IRR is 19% and the sponsor is contributing about 20% of the equity. The project is expected to take 8-10 months

Results – The last update was in January and the project was on schedule and on budget. They expect to list the property toward the end of May and middle of June. They have paid the 11% interest every month.

Tax consequences - For every $10,000 invested $370 was paid out in distributions during 2014. The K1 (after depreciation etc.) reports a loss of $33 for each $10,000 invested. The net effect for investor in a combined 40% tax bracket is $370 is tax deferred “dividends” and $13 decrease in is taxes owed from the reported “loss”.