Review of: RealCrowd
Reviewed by: Ruth Lyons
Last modified: September 25, 2017
RealCrowd is a commercial real estate crowdfunding platform. Although there are limitations on who may invest and there is some inflexibility that would make the service unappealing to some real estate investors, RealCrowd offers a wide selection of deals chosen with strict standards.
A few years ago, crowdfunding real estate platforms didn’t exist. Now companies engaged in some form of this industry are popping up weekly. Some are focused on residential real estate investing, while others concentrate on commercial and still more offer both.
While each one of these platforms owes its marketable existence to the same two pieces of legislation, Title II and Title III of the Jumpstart Our Business Startups (JOBS) Act, their individual approaches differ.
Three broad categories seem to be emerging:
- Real Estate Funds Augmented by Crowdfunding Tech — Under this approach, the investment is structured as an LLC, which will in turn invest in another LLC that purchases the property (creating a fund of funds).
- Localized Crowdfunding — Another approach has been to “de-abstract” real estate assets for investors. These platforms present real estate investments as tangible property, on a real street, with real connections to the physical world and to the community it’s situated in. The selling point for this approach is that regular people who live in or near a community have insider intelligence about properties that non-locals don’t have access to.
- “Pure” Platform — What this means is that the CFRE is providing the technology and forum that real estate sponsors and investors need to connect, administer, invest and transact. RealCrowd is a “pure” platform, meaning they aren’t broker/dealers, and they never take possession of customer funds or securities and receive no compensation in connection with the purchase or sale of the investment.
RealCrowd is headquartered in Palo Alto, California. The company was founded with an undisclosed amount of seed money and has since raised $4.5 million in venture capital. The company has done more than 128 real estate investment deals totaling $134 million in equity funding since launching in late 2013.
The founders envisioned an open marketplace where sponsors and investors make connections, grow networks, carry out transactions and do deals without all the institutional intermediaries and encumbrances that existed in the pre-JOBS Act era.
As CEO and Co-Founder Adam Hooper explains, “Instead of inserting another layer of management — a source of overhead and justification for fees — our goal is to remove all possible inefficiencies in the relationship between operator and investor.”
According to Hooper, RealCrowd is distinguished as having set the largest raise of any crowdfunding opportunity where one of the funds on the platform raised $24.5 million. They have also brought their network of 15,000 members access to $3.25 billion in real estate opportunities.
RealCrowd does not form intermediary LLCs and is not a registered broker/dealer, therefore it does not provide investment advice or recommendations. RealCrowd does screen sponsors using strict criteria to ensure deal quality for their investors. At an absolute minimum, the sponsor must have at least 10 years of principal level experience and a minimum of $50 million of transaction experience as a principal. “This doesn’t allow for a VP of some larger company to go out on their own and immediately start to begin raising money from the crowd,” according to Hooper. In addition to these minimums, RealCrowd reviews the sponsor track record (bankruptcies, foreclosures, litigation, etc.) and requires lender references. The average real estate sponsor on RealCrowd has over $800 million of transaction experience.
|Investment Length||36 - 60/months|
|Offering Types||Debt, Equity|
|Property Types||Commercial, Residential|
|Regions Served||50 States|
- IRA Option — It’s possible to invest via a self-directed IRA with RealCrowd.
- Investment Liquidity Terms — RealCrowd opportunities typically range from three to five years.
- Funds or Specific Properties — On RealCrowd, you’ll find both offerings to choose among.
- No Fees for Investors — Fees are never charged to investors. The real estate sponsors pay RealCrowd a fee to be listed on their platform.
How RealCrowd Works
In any investment deal on RealCrowd, there are two parties: Sponsors, the real estate operating companies looking for funding, and Investors, who must be accredited.
Investors are given access to inspect and browse through offerings on real estate investment deals, including all materials, due diligence, and legal documents.
The steps to getting started as an investor are relatively simple:
- Set up your free account and start browsing deals — Once your profile is finished you are able to begin viewing the latest investing tips and deals that are posted.
- Review investment deals — You’ll find both direct property investments and fund investments. The sponsors pay the advertising and technology licensing fees for the service.
- Choose your investment(s) — You can choose to invest in a specific property or in a fund on RealCrowd. Each investment opportunity is categorized according to projected risk versus return. You pick the one(s) that suit your personal goals and invest in them through the platform. All of the electronic signatures, communications, and document delivery and storage with your investment partner are handled by the dashboard on RealCrowd’s platform.
Each commercial real estate opportunity hosted on RealCrowd falls into one of four categories that correspond to the risk and reward inherent in the different types of deals: Core, Core-Plus, Value Add and Opportunistic.
- Core: Lower Risk/Lower Return. The most conservative and lowest risk of the four classifications, core property investments utilize lower leverage and tend to generate predictable cash flows. The properties are often positioned in strong markets, like thriving metropolitan areas, and are easily financed. RealCrowd calls this category “the wheelhouse of conservative income seekers.”
- Core-Plus: Moderate Risk/Moderate Return. Core-Plus properties are also located in areas with a strong tenant base and generally have few to no issues with securing financing, The difference is found in a limited elevation of risk and potential for increased NOI, like upcoming lease rollover or light value-add opportunity.
- Value Add: Medium-to-High Risk/Medium-to-High Return. This class is characterized by the opportunity to improve the investment in some way. This improvement often comes in the form of enhancing the physical property itself or increasing the operational efficiency.
- Opportunistic/Development: Higher Risk/Higher Return. These properties require “enhancement” in order to generate the expected level of returns. Enhancement can range from ground-up development to redeployment of existing structures.
|Fees||None||0.30% - 0.50%/year||0-2% setup fee|
|Review||—||Read the Review||Read the Review|
Pros and Cons
- Invest Directly in Specific Properties — RealCrowd is not a middleman but provides the marketplace for you to have direct access to established real estate deals without adding a management level and fees.
- Transparency and Direct Access — All the documents that you need to perform due diligence, electronically sign deals and file related taxes are online and accessible 24/7.
- Ready Access to a Wide Selection of Deals — RealCrowd aims to have between 6 and 10 deals available at any given time to provide ample opportunities to diversify your investments.
- Free — Investors are not charged asset management fees, upfront fees, carried interest fees or any other fees.
- No 30-Day “Cooling Off” Period — Since offerings on RealCrowd are structured in a way that allows for general solicitations or public advertising, there is no SEC-imposed mandatory waiting period.
- High Underwriting Standards for Sponsors — While all the real estate crowdfunding platforms tout high standards, the caliber of sponsors on RealCrowd seems to be the big guys (funding $150 million to $4-5 billion properties) that are well-capitalized with experience and favorable track records.
- Accredited Investors Only — You cannot invest via RealCrowd’s platform unless you’ve been approved/verified as an accredited investor.
- No Secondary Market — There is no secondary market for RealCrowd investments. If you invest, you are in it for the duration of the agreed-to term.
- Deals Are Not Pre-funded — Like most other sites, RealCrowd doesn’t give the money to the sponsor until enough investors pony up to fill the offering. That means you have to wait until the deal is successfully sold to every investor. If the offering doesn’t get filled, you won’t be able to invest, even after waiting.
RealCrowd has a lot to offer, especially considering that investors pay no fees to participate and use their platform. (Other CFRE platforms charge upfront fees, 1-2% annually for asset management and may even take a percentage of the profits when the deal is complete.) RealCrowd makes investing in commercial real estate easy by automating every aspect of the deal that you enter in with the business partner. They offer a high level of transparency — you are able to speak with the owner of the business who is raising the funds to ask your questions directly from the source.