September 29, 2018

RealtyShares Review: Is It Good?


Have you always wanted to invest in real estate but lacked the capital? RealtyShares is a crowdfunding platform for people like you. Check out the pros and cons below.

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RealtyShares lets investors buy shares in a project, which the platform combines with other investors' purchases to provide real estate professionals with funding.

YOU SHOULD KNOW: As of November, 2018, RealtyShares is no longer accepting new investors.

As an investor, you'll likely invest in mid-market commercial properties, which are deals valued at $50 million or less. Typically, RealtyShares invests in multi-family, office, retail, and self-storage facilities.

RealtyShares isn't open to just any investor or even any business. You must qualify on either end of the spectrum.

Keep reading to see if investing in RealtyShares might be something that is a good option for you.

What Is RealtyShares?

In short, RealtyShares is a simplified way to bring together all parties involved in a real estate transaction. Investment firms need the funds to purchase properties and private investors have the money to fund the deals. Investment firms can fund their deals by pooling together multiple investors' money, and investors can diversify their portfolio by investing in real estate.

Everything takes place on the RealtyShares platform. As an investor, you can invest all of your money in one property or diversify by purchasing small parts of individual properties. The properties include residential and commercial properties.

Only accredited investors may invest with RealtyShares, though. An accredited investor meets the following requirements:

  • You have a net worth of at least $1 million (this can be a combined net worth with your spouse)
  • You must have an annual income of at least $200,000 (single investors) for the last 2 years
  • You must have an annual income of at least $300,000 (joint investors) for the last 2 years

RealtyShares offers senior debt, 2nd lien debt, mezzanine debt, preferred equity, and common equity. Investors can choose the type of funding they want to provide, helping you determine your risk level and level of returns.

Why Invest in RealtyShares? RealtyShares allows you to reap the benefits of real estate investing without the physical or even financial demands required of buying a property outright. You can invest your money in debt or equity investments, giving you more options than you would have should you invest directly in a property.

How RealtyShares Works

First, let's look at how RealtyShares chooses the investment options given to investors. You should know that investment firms and developers go through an extensive underwriting process to determine if they are eligible for RealtyShares funding. This includes:

  • Completing an application
  • Applicants must provide their financial history as well as their experience with real estate
  • RealtyShares underwriters then evaluate the property itself, as well as the company's investment strategy and financial capacities, comparable sales, title reports, and credit data
  • Approved projects become a part of the RealtyShares listings

Once RealtyShares approves an investment opportunity, it is listed on their site. You are able to view all information RealtyShares used to approve the project. This includes all legal documents so you can make an informed decision. You'll also see the "target funding amount"; until it's reached, the project doesn't close. If a project doesn't close, you'll receive a refund of the funds you provided.

RealtyShares provides you with all of the information you would otherwise have to find on your own if you invested in individual properties on your own. This includes background checks on the company's executives.

You sign all documents online and set up the funding electronically. Your funds don't leave your chosen account until it's close to the funding date and all conditions have been met, though. Before you commit to an investment, it's important to carefully review all information provided, especially the risk factors. RealtyShares doesn't guarantee any type of return.

Ways You Can Invest

RealtyShares offers a few different ways to invest:

  • Debt Investment: Investors essentially act like a bank. That means they lend indirectly to real estate companies that are financing a property for the short-term as the project is being built or renovated.

  • Equity Investment: When you invest in a real estate project's equity, it means that you take indirect ownership in the property. You may receive monthly cash flow payments from the property's rental income or a percentage of the profit when the property is sold.

What Are the Fees?

You can open a RealtyShares account at no charge. You don't pay fees until you invest.

If you invest in an equity position, you'll pay an annual fee of 1% of the investment amount. You'll pay the fee throughout the course of the investment as dictated in your agreement.

If you take on a debt investment, you'll pay a service fee that equals 1% to 2% of the interest rate spread (difference between borrower interest paid and interest paid out to investors). You can estimate the fees to be between 2.5% to 3% of the investment.

These fees are just the "base fees." It's important to read your investment disclosure to have a true understanding of the actual fees charged on your investment.

Returns

Just as is the case with any investment, your returns are based on the actual performance of the investment. RealtyShares doesn't guarantee your returns. In general, debt investments are paid out on a monthly basis. The actual payouts are dependent on the borrowers making payments on time.

Equity distributions depend on the type of investment. Preferred equity investments pay out on a monthly basis, with the final "accrued profit payout" occurring at maturity. Standard equity investments pay out quarterly and depend on the property's cash flow. Equity investors often receive a profit payout if/when the property is sold.

Reasons We Like RealtyShares

  • You can invest with as little as $5,000. RealtyShares strives to keep investment requirements low. The average minimum investment required is $5,000. There also is no maximum investment limitation.

  • RealtyShares thoroughly evaluates potential investment opportunities. With their resources and expertise, you may learn more about an investment's risk, helping you to make smarter investment choices.

  • You can invest in a large portfolio of real estate investments. You can create a diversified portfolio of real estate investments. This may help you realize a larger ROI. By diversifying your funds, you can invest in debt and equity positions, helping you to offset the risk of each investment. You can even diversify by investing in real estate in different geographic locations throughout the country.

  • You are a passive real estate investor. Active real estate investments require a lot of physical work and financial capital. RealtyShares allows passive investments in real estate because RealtyShares does all of the work - you just supply the investment and realize the returns.

  • RealtyShares is transparent in their risks. You don't have to do any of the legwork, but will know the risks before investing. RealtyShares thoroughly reviews each situation, including background checks and financial evaluations, and determines if there are any legal issues involved with the property. All data is provided to you before you make an investment decision.

  • You can invest in a variety of real estate properties. With RealtyShares, you can invest in various types of middle market commercial properties, such as multifamily, office, retail, and self-storage.

  • RealtyShares offers a variety of targeted returns. You can view the available investments based on targeted returns or hold periods to help you meet your investment needs.

  • You can sign up and view investment opportunities free of charge. This may give you time to watch the market and decide if real estate investments are something you can handle.

  • RealtyShares works hard to recoup "bad debt." Despite their rigorous vetting procedures, bad debts happen. If they do, RealtyShares has specific procedures in place to help a borrower get current on their debt. If they don't, foreclosure proceedings or a forced sale may occur. Whether or not you receive a payout will depend on how much money RealtyShares can recoup.

  • RealtyShares offers a custom dashboard for investment tracking. On this dashboard, you can view your current investments, payouts, and the documents pertaining to each investment. You will also have access to tax documents for reporting purposes.

Reasons You May Want to Look Elsewhere

  • The investments aren't liquid. You can't decide to just sell an investment and get your money back. Each investment has a projected "hold period," which may vary between 6 months and 5 years. The projected "hold period" is an estimate; the actual hold time could be longer or shorter.

  • You have to be an accredited investor to use RealtyShares. If you don't meet the investor requirements, you can't invest with RealtyShares. This limits the opportunity to high net worth individuals or institutions.

  • You may be subject to a capital call. Current investors may have to come up with more capital if a particular real estate project needs more money. While RealtyShares tries to minimize this occurrence, it does happen, which can put you in a bad financial position.

How It Compares

Fundrise: Fundrise requires a smaller investment of just $500 and they don't require you to be an "accredited investor." This is because they offer investments in eREITs and eFunds rather than crowdfunding. The fees for both services are similar and they both evaluate investment opportunities before offering them to clients.

Realty Mogul: Realty Mogul offers a similar platform to RealtyShares. You can browse the investments for free, look at only qualified investments, and receive regular payouts based on the type of investment. Realty Mogul tends to charge lower fees and they don't have "capital calls."

REIT: The main difference between a Real Estate Investment trust and RealtyShares is the ownership you have in the real estate. With an REIT, you don't own the property directly. With RealtyShares, you have direct ownership. A portion of your REIT may not even be invested in real estate, whereas with RealtyShares, 100% of your investment is in real estate you chose.

Bottom Line

Only wealthy investors need apply to RealtyShares, as you must be an accredited investor. If you meet these qualifications, it could be a nice way to add passive income to your portfolio that isn't tied to the stock market. If you've always wanted to be a real estate investor, this could be the right opportunity to get your feet wet and see how you fare.

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How to Invest Money


How to Invest $100k


How to Save Money

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