RealtyShares Review - Middle Market Real Estate Investing with Low Minimums
How can you invest in real estate without having to worry about managing property? Through crowdfunding. And with low minimum investment options, RealtyShares is drawing a crowd. Is it a fit for you? Find out in our review.
- Easy to use
- Low minimum
- Lots of investment options
PeerStreet makes investments in commercial real estate available to accredited investors for only $1,000 minimum investment. Some investors turn to PeerStreet to look for financing while others are looking for a return on their money. Instead of originating new loans, PeerStreet sources loans from existing private real estate lenders. These loans are vetted and secured by real estate. Loan investments include single-family residential buy-to-rent properties, single-family refinances, single-family value add, and bridge loans. You can read our full review on PeerStreet here.
Another option is ShareEstates, which does require accreditation but also has a $1,000 minimum investment. Like RealtyShares, it allows investments in commercial, residential, and even single family properties. It does have an ongoing account fee, though, which may not be ideal for your situation.
It used to be that only the wealthy could own real estate as an investment. Most middle-income families just buy a primary home. Maybe as you closed in on your golden years you could buy a second small vacation home on a lake somewhere. But the idea of investing–really investing–in real estate? That was out of reach for most average investors.
Enter crowdfunding. This idea has taken off for a variety of industries, including real estate investing.
Crowdfunding is the idea that multiple people can chip in relatively small amounts to invest in a project. You’ve probably seen it in gear with new business ideas on sites like Kickstarter. But when it comes to real estate investing, crowdfunding is also a great option. Multiple investors can kick in relatively small amounts of money but reap the benefits of investing in real estate.
One way to do this is through RealtyShares. This investing platform lets real estate operators raise capital and real estate investors chip in to make projects happen. And, of course, those investors can reap the benefits of the income the investments generate.
There are a couple of advantages to the RealtyShares approach. One is the relatively low minimum. You only need $1,000 for select investments to start building a real estate portfolio. The other advantage is diversification. In traditional real estate investing, all of your capital could be tied up for a time in a single property. That’s a risky proposition. With RealtyShares, you can invest your $1,000 (or more) in multiple properties, spreading out your risk.
Note that to open a RealtyShares account, you have to meet one of the following:
- A net worth or joint net worth with your spouse of more than $1 million (not including your primary residence);
- An annual income of at least $200,000 for the two most recent years or a joint income with your spouse of at least $300,000 for at least those years
- Accredited investor status
This process essentially just ensures that you understand the investing process and have enough money that you can afford to lose what you might invest through RealtyShares. Once you’re through the process, though, you can decide what types of investments you want to put your money into.
Middle Market Investments
Many large real estate investing options focus on high-dollar real estate. RealtyShares focuses on the middle market, which includes commercial properties valued at $50 million or less. This accounts for a huge portion of the commercial real estate transactions that take place annually. So tapping into this middle market can be a valuable way to boost the value of your portfolio.
The Vetting Process
One way that RealtyShares stands out is with its vetting process for investments. It only accepts about 10% of the projects that apply to get to investors through the platform. The process to onboard a new project is rigorous and includes five steps:
- Sponsor evaluation
- Asset evaluation
- Transaction negotiation
This process helps RealtyShares find viable projects that are most likely to get its investors good returns on their money.
RealtyShares has a good-looking dashboard. It gives you the ability to view a variety of investing options that are open. Each one has a minimum investment amount, which can be as low as $1,000. However, most investment minimums are $5,000, with some investments requiring more.
There’s no maximum amount for an investment. Some investors choose to invest the full amount being sought for a particular investment. However, you may have to jump through some extra legal hoops if you fund more than 20% of the total amount RealtyShare is raising for an investment.
When you’re on the dashboard of open investment opportunities, you can see the address and a photo of each property in question. It’ll give you the minimum investment amount as well as the total amount being sought and how much has been raised. The dashboard will tell you how long it will take for a loan to mature, and what your annual interest will be.
Some investments have more details than others, just depending on how complicated the deal might be. So be sure to pay attention to all the details and only invest in properties that you are comfortable with.
Right now, RealtyShares offers three basic types of investments, though each individual investment can vary a bit. The options are:
With this option, you actually hold an equity interest in an entity that invests in the company that owns the property. That sounds really complicated. What it actually means is that you share in the property’s profits, including potential appreciation.
This option doesn’t give you a fixed monthly return on your investment. Payments are distributed quarterly depending on the property’s earnings.
This option is the riskiest of the three but also has the highest potential returns, as well as some potential tax benefits, including pass-through depreciation and mortgage expense deductions.
When you invest in this option, you hold a priority equity interest in an entity that invests in the company that owns the property. As a priority equity investor, you get set payouts each month, though you don’t get as many potential tax benefits. This option is in the middle of the road for both risks and returns.
When you invest in this option, you help finance a property loan, which is generally secured by the property. You are typically entitled to interest-only payments, which you receive on a monthly basis. Because it’s secured, this option comes with the lowest risk, but it also has the lowest potential returns.
These are just the broad categories of investing options with RealtyShares. But there is also a lot of choice within these categories. You can invest in a variety of types of debt, including first-lien debt on real estate or second-lien debt on real estate. You can also get the details of specific projects in which you might be investing before you decide to put your money towards a project.
You don’t have to pay to register or look through the marketplace. The fees on equity or preferred equity investments vary. Usually it’s 1% of the aggregate invested amount in an annual fee, paid periodically over the life of the investment. This covers the legal fees for the investment, as well as the cost to RealtyShares of reporting and communicating with investors about the property.
For debt investments, RealtyShares takes a servicing fee. This is typically in a spread between the interest rate a borrower pays and the interest that investors receive. In other words, you don’t typically pay direct fees on a debt investment. You just don’t get the full amount of interest that a borrower is paying.
Each individual investment will have its own details for fees from RealtyShares, so be sure you check these out before you actually invest.
As far as taxes go, you’ll pay taxes differently on each type of investment and each investment type requires a different tax form. RealtyShares will send you the information you need each year to file your taxes.
Signing up for RealtyShares is a bit of a heftier process than signing up for some other investing platforms. Once you open an account, there’s a 30-day cooling off period before you can invest. You can, however, bypass this by filling out your total investor profile and then scheduling a phone call with the RealtyShares team.
The investor profile gathers basic information like your net worth, income, and whether you work in the financial services industry. It’ll take you about ten minutes to fill out. And then you’ll talk to a person from the team before you can start investing.
When you set up your account with RealtyShares, you’ll decide which bank account to link it to. When you have payouts available and want to transfer them to your bank account, you can do so whenever you’re ready. Since the link is already set up, getting your RealtyShares payments is quick and easy.
As with many of the best online financial platforms available today, RealtyShares uses the same 128-bit encryption that is used by many banks. RealtyShares itself doesn’t store your banking information in its servers, so you can rest assured that this information is secure, as well.
If you’re investing in debt securities, you also get FDIC insurance, as your funds will be deposited into a bank account with Wells Fargo, which is FDIC insured.
RealtyShares does not have a mobile app at this time. However, their website is mobile-responsive, so you can at least check out your account on your phone.
Digging around online, it’s easy to see that RealtyShares has mixed reviews for customer service. Some individuals have had good experiences, and many haven’t had great customer service experiences. RealtyShares does give you direct access to customer support on the phone, though, which is better than having to work exclusively via email.
As with all investing platforms, RealtyShares has its pros and cons. Here are some things to consider before you invest with this platform:
- Easy to use platform. The website and platform itself is very nice to navigate and easy to use, and it’s pretty intuitive. If you’re new to real estate investing, you can easily find the investments you want here.
- Low minimum. Generally RealtyShares investments will start with a minimum of around $5,000, which really isn’t much when it comes to real estate investing. But sometimes that minimum can go as low as $1,000, which is very accessible.
- Lots of options. With RealtyShares, it’s easy to diversify your portfolio. You can invest in a variety of ways, REITs, etc., and in different types of property. Many other platforms only let you invest in commercial properties, but RealtyShares runs the gamut from single family homes to commercial properties.
- Potential tax advantages. Some of the investing options from RealtyShares could come with tax advantages, which is great if you’re looking to add some tax advantages to your overall taxable investment portfolio.
- Not available to all investors — Even if you have an extra $5,000 or more to invest, you may not be able to use RealtyShares. You have to be an institution or an accredited investor. The platform is also only available to U.S. investors at this time.
- Doesn’t offer an IRA — If you want to invest some of your tax-advantaged retirement funds into RealtyShares, that can be difficult. You can work with them to invest through a different IRA custodian, but again, that can be challenging.
- Complex investments — In general, realty is a more complicated investment than most. So be sure you’re aware of the ins and outs. For instance, your investments aren’t liquid. There’s no way to sell your investments, so you have to stick with them until they mature. And in some cases, an investment may require more capital than has been estimated, so you might get a call for additional capital contributions to make the project work.
RealtyShares definitely isn’t for everyone. It opens up the real estate investing market to more people. But you still have to meet a high bar for income or net worth to be able to invest. This is, of course, for your own protection as an investor.
Still, though, before crowdfunding, many commercial real estate investments would have been out of reach for investors making $200,000 a year. With RealtyShares, you can add real estate to your broader investment portfolio. This means you can add diversicty and passive income to your investing strategy without buying properties–and managing them–on your own.
The fee structure can make RealtyShares attractive as long as you’re careful about the actual investments that you choose. The key is ensuring that you understand the individual investments–including the terms, potential risks, and fees associated with them–before you decide to make the investment.
But if you understand these details and make good choices, you could definitely be successful investing through this platform.
Note: RealtyShares is no longer accepting new investors. Here are some excellent real estate crowdfunding alternatives for you to consider: