Holdfolio: Comprehensive Review and Ranking
#17 (out of 100+) Last year ranking: None
What is Holdfolio?
Holdfolio specializes in equity investments in multifamily value-added deals (and formerly single-family residential rentals although they appear to have moved away from that). Each deal is a single property (i.e. there are no multi-property funds). Projected returns vary from 15 to 19% IRR.
Full bankruptcy protection and skin in the game are pluses while very low sponsor experience may be a deal-breaker for some. Volume is exceptionally low compared to other platforms and minimums are a little higher. (More on these in the "pros and cons" section).
How does Holdfolio work?
Holdfolio sources all of its own deals. So on one hand, there is no additional fee which some platforms who source third-party deals charge. Also, you have direct access to speak to the sponsor (since the platform is the sponsor) which can make communication easier than it is with those (few) platforms who choose to put themselves in between the investor and sponsor.
On the other hand, it does mean that there has been no additional level of third-party due diligence done, as some other companies claim they do, to vet the deals.
What are Holdfolio Pros and Cons?
Advantages: Platform claims to co-invest an average of 4 to 10% of equity in each deal, with full bankruptcy protection.
Disadvantages: Exceptionally low volume. Minimums are average to a bit high at $10,000-$15,000. (average is $10,000). Very light experience. Unnecessarily difficult to read the due diligence documents via the viewer.
Accolades: Platform co-investment
If Holdfolio typically coinvests, as they claim, 4 to 10% of the equity in its deals, that is excellent. Skin in the game is one of the best ways to mitigate the fact that the sponsor promote compensation structure otherwise incentivizes sponsors to push the risk envelope.
It also has full-featured bankruptcy protection including bankruptcy remote LLC's and the ability for shareholders to vote on a new administrator should Holdfolio go bankrupt.
The fees range from average to higher than average (see the analysis of a sample deal below).
The platform's biggest weakness is the extreme lack of volume. Currently, there is only 1 deal on the site, and in the last couple months beforehand, there were none. So an investor who is regularly checking the sites for investments may find it frustrating to keep checking Holdfolio.
Since the platform is also a sponsor, its biggest flaw to many may be the fact that they don't appear to have much experience in multifamily (perhaps a couple of years). With so many much more experienced sponsors to choose from in multifamily, some investors may find it difficult to go with Holdfolio.
Also, the due diligence document viewer on the site is extremely awkward and frustrating to work with. Anyone actually reading the documents will be forced to hit the scrollbar numerous times just to read a single page. With a document that might be 80 to 90 pages, this gets annoying very quickly. Hopefully they will be fixing this sometime soon.
Also, the minimums are average to a bit high at $10,000-$15,000. (The average is $10,000).
For more raw data on the site (including investor and sponsor fees, legal structure etc.), or to easily compare it with the data of competitors, see the feature by feature comparison matrix.
Is Investing In Holdfolio Legal?
Holdfolio markets to investors under 506C, meaning that it's only available to accredited investors. Since it is not using 506B, new investors are able to view investments immediately and there's no 30-day waiting period. Since it is 506c, it also requires investors to prove their accredited status (and update it periodically).
What does a Holdfolio deal look like?
Here is my step-by-step due-diligence on a random Holdfolio investment. So it may or may not be a typical investment. Also I'm a very conservative investor, so something that's way too risky for me might be the perfect fit for someone else who is more aggressive. Finally, I'm not a financial advisor, attorney or accountant. So this is just my personal opinion and always consult your own financial professionals before making any financial decisions.
The investment is an acquisition of an 80-unit multifamily property located in Louisville, Kentucky. The property is currently 57% occupied and consists of 16 one bedroom and 64 two bedroom apartments. Projected IRR is 14.6 to 21.3%. Minimum investment is $25,000. The term is indefinite.
The first step is to make sure that the asset class and strategy even make sense for my portfolio. (If you don't know how to do this, please see The Conservative Investor's Guide to Due Diligence). Let's assume that it does make sense for me, and dive in.
Sponsor experience: as a conservative investor and someone who believes that we are late in the cycle, I don't want an inexperienced sponsor learning expensive mistakes with my money. In a mainstream asset class like value-added multifamily, I require full real estate cycle experience in that exact strategy with no money lost.
The offering documents are not complete enough to detail the historic track record of HoldFolio. If I were interested in this deal, I would follow-up and find out the complete performance of all of their past multifamily deals (both realized and unrealized).
However, there are some clues in the history of past deals of the website. The vast majority appear to have been single-family housing, and they more recently moved into doing multi family. This would be only their third deal, and apparently all have been within the last couple of years only. If this is accurate then for me this would be a red flag. An investor who's more aggressive or who is not concerned about a downturn may not have an issue with this.
The other two multifamily deals that they did were also around the same size as the current offering (very small: around $1 million). So that is better to see, than to see them stretching into something completely beyond their past experience.
Skin in the game: as a conservative investor, I want to see considerable skin in the game (5 to 10%) to offset the fact that the promote structure incentivizes the sponsor to take risk. If the sponsor doesn't have much money, I at least want the skin the game to be considerable to them. In this case they are putting in $50,000 or 4.7%. That to me is a little low but probably okay.
Debt: At this stage of the cycle I require conservatively underwritten debt at 65% LTV maximum, to minimize the risk of a complete collapse in a downturn. This deal is at 70% which to me is either a yellow or red flag. I would have to really love everything else about this deal to go forward. An investor who is more aggressive or not concerned about a downturn might be fine with this.
To eliminate refinance risk and interest-rate risk, I require long-term debt (7 to 10 years) at a fixed rate. This debt is a seven-year term which to me is a big positive. The interest rate is not fixed however and is an adjustable rate mortgage. For me this is a red flag. Someone who is not concerned about the risk of interest rates going up might be fine with this.
Fees: 2% asset management fee is well above average. (1 to 1.5% is average). The other fees are within average ranges (acquisition fee of 3%, disposition fee of 2%, construction management fee of 3%).
Profit split. The typical crowdfunding/syndication deal has a preferred return between 5%-8% and the investor is entitled to that before the sponsor starts to take any of the profit. The conventional arrangement is fair because the investor is the one putting up all the capital, and is entitled to first dibs.
However, there does not appear to be any preferred return at all listed in the operating agreement. If that's correct, then this is equivalent to a 0% preferred return, which is extremely uncompetitive. For me this would be a red flag, but someone who really likes the sponsor might be fine with it. The other issue I have with any above average promote is that it incentivizes the sponsor to take more risk.
HoldFolio appears to start taking its cut on distributions right away with an 88% investor/12% sponsor split. The investor is getting a little bit more than average (typically 75% to 85% investor). However, when combined with the lack of preferred return, it is not competitive with other options.
In this case, there is also a clause that says that after the investor gets back all their capital, the split degrades to 40% investor/60% sponsor. I look at hundreds of deals monthly and can't remember ever seeing an investor split on a multifamily deal this slanted against the investor.
Maybe someone might argue that this has a very low chance of kicking in because it requires a very high level of distributions in order to happen. The counterargument is that it wouldn't be in the legal agreement if there was no chance of it happening. For me this is another red flag, although others might disagree.
When the sale occurs, after the return of capital the split is
70% investor/30% sponsor. This is on the low side of average (70 to 85%) and in my opinion is fine.
Miscellaneous: Holdfolio is probably one of the most difficult sites in which to read legal documents. Rather than displaying them in the full browser like others do, they instead show them in a tiny lightbox. So for example, to read a single page, you have to scroll several times. This is beyond irritating when you have to read something that is 70 or 80 pages. Hopefully they will change this soon.
If the investment passed all my initial checks, I would have dived in further to check out the sponsor, the property itself, the projections, etc. To learn how I do those things, check out The Conservative Investors Guide to Due Diligence.
Where can I discuss other HoldFolio deals?
You can do this with thousands of other investors in the private investor club. While the club is free, membership is restricted to investors who have no business connections to sponsors or platforms. Also, all members must agree to keep all club info confidential by signing a nondisclosure agreement. Click here to join or get more info.
Who are HoldFolio Competitors?
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Code of Ethics: To maintain objectivity, I do not accept any money from any sponsor or platform for anything (including affiliate ads, advertising etc.). See code of ethics for more.
Personal opinion only: All info is my personal opinion only as an investor. I am not a registered financial advisor, attorney or accountant. Always do your own due diligence and consult with your own licensed professionals before making any investment decision. Information is believed to be correct but may have errors, so use at your own risk. If you find an error, please let me know.
Rankings/rating are general: In my opinion, every investor comes from a different risk tolerance and financial situation, so there's no such thing as a single investment or platform that's great for everyone. There are many deals that aggressive investors love, which I won't touch, and vice versa. And every investor has their own way of doing due diligence. I believe there's no one right way to do it.
So, the site rankings/ratings are based on criteria which I feel are important to the broadest range of investors (transparency, volume, bankruptcy protection, etc). And even though I have my own personal, conservative, due diligence method (and talk about how the site's deals measure up in the "deep dive section"), I don't use my personal criteria as a factor in the rankings. So for example, a high ranking/rating doesn't mean that I would personally invest in a site (and vice versa). Click here to see what's in my own portfolio.
About Ian Ippolito
Ian Ippolito is an investor and serial entrepreneur. He has been interviewed by the Wall Street Journal, Business Week, Forbes, TIME, Fast Company, TechCrunch, CBS News, FOX News, USA Today, Bloomberg News, Realtor.com, CoStar News, Curbed and more.
Ian was impressed by the potential of real estate crowdfunding, but frustrated by the lack of quality site reviews and investment analysis. He created The Real Estate Crowdfunding Review to fill that gap.
Have you used the above site before? What was your experience?
This site has been ranked and reviewed as part of our in-depth, 100+ site industry review. All data is believed to be correct, but may have mistakes. Please contact us if you notice one. All non-data (including rankings, investor comment summaries, etc.) are my opinion only. I'm just an investor and not an attorney, accountant, or certified financial advisor. To maintain neutrality: I do not own a portion of any of the companies reviewed.