RE crowdfunding incentives

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9-5 Suited
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RE crowdfunding incentives

Post by 9-5 Suited »

I probably have at least a year of further research to do before I consider placing 10% of my portfolio in real estate crowdfunding businesses such as Fundrise. But there is one basic question that keeps tripping me up. Why do these companies want my relatively modest amount of capital if they believe in their ability to find great value in real estate deals? In other words, why pay me equity-like returns on my couple hundred grand instead of borrowing at today’s low rates or putting more of the owners own capital into the deals and keeping more of the profit?

I do see they earn decently sized fees, but it still seems like they are leaving money on the table by accepting my capital, which gives me this nervous feeling that something else is going that I can’t see, like the deals they enter are riskier than they would have you believe and they don’t want to personally accept all the risk.

Since I like the idea of having diversification via non-publicly traded RE but don’t want to own individual properties for a few reasons, that’s why I’m investigating this alternative.
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abuss368
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Re: RE crowdfunding incentives

Post by abuss368 »

9-5 Suited wrote: Sat Nov 27, 2021 10:27 am I probably have at least a year of further research to do before I consider placing 10% of my portfolio in real estate crowdfunding businesses such as Fundrise. But there is one basic question that keeps tripping me up. Why do these companies want my relatively modest amount of capital if they believe in their ability to find great value in real estate deals? In other words, why pay me equity-like returns on my couple hundred grand instead of borrowing at today’s low rates or putting more of the owners own capital into the deals and keeping more of the profit?

I do see they earn decently sized fees, but it still seems like they are leaving money on the table by accepting my capital, which gives me this nervous feeling that something else is going that I can’t see, like the deals they enter are riskier than they would have you believe and they don’t want to personally accept all the risk.

Since I like the idea of having diversification via non-publicly traded RE but don’t want to own individual properties for a few reasons, that’s why I’m investigating this alternative.
I too have read a lot regarding real estate crowdfunding over the past year. The idea grabbed my attention enough to read a lot. I like reading about new avenues and investments in general.

I know of some folks who have invested with Fundrise and are very happy.

I have found Sam’s articles with Financial Samurai very helpful and educational:

https://www.financialsamurai.com/real-e ... ng-center/

In general my share in your concerns. Why not simply own the entire property in stead of allowing accounts to be opened with $10 at Fundrise. Yes, $10 for a starter portfolio.

I also would not want to be bothered with Form K-1 reporting and prefer Form 1099-DIV. I believe Fundrise issues many Form 1099-DIV for their funds.

They recently started a Flagship Interval Fund that is interesting. The fund prices NAV daily and invests in single family home developments.

With real estate, there are many different investment vehicles from which to chose from. All have advantages and disadvantages.

You could open a $10 account to learn more before deciding to move forward or not.

Best.
Tony
Last edited by abuss368 on Sat Nov 27, 2021 6:01 pm, edited 3 times in total.
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LongTermLenny
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Re: RE crowdfunding incentives

Post by LongTermLenny »

They are most likely financing as much as they can from a bank. The bank requires a certain amount of capital to put out down to underwrite the deal just like you put down 10-20% when you take out a mortgage to buy a home. When you invest as an LP in these deals you are investing in the “down payment” portion of the deal.
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Re: RE crowdfunding incentives

Post by abuss368 »

Another few items to consider with real estate crowdfunding:

* Illiquid. Often you can not access your money or you can with significant fees charged.

* No secondary public markets to buy and sell shares.

* Sponsor (Fundrise) could fail. Are you familiar with the collapse of Realty Shares? Read about it here: https://www.financialsamurai.com/what-h ... n-closing/

You could simply buy Total Stock and Total International Stock until it hurts. Then find a way to buy even more.

Best.
Tony
John C. Bogle: “Simplicity is the master key to financial success."
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