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Holdfolio Review

Summary

Holdfolio is among the the few real estate crowdfunding sites open to non-accredited investors. Investors purchase a debt or equity fractional interest in a portfolio of 10 single-family rental properties (or a single apartment building), in receiving fixed interest payments (with the debt investments) as well as a rental-revenue share and a profit-share upon sale or refinance. Worth a look for an adventurous and experienced real estate investor (especially non-accredited), but key downsides are regional scope and short track record.

Investor OverviewCompany Information

Pros

  • Open to non-accredited investors
  • Holdfolio retains "skin in the game" of 15-30% on each investment
  • Novel fractional investment in a group of single-family rental (SFR) investment properties
  • Detailed sample legal and financial docs available for review (once approved for the platform)
  • Excellent customer support and communications

Cons

  • High minimum investment ($10,000)
  • Narrow geographic operation (Indianapolis, Dayton, Cincinnati)
  • Relatively complex legal and operating structure for investments
  • Reliance on Rule 506(b) to include non-accredited investors may invite SEC scrutiny
  • Short investment track record
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Holdfolio Overview

Holdfolio is the effort of an ambitious local Midwest real estate company to scale up and attract investment from well outside their market. And while most of the crowdfunded real estate investment platforms actively avoid non-accredited investors, Holdfolio has embraced the nuances of Rule 506(b) that permit non-accredited investors into Reg D offerings under certain conditions (like Microventures, Holdfolio speaks by phone with every prospective investor, in part to fulfill their obligation to confirm "suitability").

Types of investments Holdfolio offers

Holdfolio offers fractional debt and equity investments in single-family rental properties and apartment buildings, currently all in the Indianapolis, Dayton, and Cincinnati areas. They purchase portfolios of homes with cash, and then sell fractional interest in those portfolios to investors, either as debt or equity investments.

What do you get when investing with Holdfolio?

Investors receive a membership interest in an LLC that owns a portfolio of single-family homes (or an apartment building), with terms that vary with each investment. There is typically a fixed interest payment, a rental-income revenue share, and a profit-share upon sale; there is no pre-defined time period for return of invested principal.

Holdfolio expressly permits investors to resell their share to another investor, subject to a right-of-first-refusal and their approval.

Holdfolio fee structure

There are no separate fees collected by Holdfolio from investors, but investors should read the fine print to be sure they understand how Holdfolio is compensated. Holdfolio acts as the property management company for their rental properties, and collects a standard percentage of the rent (typically 7-10%). For the debt investments, Holdfolio also retains 75% of the net rent after expenses (those expenses include both the property management fee and the interest payments) with the remaining 25% distributed to investors quarterly on a pro-rata basis. For the equity investments, Holdfolio retains 15-30% of the net rental income, with the remainder distributed to investors quarterly on a pro-rata basis. In both debt and equity investments, upon sale or refinance, Holdfolio retains 50% of the profits on the sale, distributing the remaining 50% to investors on a pro-rata basis. All listed and projected investor returns of net of expenses.

Holdfolio also reserves the right (along with its affiliates) to perform other services for the LLC that could reduce the net rental income on the properties.

Potential returns and cashflow

A typical Holdfolio debt investment includes a fixed annual return of 8%, paid in quarterly distributions. Investors also receive a pro-rata share of 25% of the net rental income (after all expenses), and a pro-rata share of 50% of the proceeds when the properties are sold. Equity investments do not have a fixed return, but include a higher share of the rental income, which is distributed quarterly. Holdfolio has a stated hold period of 3-5 years, but there is no defined hold limit on the properties. Their example models predict a 10-20% IRR for investors over the lifetime of the investment.

Breadth of offerings on Holdfolio

As a relatively small operator in a specific geographic market, there isn't a wide selection for investors to choose from. Once activated on the platform, investors can view full details (including all contracts and other investor docs) from one past debt investment, and view a high-level summary of other past investments. You can indicate an non-binding reserve interest in any upcoming investments, and at the time of this writing there was only one upcoming investment listed.

Regulatory framework and due diligence expectations

Holdfolio is offering its investments under rules 504 and 506(b) of Reg D, which permit up to 35 non-accredited investors under specific conditions (the more typical use of that 35-investor allowance is for friends and family, especially in the world of angel investing).

In terms of due diligence performed by the platform, Holdfolio itself already owns the properties in question, and in most cases without any debt financing, so a generous take on that is that if the properties aren't of sufficient quality, they won't be able to attract investors and will be left with their capital tied up in the properties, implying a strong motivation to source quality properties. On the other hand, investors (especially those who aren't from their area) are of course primarily relying on Holdfolio for information about those prospective properties.

Final thoughts

Two aspects of Holdfolio are notable and relatively novel among crowdfunding investment platforms:

  • First, they are embracing non-accredited investors within the confines of SEC Reg D, (albeit with the same kinds of minimum investment amounts typically found among platforms open only to accredited investors), which carries significantly lower reporting and compliance burdens than most other types of investment open to non-accredited investors, especially via Reg A+ and Reg CF
  • Second, they're offering exposure to single-family rental properties with an interesting combination of fixed-income payments, revenue share, and profit upside. That particular mix, especially spread across 10 SFR properties, would be difficult to find elsewhere for $10,000.

Holdfolio deserves credit for innovating and staking out some new terrain in what's becoming a crowded market of online real estate investment platforms. That said, innovations like these are not without risk, especially for a relatively small regional operator without strong financial backing. However, for a non-accredited investor with some experience with real estate and a comfort with the particulars of the profit and revenue sharing components in the context of the Indiana and Ohio markets, Holdfolio is well worth a closer look.

Holdfolio is a platform to watch, and if they're able to prove out their model, I'd expect to see copycats popping up in other markets, as similar regional real estate investment/management companies recognize an opportunity to scale up. You can read more about Holdfolio in our Q&A with CEO Jacob Blackett.

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  • Holdfolio
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  • Last modified: October 9, 2017

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