The Real Estate Crowdfunding Review November 2019 Update
Updated: Feb 11
Comprehensive review of Roofstock One; Four club feeders onboarding; "How to evaluate sponsor compensation"; SEC clamps down on iFunding and KPMG for fraud; and more...
(Usual disclaimer: I'm just an investor expressing my personal opinion and not a financial advisor, attorney or accountant. Consult your own financial professionals before making any financial decisions. Code of Ethics: We do not accept any money from any sponsor or platform for anything, including postings, reviews, referring investors, affiliate leads or advertising. Nor do we negotiate special terms for ourselves in the club above what we negotiate for the benefit of members.).
New Comprehensive Review
RoofStock One Roofstock One is the latest residential real estate product from Roofstock. An investor in Roofstock One has the option to purchase a small portion of a rental property (versus having to pay for the whole thing in the original RoofStock). This is nice because an investor can get in at a much lower minimum. And another great improvement is that investors no longer have to take on the huge burden of the loan themselves (like they did with the original). This greatly reduces investor risk and hassle. This is a standard feature on other crowdfunding sites, and is a good to see here. And the debt itself is at a moderate 50-60% LTV which many moderate investors will probably like. Roofstock One also puts their own money on the line with 10% skin in the game. (Although this is only guaranteed for one year, which is arguably too brief to know if the investment is going to truly hit its projected numbers or not). The investor also has the ability to liquidate in six months. But this is limited by requiring the investor to know the person who will purchase from them, or through a non-guaranteed redemption scheme that Roofstock One may not be setting aside explicit reserves for (unlike competitors). On the minus side: bankruptcy protection is incomplete and there is no audit (which is unusual for a firm that claims $1 billion in transactions). Also certain information vital to managing crucial cost overruns seems to be missing. Additionally lack of transparency on performance, medium-term debt, limited time-span skin in the game and certain legal and financial structures may cause small to large concerns for others. (Read more...)
Private Investor Club Updates:
(Membership in the club is free, but requires verification that the investor has no ties to platforms or sponsors. New members can apply here.)
Club-only Feeder Fund Updates:
Feeders allow club members to access funds that significantly lower minimums than direct investment. They can also offer better diversification and simpler taxes.
Litigation finance isn't directly correlated to the business cycle and can provide good diversification and protection in a recession/downturn.
Experience: longest track record in the industry. Founders in this business since before the great recession.
Projected return: 18-20% IRR (net of all target, feeder fees and cash drag from reserves).
Minimums : $25k via feeder versus $5 million when investing direct.
Asset class is not directly correlated to the business cycle/recessions. This can be a nice protection and diversification to a portfolio during a downturn/recession
Strategy: Purchase life insurance settlement policies from individuals who no longer wish to pay for them (due to price getting too high, no longer needing it, immediate need for cash etc). Continue making the payments until the person passes away and collect the life settlement.
Experience: Sponsor is the largest and most experienced underwriter in the industry and claims best-in-class analytics and underwriting.
Projected return: 7.2-10.1% net (after all sponsor and feeder fees and reserves) uncorrelated to and with with lower volatility than US equity markets.
Preferential tax treatment: projected to be qualified dividends (taxed at just 20%).
Investment minimum:$25k via feeder versus $5 million when investing direct.
Debt fund sponsor (non-real estate related) that has an exceptional recession track record.
Employees and family have over hundreds of millions dollars of skin in the game, and it has won many industry awards.
#1 investment for members of Tiger 21 (investment club that requires $10 million in investments minimum and $30,000/ year membership fee).
$25k minimum via feeder (vs. $1 million minimum direct).
To protect the sponsor's confidential information, you must take an introductory phone call with them first, before receiving the pitchdeck, due diligence and Q&A. (More...)
This is a diversified multi-fund feeder-fund that invests in:
Very experienced sponsor in development and acquisition of office, healthcare, mixed-use and industrial development (often pre-leased to premier tenants).
Claims multiple real estate cycle experience (30 year track record) and zero investor losses.
A very experienced value-added multifamily sponsor in the West.
Claims multiple real estate cycle experience and zero investor losses.
Conservative leverage and high skin in the game (10%+).
Very favorable tax treatment (passive "super shielder").
Offers investors a fairly unique chance to 1031 exchange at the end of the investment into another one to indefinitely defer ALL taxes. (More...)
Here's a list of all of the other current club feeders. (More...)
News and Analysis
Is that Sponsor Taking Fair Compensation? Or Ripping Me Off? What's normal and what's out of line? Are there times when I should be willing to pay more? This article explains how I evaluate these things. https://buff.ly/35iU63O
SEC rules that William Skelley and Sohin Shah, the co-founders and senior executives of iFunding illegally diverted more than $1 million of investor funds for their personal use. https://buff.ly/2JOEDP5
SEC Fines "Big 3" Accounting Firm KPMG $50 Million for “Astounding” Misconduct" https://buff.ly/2WVw26O
Thank you Bobby Sharma for interviewing me on your Higher Profits podcast. I got a chance to talk about one of my favorite subjects: due diligence of crowdfunding platforms and investment deals. https://buff.ly/2KjfgG2