Real Estate Crowd-Funding Drawing Thousands of Investors
Andy Feinstein says he's a property owner and manager, but has outsourced all they headaches that typically accompany being a landlord. The 45-year-old consultant, based in Washington, D.C., has a stake in an apartment complexes in Los Angeles and Mesquite, Texas, as well as a mobile home fund set up across the northeast. But he doesn't have to worry about collecting rent checks or dealing with troublesome tenants.
He's invested more than $50,000 through Realty Mogul, a crowd-funding platform for real estate investing, and says it's been well worth his while. He had formerly bought property in Blacksburg, Va., a college town, and says this alternative investment platform has given him less worries. "Just like with any real estate investment, you give away a lot of the responsibility," Feinstein says. "But instead of traditional investments, you get almost all of the same benefits--with less control--but also less headaches."
Feinstein is one of 10,000 accredited investors and a part of the $20 million in transactions Realty Mogul has done in the past year and a half. Investments are done once a property or loan's investment target goals are met, and in the case they are not, 100 percent of the cash is returned%VIRTUAL-pullquote-"People tend to minimalize how long-term the investment will be -- for you it may be five years, but for them, it could be 10."% to the investor. Feinstein says he gets between 8 percent and 15 percent return on his investments coming in annually.
Realty Mogul CEO Jilliene Helman, 27, started the company in September 2012, five months after the Jumpstart Our Business Startups Act was passed. The JOBS Act loosened restrictions on crowd funding allowing individuals to directly invest in companies.
"I saw this as an opportunity. It was the first the securities laws had changed in 80 years," she says. "I saw this insatiable desire from high-net-worth investors, and the best vehicle I know of to generate cash flow and income is real estate."
And Helman isn't entering the real estate world on a hunch -- she comes from a family of developers and investors. Her father on the industrial and commercial real estate side, and her mother on the luxury residential side of the business. The company can be compared to a private real estate trust, but for lower income levels as investments beginning at $5,000, she explains. Competitors include Prosper and Fundrise.
That was the draw for Brad Hopkins, 54, from Dallas, who liked the low barrier to entry and diversity in investment options. The manager at Supreme Funding Group, invests in real estate through his family business, and has done $70,000 in deals with Realty Mogul -- one retail shopping center in San Antonio and another single-family loan fund. He says there will be high growth returns on the shopping center of between 8 percent and 9.5 percent this year.
"There are always downside risks in [real estate] investments -- in this case, you have to manage the managers of the property. You want to go in and look at financial results every month, make sure it's heading in the right direction," Hopkins says. "Investing in real estate for where we are in our lifestyle, it's more stable and gives an above-average return than the stock market. We will absolutely use this to fund our retirement."
All investors are accredited four times, Helman says, and the company is regulated through the Securities and Exchange Commission as a FINRA broker-dealer, she adds. There haven't been any additional SEC hurdles to cross thus far for the new company, which has 33 employees. Properties are selected through a proprietary technology, she says to screen for both loan%VIRTUAL-pullquote- "We focus on cash flow-- we have distributed millions of dollars back to investors."% sponsor due diligence and real estate due diligence.
"We do reference checks on the companies we work with and the individuals we work with," she says. "We check the macro-economic environment as well as comparable properties in the neighborhood."
But investors should always perform their due diligence before investing their money in a platform like this, says JJ Burns, certified financial planner at J.J. Burns & Company. For starters, he advises individuals make sure they want to stay in the investment long term.
"Real estate investments are not always liquid or short-term," he says. "People tend to minimalize how long-term the investment will be -- for you it may be five years, but for them, it could be 10."
He also advises people research the principal founders of the platform. "Be sure you have done a background check on them: is there a trend in performance? This is important for people in regard to real estate litigation and civil fraud," he says.
Feinstein says as an investor he is cautious as to where he puts his cash, but trusts the platform will do him well.
"I wouldn't do a deal in Detroit," he says. "It's common sense, but Realty Mogul has the incentive to make sure these deals go well -- they can't afford to have one of these deals go back."
The goal is to make real estate investing easy and understandable for investors, Helman says. "We focus on cash flow -- we have distributed millions of dollars back to investors," she says. "We have cash flowing out of the system and live, eat, breathe and die by our investor base, and I think that's important."