Why is real estate crowdfunding better?
Real estate "crowdfunding" has become a major buzzword over the last several years with platforms like Cadre, Fundrise, RealtyShares, Realty Mogul, etc, but what's really the differentiator here? It seems like a lot of these platforms pivoted from direct investment in specific deals to pushing individual everyday investors into their own REITs or funds. In that case, what's really the difference between investing in a normal REIT / any of the other major RE funds out vs. one of these platforms? Is it just the low minimums and tech-focussed interface that makes the process seem more tech-forward and democratized?
On the flip side, what about the platforms that let you invest directly in deals? While the concept is great for accredited money, how are everyday "Joes" going to confidently decide on an asset strategy and submarket with no CRE experience (eg. Class B garden-style in Raleigh)?
I'm a proponent of digitizing the direct investment process but wanted to flush out some of these challenges and get thoughts from this group, thanks!
They can charge fucking insane fees. That’s it. People are fucking idiots and don’t know any better. BREIT is a perfect example but at a more institutional/sophisticated scale. It’s always fees.
It’s just a real estate syndicator using a tech platform to reach the masses. Survive on acquisitions and asset management / construction management fees like everyone else. With that said, I look at these platforms every so often for fun, and I’ve always found their investment memos don’t provide enough information. 9 out of 10 times you can’t easily find the stabilized return on cost! When I look at these memos with the little detail they provide and can’t always get a good handle on the deal (because they also provide minimal research, if any), I always wonder how a retail investor who doesn’t work in the industry is supposed to make a decision.
They don't. I have buddies who invest on these platforms and it's just spray and pray. I sometimes invest in stocks like that though so I can't talk too much.
Poor info and when I've seen data/assumptions they are laughably innacurate
What you described is exactly what retail investors are looking for. The DD is set up that way for a reason.
You can charge higher fees or get a sub-standard deal funded (so you can collect fees)
Anyone work for one of these (fundrise/realtymogul) before? They are hiring like crazy and are 100% remote... I'm curious about comp level and how they compare to working in PE.
I work for one of these. Depends on what position but base is a little lower than big PE shops but work life balance is better (full remote, unlimited PTO), production bonus could be comparable to MM PE shops, plus potential for company equity.
Thanks - Did you work in PE prior? Trying to get my foot in the door at one of these but haven't had much luck yet.
Do the platforms allow you to invest into the deals which they are doing? And can you do it pre fee / pre promote?
I've heard $275K all-in plus fully remote, which is really attractive. Could be way off but had a friend go to one of them as a VP.
This is pretty spot on for a VP, though it varies a lot and could reach significantly higher in a really good year
In my experienced working at a CF platform, the REITs function as an additional source of capital for deals that raise funds on the platform and investors can expect to get better returns and less price vol than publicly traded REITs.
Usually providing high level deal points, asset details, sponsorship, proforma, business plan, capital stack, basic UW assumptions, etc. is enough for semi sophisticated investors to make an informed decision.
I have found crowdfunded investments to be not much different than investing in REITs. Sure you can pick the property to invest in but you really have no ability to be an active investor in the property. You often only have access to properties the various platforms have already purchased and are securitizing, similar to investing in a syndication.
I think the key items for direct investment platforms when working with average joe retail investors versus accredited (or both) are the resources the platform provides (financial models/data, educational material) robustness of the platform, platform members, partnerships, and tax benefits.
Some platforms use data providers like HouseCanary to pull in comps, vacancy rates, growth assumptions, rent amounts, expenses, etc. and plug directly into models/visualizations to see estimates on cap rates, cash on cash, and other profitability metrics. Key here is allowing the user/investor to tweak the assumptions to be more conservative.
With a diverse and solid base of members on the platform there are forums to discuss the potential investments or address other questions around real estate investing and potentially partner up with more experienced investors on deals. Some have even set-up ownership/comp structures that give the ability for the more "experienced investors" leading these deals to get a form of carry or outsized ownership relative to investment to incentivize mentoring less experienced investors in investments.
The platforms are only as good as their partnerships (real estate agents, lenders, property management, insurance, legal, tax planning, etc.) With some platforms you get access to all of these valuable resources where as an individual you otherwise would likely pay far more for. The platforms bring the partners volume and therefore often have negotiated lower costs of services or in the case of real estate agents are incentivized to bring better deals (off-market) knowing that the platform closes on deals.
With direct investments as an investor you get to choose the property, investment strategy (ex. long term vs. short term rental, hold periods, scenario planning), determine how the property is managed and your level of involvement in management (active vs. passive).
DISCLAIMER: I work for a direct investment platform: https://www.fractional.app/resources/20d3c428-16f2-4df1-9ac3-bf7693db2027
I think retail investors are drawn to the idea of investing in a single commercial real estate deal, even if they aren't super familiar with CRE. Why crowdfunding over REITs? REITs your investing in multiple buildings through your Fidelity account and don't get to look at sexy renderings with a prepared investor report. IMO retail investors associate REITs as stocks more than real estate. CRE crowdfunding is viewed as more of a real estate investment than REITs, but still have the perks of being a somewhat passive investment.
Retail investors are also more familiar with the idea of diversifying across asset classes. Some feel the need to invest in 5+ asset classes, which naturally leads them to look into alternative investments. Millennials are in their 30s now, thus earning more money and likely investing more. This generation is bored with the S&P and wants to add something with more flavor/higher returns to their investment portfolios, but wants investments less risky than crypto.
Asking them to invest $25k vs $250k into CRE, an asset class they aren't super familiar with, makes it much easier to try it out and see what happens.
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