AlphaFlow has quite a crowdfunding pedigree: Co-founder Ray Sturm was a founder at RealtyShares, and AlphaFlow itself was financed in part using FundersClub (for more, check out our Q&A with Ray from the blog). Like FundersClub, AlphaFlow is a graduate of famed incubator YCombinator, and it shows in how the company has evolved and shifted course in pursuit of maximal product-market fit.
You can invest in AlphaFlow using a Self-Directed IRA or 401(k) like the ones offered by our friends at Rocket Dollar.
I first discovered AlphaFlow while looking for a way to search and track investments and opportunities across multiple real estate crowdfunding sites. (Personal Capital is a great tool for tracking your finances, but they don’t have connections in place with most of the smaller platforms.) After closing down their tracking service, they moved toward offering managed funds across multiple real estate crowdfunding platforms before shifting to a more automated approach.
The current offering, AlphaFlow Optimized Portfolios, is similar to the three previous AlphaFlow funds but with three improvements, including (1) rapid turnaround from initial investment to first returns, (2) the ability to invest and/or re-invest capital at any time, and (3) continual rebalancing of investor portfolios to maintain diversification as loans repay. Unlike the previous offerings, the Optimized Portfolio is now the only investment option.
Types of investments AlphaFlow offers
AlphaFlow Optimized Portfolios invest in real estate debt, primarily “bridge loans” which are short-term first lien notes on residential real estate. The average value of each note is between $75,000 and $2,000,000 with a yield from 7%-11%. The notes target a maximum average loan-to-value of 75% and are secured by the property. Each investment of a minimum $10,000 is diversified through spreading across 75 to 100 notes, geographically diversified in 15 to 25 states (out of 30 in which AlphaFlow currently purchases loans). For example, a $10,000 investment split between 100 notes means $100 is invested in each note. Proceeds can be automatically re-invested to reduce cash drag (or automatically withdrawn into your bank account for deployment elsewhere).
The Optimized Portfolios invest only in loans with 3-12 month maturities. All loans are 6-12 months in duration and AlphaFlow reports that within approximately 6 months investors will have 40-50% of their principal returned, with the option to set returned principal to auto-reinvest.
What do you get when investing with AlphaFlow?
At this time, AlphaFlow only offers the Optimized Portfolio option. This means that investors can no longer DIY the process and choose their own investments. When you invest using AlphaFlow’s Optimized Portfolio feature, you receive a membership interest in an LLC, which then invests the funds into various loans. A big benefit to this approach is that you receive only one K1 at tax time, even though you’re investing in geographically diversified loans.
How does AlphaFlow make money?
AlphaFlow charges a 1% annualized asset management (“AUM”) fee. According to their website:
AlphaFlow may charge servicing, origination, or other fees in certain circumstances on certain real estate loans in your portfolio, typically when defaults occur and there are additional 3rd party fees, and those will always be disclosed.
Potential returns and cashflow
Optimized Portfolios have a target return of 7.5-9%. During the life of the investment, when a loan repays the funds are returned to the investor and there are 3 options. Investors can auto reinvest earnings or returned principal, leave the funds in their AlphaFlow account to reinvest later, or auto-withdraw the funds to their bank account. The AlphaFlow website has a 24/7 Performance Live tool that allows investors to log in and see the progress of their investments.
Breadth of offerings on AlphaFlow
AlphaFlow currently offers only the Optimized Portfolio option, a change from the first three offerings of AlphaFlow Funds 1, 2, and 3, and some other investments originally offered as part of the platform. AlphaFlow does partner with other real estate crowdfunding platforms, but “AlphaFlow is focused on creating a more passive investing experience that utilizes technology building and rebalancing a diversified portfolio, all at a low fee and with low investment minimums.”
Regulatory framework and due diligence expectations
AlphaFlow is a Registered Investment Advisor, registered with the SEC. Their investments are offered under SEC Reg D. For the Optimized Portfolio feature, AlphaFlow uses their own algorithms and analysis to select loans, aiming for a blended 75% LTV across the loans.