•  Real Estate

HappyNest -- Ultra-low-minimum real estate investing via mobile app

HappyNest is a consumer-style mobile app offering low-minimum commercial real estate investments open to all investors. Getting started is easy, but prospective investors should be aware that withdrawing funds within less than 3 years may trigger penalties, and all dividends are automatically re-invested unless you opt-out.

HappyNest

  • Founded: 2017
  • Investment Types: Real Estate
  • Sectors: Commercial Real Estate
  • Minimum Investment: $10
  • Advertised Returns: 6%
  • Open to all investors
 Pros
  • Very low minimum investment ($10)
  • Open to non-accredited investors
  • Repurchase program provides some liquidity (fees may apply)
 Cons
  • REIT only has two properties as of this writing
  • Potential for significant fees paid to affiliated companies
  • Can only sign up through mobile app

Overview

This HappyNest Review will help you learn more about HappyNest's investment offerings, including how the alternative investments on HappyNest are structured, and what your potential returns might be. You can read more about the criteria we use to review investment platforms here.

HappyNest is among a growing crop of investment crowdfunding platforms offering a “public, non-listed REIT” (PNLR) leveraging various parts of the 2012 JOBS Act, including Reg A+.

HappyNest was founded by a West Point graduate with 10+ years of real estate experience, and brings a very consumer-oriented, mobile-first experience to real estate investing.

Like the other major platforms offering Reg A+ REITs, HappyNest features low minimums, and an easy way for non-accredited investors in particular to get broad exposure to commercial real estate, with both regular cash distributions and the potential for long-term equity appreciation.

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Types of investments HappyNest offers

The REIT you invest in via HappyNest invests in income-producing commercial real estate. The number of properties owned by the REIT will grow as more investors provide capital, but at the time of this writing the REIT has just 2 properties in the portfolio, one a FedEx freight truck terminal and distribution facility in Indiana, and the other a commercial property in Massachusetts with a lease to CVS Pharmacy. It would be nice for prospective investors to be able to see more information directly on the HappyNest website or app about current holdings before registering.

The investment strategy is described in their Offering Circular:

We aim to provide our investors with stable and predictable cash distributions with the potential for long-term growth through an increase in the value of our assets. We intend to focus on internet resistant retail assets in highly visible and accessible locations. We will seek investment opportunities with long-term net leases to credit rated tenants with corporate lease guarantees, contractual rent increases. Long terms are intended to protect stockholders from near-term economic risks.

What do you get when investing with HappyNest?

Investors in the REIT offered by HappyNest receive common stock, valued at $10 per share at the time of this writing. Investors are entitled to receive dividend distributions, subject to board approval and unlike some of the real estate investment crowdfunding investment choices, also receive some voting rights (one vote per share) along with their investment.

Investors in the REIT offered by HappyNest receive common stock in a Delaware LLC (priced at $10/share, with a minimum investment of 1 shares, or $10). The REIT in turn is the sole General Partner in a Limited Partnership, which is the entity that actually invests in the properties (often through yet another layer of special-purpose entity). The specific structure at work is known as an “UPREIT”.

How does HappyNest make money?

Part of the HappyNest value proposition is that they’re sidestepping many of the typical fees associated with REITs, in particular sales commissions paid to brokers (HappyNest primarily uses direct marketing rather than sell via brokers). Indeed, they advertise “0% broker commissions and 0% platform fees”, but prospective investors should be sure to understand the various ways that HappyNest (or its parents/affiliates) are or may be compensated. In particular, HappyNest has a Sponsor which has provided the initial capital to launch the offering, and it has an Advisor (which is wholly-owned by the Sponsor. The CEO of HappyNest is also the CEO of the Advisor, and is one of two principals of the Sponsor. These arrangements are not uncommon within real estate investments in general (and REITs in particular), but prospective investors should be aware of the potential for conflicts of interest:

  • The Sponsor is entitled to up to 3% of the proceeds from the overall offering as a reimbursement for expenses (which reduces the capital available for the REIT to invest)
  • The Advisor is entitled to a 0.0417% monthly asset management fee (equal to 0.5% annually), as well as 3-6% of the contract price for each property acquired, and an additional 3-6% of the contract price for each property sold
  • The Sponsor is entitled to charge account holders (investors) up to $1 per month as an administrative fee. It does not appear that HappyNest currently charges that $1 monthly fee, but investors (especially those considering low investment amounts) should be aware of the possibility.
  • If the Advisor also performs certain property management or other services, they are entitled to additional fees
  • Non-employee board members of the REIT are granted 5,000 restricted shares of common stock, along with an additional 2,500 shares annually, which effectively dilutes investors (again, not an uncommon structure, but something prospective investors should be aware of in assessing the overall fees and expenses that may affect their return)

HappyNest currently pays a quarterly dividend, subject to the discretion of company management.

All REITs are required to distribute 90% of their taxable income annually to retain the favorable tax treatment REITs receive from the IRS (in short, they don’t pay income taxes as long as they distribute at least 90% of their annual income back out to shareholders). HappyNest advertises a targeted “6% annualized return”, though actual distributions and performance will of course vary with the income and performance of the underlying properties owned by the REIT.

Like similar platforms, HappyNest also offers a dividend reinvestment program, though investors should note they must opt-out of the dividend reinvestment option if they prefer cash dividends (and there is only one opportunity annually to do so).

As with most equity real estate investments, the expected hold term for the HappyNest REIT is several years. HappyNest does offer limited redemption options if you want or need to sell your shares back early, but that is both subject to a range of restrictions and to a withdraw fee (for example, if you sell your shares back within fewer than 12 months, you’ll only get 97% of their value – or put another way, there’s a 3% fee for that early redemption!).

Potential returns and cashflow

Investors receive quarterly distributions, as authorized by the REIT’s board of directors. Also, all REITs are required to distribute 90% of their taxable income annually to retain the favorable tax treatment REITs receive from the IRS (in short, they don’t pay income taxes as long as they distribute at least 90% of their annual income back out to shareholders).

Breadth of offerings on HappyNest

As of this writing, HappyNest offers just one REIT option (“HappyNest REIT, Inc”). The REIT currently owns just two properties, one in Massachusetts and one in Indiana.

As more investment flows into the REIT, more properties would be acquired (though there is of course the risk that they receive capital to invest faster than they can sensibly deploy it, which would potentially drag down returns).

Regulatory framework and due diligence expectations

HappyNest is offering shares in their REITs to all investors, including non-accredited investors, under SEC Regulation A+.

HappyNest is offering shares in a REIT under Tier 2 of SEC Reg A+, which carries with it several mandatory disclosure and reporting requirements. Prospective investors can review the full SEC offering circular here.

REITs like the one from HappyNest are “blind pool” investments, so investors are not able to opt-out of particular properties, and are relying entirely on HappyNest’s judgment about which properties to acquire and all the terms of the purchase, any renovation, etc.


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