February 21, 2019

Sharestates Review

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There's no way $1,000 could get you invested in real estate, right? What if we told you that you were wrong? There is such a way to invest in real estate and earn its lucrative returns with just $1,000.

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Sharestates is one of the top real estate crowdfunding platforms available today. The founders are real estate professionals, not "techies" trying to break into the real estate industry. The expertise the founders bring to the table can help you find the right commercial real estate investments.

Keep reading to see if Sharestates is right for you.

How Does Sharestates Work?

Sharestates operates as a platform for both real estate developers and investors. The investors can be private or institutional. Sharestates crowdfunds the money real estate developers need to help them have funds faster than traditional methods.

Sharestates offers individual investors a way to invest in real estate without a large investment. Sharestates claims they provide investors a return of 8%-12% on their collaterally-backed investments. Sharestates operates as the "middleman," or broker, between real estate sponsors and investors.

Real estate developers can access both new capital or purchases and money for a refinance through Sharestates. They receive the money from the combination of individual investors' money. The mortgage loans investors can choose from going through a distinct vetting process to helping lower the real estate investment risk.

Investors can choose from one of two types of investments:

  1. Common Equity: If you invest in common equity, you own a part of the company that you invested in. You may receive distributions throughout the life of the investment. In some cases, you won't see a return until the developer sells the building. Sharestates will divvy up the profits among each investor accordingly.

  2. Debt: If you invest in debt, you lend developers the money to purchase real estate. You make money based on the interest paid on the mortgage (monthly) as well as a balloon payment at the end of the term.

The Ways to Invest with Sharestates.
You can register as one of two types of investors:

  • Individual investor
  • Institutional investor.
No matter which type you are, you may be investing side-by-side with other types of investors. In other words, individual investors may invest in the same loans as institutional investors invest in.

It may make you feel better about your investment as an individual investor knowing that institutional investors agree that it's a good investment.

Who Should Use Sharestates?

  • Accredited investors with an interest in real estate. If you've had your eye on real estate because you know it can be a lucrative investment, you can enter it slowly with Sharestates. You don't invest on your own so you don't need a large investment. You can start with as little as $1,000 if you want to start slow.

  • Investors interested in real estate but without the time to do the due diligence. It may be easier to invest with Sharestates because their underwriters do all of the legwork for you. The founders have more than 30 years of combined experience in real estate. They apply their knowledge when determining if an investment is worthwhile.

  • Investors that want a company that takes security serious. Sharestates protects any information you share online with SSL protection and secure firewalls. They also use an FDIC insured account to combine investors' funds in an escrow account.

Reasons We Like Sharestates

  • You can invest in commercial real estate. If you've ever dreamt of investing in real estate but figured it was out of your league, Sharestates gives you a chance. With low minimum investment requirements, you can invest in commercial real estate with possibly hundreds of other investors.

  • You can invest with as little as $1,000. As a new investor, you can make $1,000 investments for your first five investments or until your balance reaches $5,000. After that point, you must invest at least $5,000 at a time, but it gives you the opportunity to start investing right away rather than waiting until you have $5,000.

  • Sharestates offers a redemption program. While technically your investments aren't liquid, Sharestates recognizes that life happens. If you have an emergency and need your principal back fast, you can apply for the Redemption Program. With this program, you may receive a percentage of your principal back to help with your emergency.

  • Sharestates uses a 34-point underwriting system. The underwriting process evaluates the property, risk, and the borrower. They have nine areas they evaluate, including LTV (loan to value ratio), lien position, location, occupancy rate, development phase, borrower's payment history, borrower experience, and borrower credit score.

  • You can receive your distributions as a direct transfer, check in the mail, or you can reinvest them. It's up to you how you want to receive your distributions as outlined in the investment. The quickest way is to set up a bank account and have the distributions transferred automatically. If you want to grow your investments, though, reinvesting your distributions is another option.

  • If you make a common equity investment, you may make money on the property's appreciation. Common equity investors own a portion of the real estate with other investors. If the real estate sells for more than the original price when you invested, you'll receive a corresponding percentage of the appreciation.

  • You can keep track of your investment in your investment account. You don't have to wonder what's going on with your investment. You can log into your account any time of day or night to view your returns or property updates.

  • You may be eligible for preferred returns. Certain investment projects give certain classes of notes or membership "priority." In other words, they receive their portion of the proceeds before any regular equity partners receive their shares.

  • Sharestates generally requires some type of equity. Sharestates offers real estate developers loans up to 85% LTV, which means the developers have a little "skin in the game." This usually serves as motivation to keep up with the payments and avoid the risk of default. The more the developer invests in their own, the lower the risk of default may become.

  • Sharestates is completely transparent. Any information they uncover regarding a potential investment, they make available to investors. This way you can get a feel for the risk level of the investment and decide if it's right for you.

Reasons You May Want to Look Elsewhere

  • You must be an accredited investor. An accredited investor has a net worth of at least $1,000,000 and an annual income of at least $200,000 ($300,000 combined with a spouse if you both invest). This doesn't make real estate investing open to just anyone. Again, it's for those who have a significant amount of money.

  • Your investment isn't liquid. Before you invest in Sharestates, you should make sure you are comfortable tying up that amount of money for a long period of time. Each investment is different when it comes to how long before you'll see your principal investment again.

  • You do risk losing your money. This goes for any type of investment, but especially in real estate. You can't predict how the market will do or how well a developer will continue to pay their debts. There isn't any type of protection against the loss, although if you invest in debt, Sharestates may be able to get you some of your money back through the foreclosure process.

How It Compares

  • Fundrise: With Fundrise, you invest your money in REITs (Real Estate Investment Trusts) vs the actual real estate or debt you invest in with Sharestate. You only need $500 to invest with Fundrise whereas with Sharestates, you need at least $1,000. The fees are often less with Fundrise as well, as they charge around 1% of your assets under management. You also don't have to be an accredited investor to invest with Fundrise.

  • Realty Mogul: Realty Mogul also offers a marketplace for real estate developers and investors to hook up. If you want to invest directly in a real estate investment on their crowdfunding platform, you do need to be an accredited investor.

    If you want to invest in their eREITs, though, you don't have to be accredited. RealtyMogul also offers equity and debt investments and their professionals do the legwork for you.

Bottom Line

If investing in real estate is something you've always wanted to do and you have the funds to invest, Sharestates can be a great place to start. As with any investment, make sure you read the fine print and talk with a professional from the company to make sure that you understand the ramifications of the investment, especially as it pertains to its liquidity.

Write to Kim P at evan@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

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