Real estate is a popular way to diversify your portfolio away from the stock market. And thanks to the rise in real estate crowdfunding companies, it's easier than ever to invest in real estate without becoming a landlord or having large amounts of capital.
LEX Markets is a newer company on the block that's a perfect example. It lets non-accredited investors add commercial real estate to their portfolios, and the minimum investment requirement is only $250.
However, LEX Markets is a bit different in terms of structuring from your average crowdfunding platform. And it's not necessarily the best choice depending on the types of properties you're looking for. Our LEX Markets review is covering how this platform works so you can decide if it's worth your consideration.
Pros & Cons
What Is LEX Markets?
LEX Markets is a real estate securities marketplace that was founded in 2017. For investors, LEX provides easier access to individual commercial real estate deals to help diversify their portfolios. And for property owners, it provides an effective way to raise capital.
At first glance, LEX seems very similar to many other real estate crowdfunding sites. However, it offers individual commercial real estate opportunities, whereas many competitors offer funds of various properties. And since shares start at $250, it has a lower barrier to entry than some platforms that charge $5,000 to $25,000 or more for individual deals.
Additionally, LEX explains how only about 1% of applicants are actually listed on the platform due to its rigorous due diligence process. There's also certain requirements, like a $10 million minimum asset size and positive cash flow history, for an offering to get approved.
How Does LEX Markets Work?
LEX Markets is available to any U.S. investor over the age of 18, and there's no accreditation requirement. Once you sign up, you answer a brief questionnaire about your investing goals, risk tolerance, income level, and when you plan on investing.
From there, you can view and purchase shares for various income-generating properties. At the time of writing, LEX has two open properties with a third property coming soon. The company invests in commercial real estate like commercial buildings or multi-family homes. And, more importantly, buildings are already developed and generating income, so you don't have to wait years for a project to actually get developed.
Shares start at $250 upon property “IPO” but can then fluctuate based on supply and demand. And one unique aspect is that it securitizes assets so that shares trade just like you would trade shares of a REIT or stock. It has its own trading platform, the LEX Alternate Trading System (ATS), that's built with NASDAQ trading technology to allow daily trading.
When you purchase shares, you can see a breakdown of the property's loan-to-value ratio, implied valuation, 30-day trading volume, and declared distributions.
As you can see in the buy-order screen above, LEX's platform functions more like an online broker than crowdfunding companies like Arrived Homes or HappyNest do. However, the idea is similar in that it lets investors buy shares of income-generating properties.
How do Cash Distributions Work?
With LEX Markets, you invest in commercial real estate that's already generating income. This is different from some fractional real estate investment platforms that also offer residential real estate like single-family homes. However, the distribution process is similar to most crowdfunding platforms.
LEX calculates and pays cash distributions quarterly. According to LEX, “Distributions are calculated at the discretion of the property owner to allow them flexibility in operating the asset. There is no established formula but the distributions are generally derived from the net cash flows of the building after paying current expenses and servicing debt payments on the property.”
However, if property owners pay owners, including themselves, a cash distribution, they must pay shareholders at an equal rate. Cash appears in your brokerage account, and you can then withdraw your funds or invest in additional shares.
One feature LEX also stresses is that offers are structured as a publicly traded partnership (PTP). This means only some of the income is taxed as ordinary income. Investors actually receive a Schedule K which is used to report income, losses, and dividends for partners in a business or S-Corporation shareholders. This pass-through taxation is different from filing a Form 1099 many crowdfunding companies issue.
I haven't invested in LEX Markets at this time, so I can't verify how things break down come tax season. But the pass-through taxation model is one unique selling point the company stresses. If you plan on investing, consider talking with your accountant or familiarizing yourself with the differences in tax rules.
LEX Markets Fees
LEX Markets charges a 0.25% quarterly fee that's based on the trailing 90 days of market value for a property. This works out to 1% per year in annual fees. There aren't additional commissions or trading fees investors need to worry about.
Property owners decide if and what cash distributions to make on properties, and they can factor in various management fees before paying distributions. You can view a breakdown of fees and expenses on each listing to get a better idea of what operational costs there are.
Paying 1% is low in the world of real estate investing. But again, read financial statements carefully to gauge how operational expenses might impact distributions.
Since it has its own trading platform, LEX offers more liquidity than many real estate crowdfunding companies do. Investors can buy and sell shares when markets are open, and there's no minimum holding requirement or sale penalties.
However, take this liquidity with a grain of salt. At the time of writing, open properties have 30-day trading volumes of 102 shares and 140 shares respectively. This is very low trading volume, so liquidity isn't guaranteed. Investors should still consider this as a long-term investment unless trading volume shows steady growth.
How to Contact LEX Markets
You can reach LEX Markets by calling 212-941-2700 or by emailing clientservices@LEX-markets.com. The website also has a comprehensive FAQ section for both investors and property owners.
Is LEX Markets Safe?
LEX Markets is a FINRA-registered broker-dealer and is regulated by the SEC. This means it's licensed to facilitate securities transactions, which is why investors can trade individual shares of properties. And since it works with SIPC-member Apex Clearing Corp, you also get up to $500,000 in insurance on your securities and up to $250,000 on cash balances.
There are still risks to real estate investing, especially when dealing with individual properties. Cash distributions aren't guaranteed either, and share prices can go down in value. Sticking with commercial REITs or real estate funds can help lower your risk versus investing in individual deals. Ultimately, you have to do your due diligence and consider the risks of this type of real estate investment.
With no accreditation requirement and access to individual commercial real estate, LEX Markets differentiates itself from many of the larger players in the space. Its low 1% annual management fee and custom trading platforms are also perks.
However, LEX is a new company, and it shows when you look at the lack of current offerings. A lack of historical performance data is another unfortunate, inevitable hurdle new investing platforms have to deal with.
Thankfully, there are numerous alternatives you can use to invest in real estate if you want to use more established platforms.
|Account Fees||1%/year||None||1-1.25%/year asset management fee|
Fundrise is one of our favorite alternatives due to the low investment minimum requirement and lack of accreditation requirement. You pay 1% in annual fees like LEX, but Fundrise lets you invest in a variety of funds instead of individual deals. And the $10 minimum makes it great for investing in real estate without much money.
CrowdStreet and RealtyMogul are also excellent alternatives if you have more money to invest and want a variety of individual deals and funds. Just note that most deals on these two platforms are only available to accredited investors.
The world of real estate investing has become quite crowded over the past few years. Companies like Fundrise, CrowdStreet, and others still largely dominate the crowdfunding world. But we're also seeing newer entrants like LEX Markets, Arrived Homes, and plenty of others.
I think LEX is doing a decent job at differentiating itself with its low minimum investment requirement, individual commercial real estate deals, and how deals are structured. But right now, a lack of open investment opportunities and a limited track record are two downsides.
You can consider LEX if you want to diversify your portfolio with individual real estate holdings. But more cautious investors are probably better off with more established companies in the space.