Update: We are keeping this review up for historical purposes, but RealtyShares is no longer active or is otherwise no longer accepting investments. In November 2018 RealtyShares announced they are closing to new investors after failing to secure further financing.
Founded in 2013, RealtyShares was one of the early entrants into crowdfunded real estate investing, and remains among the largest, financing more than $300M across thousands of properties (though they only list about 250 exited investments on the site). They’ve raised more than $35M in venture financing (and another $30M in debt), including backing from prominent VC firm Union Square Ventures.
Types of investments RealtyShares offers
RealtyShares offers a range of debt and equity investments in both residential and commercial real estate projects, including many that are “pre-funded”. Their advertised minimum is $5,000, but they frequently offer investments with $2K minimums (and occasionally as low as $1K), though those tend to sell out quickly. Equity investments usually have higher minimums, often $10-$20K.
They market directly to both borrowers and lenders, advertising a fast underwriting and funding process to prospective borrowers. With a pre-funded investment, investors may start seeing returns sooner, as they don’t need to wait for the campaign to finish raising money before the project (and associated interest payments from the borrower) can begin.
What do you get when investing with RealtyShares?
When you invest through RealtyShares, as with many crowdfunding investment platforms, what you actually receive is a membership interest in an LLC created specifically for the investment. The LLC in turn is what actually holds the equity, preferred equity, or debt interest in the property. For each investment you make with RealtyShares, you’ll receive a separate K1 at tax time to report your share of the income received by the LLC.
As with many of the crowdfunded real estate investment platforms, a debt investment is, strictly speaking, not actually secured by the underlying property. Instead you receive what RealtyShares refers to as a “payment dependent note” which entitles you to a specific share of the principal and interest payments received from the borrower on the mortgage.
How does RealtyShares make money?
The fees can vary based on the type of investment, but in general for an equity or preferred equity investment, RealtyShares charges 1-2% of the investment amount annually (aka an AUM fee). For debt investments, RealtyShares keeps a portion of the interest payments (known as the “spread”). For example, if an investment is listed as paying 9% interest to investors, the borrower may be paying 10% – the platform retains the difference as its fee. Read the investment details carefully to be sure you understand all of the fees before investing.
Potential returns and cashflow
Frequency and size of return and cash flow depend on the investment type. For debt investments, investors receive monthly interest payments (the loans are interest-only), and then a return of principal when the loan matures (or if the borrower pays off the loan early). Return rates vary by project, but for debt investments are consistent with other Reg D real estate platforms offering similar debt investments.
For equity and preferred equity investments, the details can vary, but in general investors receive quarterly distributions (monthly for preferred equity), and then an accrued payout at the end of the investment period. Payments and schedules are never guaranteed (and in some cases are up to the sole discretion of the deal sponsor, particularly for equity investments), so be sure to review the investment details.
Breadth of offerings on RealtyShares
Given their scale, it’s no surprise that RealtyShares usually has a large inventory of investments available. As of this writing, there were 9 open investments (a mix of equity, preferred, debt, commercial, and residential), and dozens more with a waitlist interested investors could join.
Like several other crowdfunding investment platforms, RealtyShares has a contractual affiliation with North Capital Private Securities, a Broker-Dealer registered with the SEC (you can see their entry in FINRA’s Broker Check service here). However, RealtyShares itself is also a registered broker-dealer (via one of their subsidiaries, FINRA Broker Check page here). Broker-dealers are subject to specific due-diligence requirements to ensure an investment is “suitable” for their registered customers, or they can face fines and civil action. (That does not of course provide any guarantees about investment return or performance!)
So while a broker-dealer platform will typically disclaim that they do not offer formal financial advice (even though they are entitled to), you can still expect that the investments they offer have been thoroughly screened, including things like criminal background checks on key executives and a detailed review of financial statements. You should of course do your own due diligence (including research outside of what you find on the platform.) There’s more about broker-dealers and other platform types over on our blog.
RealtyShares emphasizes their role in curating and selecting investments, stating that they accept fewer than 5% of proposed deals. While that should not be a substitute for your own due diligence before making any investment, it is a different approach than some other platforms offering similar investments, and which function more like marketplaces, offering minimal curation themselves.
This review was first published on 25 March 2017.