Real Crowd: 2021 Comprehensive
Review and Ranking
Probation (3 out of 10 stars)
What is Real Crowd?
IMPORTANT 2021 COVID-19 UPDATE: The investment repercussions of the global pandemic continue to change and evolve with unusual speed. As such, this review might be dated, no longer accurate, irrelevant and/or missing crucial information necessary to making an effective investment. For the latest and greatest information on analyzing investments in this new era, see the latest article in the series: "How will Covid-19 / Coronavirus Affect my Alternative Investment Portfolio?"
Update February 12, 2021: In the last update, Real Crowd had been downgraded to a 3 out of 10 and placed on probation after repeatedly refusing to remove an offering that made the impossible claim that investor money was "100% protected from loss". In January, the FBI arrested the manager of that fund and the SEC charged him with defrauding investors of millions of dollars on that investment (including one woman who allegedly lost her life savings).
Additionally, Real Crowd was also downgraded because volume appeared to have dropped substantially and many sponsors no longer provide a full track record in the pitch materials. This makes it much slower (and potentially impossible) for a sophisticated investor to do due diligence on their deals.
So a new survey was just done to see what the current investor sentiment is. When asked the question "Would you recommend that your friend or family member invest with Real Crowd?" 55.56% answered "yes", 33.33% answered "no" and 11.11% answered "not sure".
Some investors said they were happy with deals that were going according to plan and a smaller number claimed they were unhappy with deals that allegedly are doing poorly. Others claimed they were unhappy that Real Crowd had not acknowledged any responsibility for its role in the investment mentioned above (especially those who are facing a substantial loss).
Additionally the volume issues and lack of transparency with sponsor track record haven't seemed to improve since the last review. So, Real Crowd is staying "on probation".
Real Crowd specializes primarily in commercial real estate (CRE) investments. If offers both single property investments and multi-property funds, as well as both equity and debt deals. They also one of the few sites that increased their volume since last year. (More on these in the "pros and cons" section).
How does RealCrowd work?
RealCrowd gets deals from third party companies (sponsors), and puts them on their website for investors to purchase. They don't originate their own deals, and are more similar to a real estate crowdfunding Craigslist.
They don't charge investors an extra fee, because they make their money by charging the sponsor. This is a nice positive for investors and similar to Crowdstreet (and the opposite of Realty Shares which charges the investor). Note that on all of these platforms, investors still have to pay whatever fees, commissions and profit splits the sponsor charges on that particular deal.
They also allow direct communication with the sponsor, which is also a plus. Some competitors, like Realty Shares, set themselves up as a communication middleman, which can potentially cause a "game of telephone" where the information isn't relayed completely or accurately. Real Crowd doesn't do this.
Also, if the investment isn't paying according to schedule or there are problems with taxes, it's nice to have "one neck to wring", rather than a middleman where finger-pointing can occur. These are pluses for the Real Crowd model.
What are RealCrowd Pros and Cons?
Real Crowd was already in the top 6 last year for volume with 8 open investments (versus 1 for the average site in 2017). This year it was nice to see that they increased their investment volume to 13. This makes them one of the handful of sites in the industry to do this, and second largest in volume (behind Crowdstreet).
On the downside, the minimums tend to be steep at $25,000-$50,000 (versus the average of $5,000). So this may be an impediment to investors with smaller portfolios.
The due diligence materials tend to be on par with their larger competitor, Crowdstreet. This means that it's better than the vast majority of the industry. And at the same time, it can be hit or miss and a conservative investor with a thorough due diligence process can spend quite a bit of time gathering documentation and information that wasn't provided. Both of these sites lag the much superior
documentation on the #1 site in this area: 1031 Crowdfunding.
Adding to the potential difficulty for investors that do a lot of due-diligence, is that RealCrowd site's layout splits every tiny portion of the deal into a separate tab. I found myself doing many times more clicking than other sites, when attempting to pull the information I needed from different sections just to do basic analysis. And searching was impossible across tabs. Other sites will put all (or at least most of) their information on a single page, which is much easier to process. Hopefully RealCrowd will reconsider their layout in the future.
The site has a unique podcast that often presents very interesting and useful information for real estate investors. Obviously, any "interview" of a sponsor by the platform that gets paid by them suffers from an inherit bias. So the questions tend to be softball rather than the penetrating and insightful questions that many conservative investors might prefer to hear asked. And anything a guest says that might paint the industry, the site or a sponsor negatively is usually quickly "reframed". But despite its conflicts of interest, I believe it still contains information that many will find useful.
They also have a series of emails which claims to educate an investor on the basics of real estate investing, called "Real Crowd University". Much of it is a verbatim copy of what podcast guests said and are presented in whatever random order they originally happened to say it in. In my opinion, it would've been much more effective (and useful) had it been completely re-organized to be easier to understand and concise (like the competing, and in my opinion, much superior, Crowdstreet guide).
It also contains only a fraction of the information of the Crowdstreet guide. And while both of these platforms can't fully avoid the conflict of interest in creating so-called "educational materials" for their customers, Crowdstreet does it with a much lighter hand that feels much less forced. Many Real Crowd University emails said things which made me like I was reading an infomercial. Hopefully, they will take some notes from their competitor and go lighter on the self-promotion.
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.
RealCrowd Quick Pro & Con Summary
Advantages: Substantial investment volume, $1.6 million in venture capital. No extra platform fees charged to investors.
Disadvantages: Minimums at ($25,000 - $50,000) are significantly above industry average (average is $10,000).
Is Investing In RealCrowd Legal?
RealCrowd 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 RealCrowd deal look like?
Here is my step-by-step due-diligence on a random RealCrowd 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.
This investment is to purchase an apartment home called Stone Haven in New Braunfels, Texas and fix it up to improve the profitability (value-added strategy). It's projected to have 10% annual cash and a target IRR of 16% and a targeted equity multiple of 1.9x. The minimum investment is $25,000 and the estimated holding period is 3 to 5 years.
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 say that it does and dig in.
Sponsor experience: I believe we're getting near the end of the cycle, so I don't want to mess around with an inexperienced sponsor in case there's a significant downturn. Value-added multifamily is the most popular strategy and there are hundreds of deals to choose from. So I'm very picky and will only pick a sponsor that has full real estate cycle experience in this exact strategy, and didn't lose investor money in the last downturn.
It's difficult to tell if that's the case with the sponsor, because, like a typical pitch, it gives a lot of very impressive sounding but not actually precise or helpful information (such as "principals altogether have 30+ years of experience"). However, they claim they have been active since 2004. And if they were doing value-added multifamily since then, they would have full cycle. If so, that's potentially very good in my opinion.
If I were interested in this deal, I would ask them to send me their complete record (both exited and un-exited deals) to find out for sure. Then I would look to see how they did during the downturn. They do claim "100% of our deals are profitable", which might sound like the answer to the question. However, some sponsors will make this claim and "cheat" by only counting the deals that are exited (and the problem deals are in the un-exited category). So again, I would examine the complete record to find out for sure. If the sponsor is the real deal, that I would consider that a huge plus.
Skin in the game: the dirty secret of the real estate industry is that the waterfall compensation incentivizes sponsors to take risk. So conservative investors prefers the sponsor to put their own cash in the deal (skin in the game) which mitigates this issue.
This deal is at 5% which is on the very low end of what I normally consider okay from a sponsor (average is 5 to 15% and experience sponsors usually tend to put in more). I would rather see more, but if I loved other parts of this deal, I would overlook this. A more aggressive investor may not care, and would prefer lower skin in the game, since they want the sponsor be incentivized to try for the highest projected return.
Debt: at this stage of the cycle, I only want conservative debt at no more than 65% loan to value (LTV). This deal is at 67%, which is slightly over, but essentially the same. So I would consider this a positive for this deal.
I also only want long-term debt, because I don't want to be exposed to refinance risk if a recession comes in the short to medium-term (i.e. anything less than 7 years). (Many deals imploded in the last recession when they could not refinance). This deal has locked in long-term 10 year debt at 4.3%. So this to me is a huge plus.
Fees: 1% acquisition, 1% disposition, 3% property management. All of these are either average or on the low side of average which is great to see. The asset management fee is .0125%, subordinated to preferred returns. This is much lower than the typical 1%, and a very big plus.
Waterfall: the preferred return is 8%. However, the split after that is 60% investor/40% sponsor. This is not competitive with other offerings, as the average is between 70-85% for the investor.
As a conservative investor, I don't like the top-heavy waterfall compensation, because it gives the sponsor a financial incentive to take additional risk. This together with the low skin in the game, are a yellow flag to me. (Although I would overlook it if other parts of this deal offset at least some of this risk). For a more aggressive investor, this might not be a problem.
Strategy: this is Class A, which is the riskiest class to own right now. Class A occupancy is under pressure in many cities because it's the only class where the rents are high enough to allow competition from expensive new construction. (See "How Will All the Apartment Overbuilding End"?)
Since I'm very conservative, I only invest in Class A in areas where there is a significant impediment to new construction, such as unfavorable building regulations. However, this deal is in Texas where they are very pro-building. So this to me is a red flag (unless there are other significant impediments that I didn't see). Someone who is more aggressive, might be willing to take this risk.
If the investment had 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.
Personal Interactions with RealCrowd
In September 2017, I noticed that a Real Crowd sponsor (who I will not name) was pitching a deal where the 1st bullet point said: "Investor capital is 100% protected from loss.". Even the safest investments in the world (US treasuries), aren't 100% protected from loss, let alone much more speculative real estate investments. I notified Real Crowd, expecting them to simply remove that line from their site (if not to protect investors, then just their own reputation and the industry's). Instead, over the course of weeks, they oversaw the sponsor changing it slightly to say "Investor capital is fully protected from loss.". Then later the sponsor removed it from the bullet, but Real Crowd told me it would remain elsewhere in the offering. I felt surprised and disappointed.
UPDATE, 1/15/2021: The SEC has now charged that sponsor with fraud for that offering and FBI arrested him a few days ago: https://www.sec.gov/litigation/litreleases/2021/lr25007.htm
In June 2018, I ran into another issue with Real Crowd through the private investor club. We were very interested in a sponsor on the site, but our due diligence found they had a history of providing weak reporting. Fortunately, the sponsor verbally agreed to provide more detailed reports and access to their internal systems. But a few sponsors will say anything over the phone to try to close a deal, and then later back-track because all legal docs warn that verbal promises are non-binding. So several members ID'ed themselves to the sponsor (through the RealCrowd communication system) to try to get it documented in writing via a side letter. (And also to document other verbal promises).
At the time, a Real Crowd staffer was monitoring all communication and misinterpreted what was being asked for as claiming something inappropriate. They escalated it to management who apparently didn't understand either. (And who made numerous incorrect accusations about the club based on misconceptions of what they incorrectly believed 2 completely different and unrelated clubs were doing.). It required numerous efforts to explain, refocus and bring Real Crowd back to the point of the whole process (which was to complete a due diligence on their sponsor...which had previously been going well for weeks until they interfered). All of the delay and bad vibes from the drama spooked myself and others and was the start of the deal unraveling and falling through. And after this, I felt leery of dealing with RealCrowd.
Since this time, Real Crowd has changed their communication system. They now allow the investor to email the sponsor directly, and apparently are no longer monitoring communication. If that's correct, I consider this to be a positive development, since it removes the possibility of the same thing happening again. So I personally feel better about considering their deals in the future for my own portfolio.
Where can I discuss other RealCrowd 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 RealCrowd Competitors?
Here are the reviews and rankings for other similar sites.
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Code of Ethics: To maintain objectivity, I do NOT accept any money from any outside sponsor or platform for ANYTHING (including but not limited to 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 an attorney, nor an accountant, nor your financial advisor. 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.
Ratings 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 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 ratings. 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.
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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.