Downside to R.E. Crowdfunding!

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Chronological Order of Events:

11/09/2016 … I invested $40,000. in a very promising Real Estate Crowdfunding project offered by RealtyShares .  It was a a privately-listed REIT that invested in residential development promissory notes, offering a 13.5% interest rate (net of fees) payable on a monthly basis for a 30-month holding period, the notes would come due and original principal paid back to investors.  The Fund planned on purchasing, renovating, leasing, and exiting single-family and multifamily homes located in Eastern Michigan.  As risky a this sounded at first, it was actually a value investor’s dream!  Detroit, MI had gone through a crash; it terms of the local economy, the jobs market, businesses and property values (the downside was and still is very limited, with huge upside.

02/28/2018 … The fund paid like clockwork from that period until February, 2018.  We finally were paid but it was delayed due to a problem with the out-going wire transfer.  This concerned me a little but hey; they paid and it was a one time event, they deserve the benefit of the doubt.  After-all, shit happens….sometimes!  HOWEVER, just because their February 1st payment on February 28th, their next monthly payment would be due on the following day, March 1st….

04/01/018 … The fund sponsor- Invest Detroit, LLC is an affiliate of JWE Equity, LLC (“JWE”) have yet to submit 2017 Q4 financials to RealtyShares AND so far no March payment has been paid.   At this point I am getting pissed off and sent a lengthy, inflammatory email to Realtyshares voicing my concerns.

TODAY 04/20/2018 … Investors were notified that despite attempts to contact sponsor concerning the incomplete Q4 2017 financials and the missed payment, RealtyShares will pursue legal action AND consider this a default event.  Ponzi scheme?  Smells like the fund sponsor, “JWE” possibly is….

As with any investment, real estate crowdfunding is not risk free.  To be fair I’m invested in several projects across various platforms with great success, though this one is the exception.  What recourse do I have as an investor?  None.  Why?  From investment offering:

 The servicing by the Company of amounts owed under the Notes will be entirely dependent on payments made to the Company under the terms of its preferred equity investment in the Fund; the Company will have no other assets from which to make payments on the Notes. 

I am confident that RealtyShares will place tremendous pressure on the sponsor and do everything possible to make us whole or capture as much as possible, since this a “preferred equity” investment.  Frankly, RealtyShares cannot afford negative publicity.  Case in point, this article.

Lesson here?  Accept the risks that are explained in the investment offering documents. Get to know your platform provider as there are several quality providers:

Trueline Capital

Crowdstreet

I’ll keep my readers updated on the development of this investment.  Until next time, enjoy this Spring weather we’re having.  I think I’ll pour myself a Makers Mark Bourbon

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12 thoughts on “Downside to R.E. Crowdfunding!

  1. Thanks for sharing a not so rosy perspective. There is a lot of buzz around the RE crowd funding space and I think it is important to have everyone understand that not all deals are created equal. Sorry to hear about that one I hope they get them to cough something up.

    1. Thank you for the reply. I’m on vacation in a italy and only checking emails and replies on an infrequent basis. I do have an update: Realtyshares informed investors that they received the late interest payment and will be distributing it to us this week (my monthly share of it is $450) and the sponsor will soon be providing their financials as well. Frankly, I’m anxious for this project to mature and end which will be in early 2019.

  2. Glad I read this I was looking at investing in them. I have even opened an account. My other option was looking at purchasing investment property in California where I love but in November there is going to be an initiative for state rent control which I believe will pass.

    1. Hi Mark,
      It’s not all bad but you must do a great deal of due diligence and invest in several offerings across the country to diversify. Personally i like CrowdStreet offerings better than the rest. Realtyshares have had their issues. Be careful there!

      1. I’m on crowdstreet’s email,list and I review their new offerings each week. Lately though I’ve been invested with http://www.peerstreet.com
        They’re shorter term, have low LTV’s and you can cherry pick individual deals.

      2. I also do Peerstreet but they are only loans, no real estate sharing in equity deals. I am on automatic with the,.

      3. So true about peer street but the loans I consider less risky because they don’t tie up your cash for so long. Look for an upcoming article I’m publishing at “campfire finance” on crowdfunding.

  3. Yikes! I get nervous about individual deals on crowdfunding sites. So far, I’ve only invested in Fundrise’s eREITs and RealtyMoguls private REIT. So far so good, though the returns are not spectacular…about 8% or so.

    1. I don’t care for eReits. I actually prefer individual deals. This was a one off event and guess what, the sponsor Realtyshares collected the back payments for us. The developer is caught up and no more issues.
      CrowdStreet has terrific individual deals. It would behoove you to take a look at so eindividual deals.

      1. I’ve subscribed to the individual deals…they do look interesting and seem to provide significant value. I guess I like the eREIT to spread the risk around multiple assets vs. putting it all in an individual deal. I realize I pay for that in lower returns. Also, the minimums for the individual deals are much higher than the eREIT….i can’t afford the individual deals right now 🙂

      2. I get it Jake. CrowdStreet has a minimum of $25k for most deals, some even more. I’m looking for high cash flow so I’m Need the individual deals, and I’m spread across seven separate deals. I have a larger stake in R.E. Crowdfunding than Inam in the stock market!

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