Real Estate Crowdfunding Experiment #3: Apartment 6-Plex in Wisconsin with RealtyShares

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Here are details of my 3rd real estate crowdfunding investment, a $2,000 loan for a 6-unit apartment complex in Milwaukee, Wisconsin. This follows my $5,000 Patch of Land loan in a single-family house in California, and a $2,000 Fundrise Income eREIT investment into their diversified basket of commercial properties. Here are the quick stats:

  • Site: RealtyShares
  • Property: 6-unit, 6,490 sf multifamily in Milwaukee, WI.
  • Interest rate: 9% APR, paid monthly.
  • Amount invested: $2,000.
  • Term: 12 months, with 6-month extension option.
  • Total loan amount is $168,000. Purchase price is $220,000 (LTC 76%). Estimated after-repair value is $260,000. Broker Opinion of Value is $238,000.
  • Loan is secured by the property, in the first position. Also have personal guarantee from borrower.
  • Stated goal is to rehab, stabilize, and then either sell or refinance.

Property details. I chose this property because it is different from my other past “experiments”. I have never lived in or visited Milwaukee, Wisconsin. Where I live, parking spaces have sold for more than this apartment complex. As a result, I have never invested in an apartment complex. Also, reading through the other properties in the developer’s portfolio, I suspect the goal is to eventually refinance and then keep these as cashflow rentals. All units are 2 bed/1 bath, currently fully rented for ~$600 a month each. I don’t know the net operating income numbers, but this place earns roughly $43,000 in gross annual rents with a purchase price of $220,000. Annual property taxes are $3,000 a year. Even if half of the rent is spent on expenses, that is still a cap rate of 10%.

realtyshareslogoExperience so far. At least for this investment, it was not “pre-funded” by RealtyShares before the “crowd-funding” takes over. That means you have to wait until they secure enough committed money before the deal can go forward.

My timeline… I committed to this loan in December 2015 and $2,000 was debited from my Ally bank account on 12/29/15. However, the funding goal was not reached until 1/13, during which I earned no interest during this two-week period. I was then told the following:

We are writing to inform you that we have received all investor funds as of today, January 13, 2016, for the 135 E Keefe Avenue investment. You should expect to receive your first monthly payment by February 15th and this will cover the period from 1/13/16 to 2/10/16.

My first monthly interest payment did not arrive until another two weeks later on 3/3. My subsequent interest payments were posted on schedule on 3/17, 4/18, and 5/15. Due to the fact that there was no pre-funding to get the ball started early, there was essentially 3 month period between the time where they first took my money and I received my first interest check. Other than the interest payments, I have received no property updates since January, although I don’t necessarily expect any at this point.

As I’ve said before, this is an experiment, not necessarily a recommendation. I am learning that although I do like loans backed by hard assets, you do need a lot of patience with these sort of investments.

Some account screenshots:

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Comments

  1. Steve Yuroff says:

    Does this investment qualify as a REIT, therefore your income is taxed at your marginal rate?

    • This specific transaction is a debt transaction where I get paid interest that is reported on 1099-INT and taxed at ordinary income rates (not dividend rates).

  2. Hey John –

    RealtyShares is a lot like iFunding and RealtyMogul – they aren’t prefunded and you will have a bit of a wait until the funding goal is reached. I have only found Patch of Land to be “instant”. I have investments in both IFunding and RealtyMogul. These also have a wider range of commercial properties, and the ability to participate in the equity side of the asset. Both have been very transparent with detailed financial information on the investments I chose, and are paying as forecasted. You may want to look into the Pintar Residential Fund from RealtyShares. This is a good way to diversify across property types, equity/debt deals and geographies. Rather then invest in a single asset, you share in 75 different properties. The minimums are higher, and the term in longer, but the return are more lucrative, with less risk.

    • Thanks for your comment. I believe I may participate in an equity transaction on a commercial property once I get more familiar with the setup. Asset-backed loans are more simple and understandable to me at this point. I’m trying to keep my terms short for now as well.

  3. I like these updates. I’d also like to see a post on how these sorts of investments impact (complicate) your tax situation and whether, after dealing with the impacts, you still feel these are worthwhile over the alternatives.

    • For the loans, you simply get a 1099-INT just like a bank savings account and tax returns are equally simple. I’ve already filed one for 2015 tax year returns. 1099-INT interest income is subject to ordinary income tax rates.

      For the equity transactions, I have not done one yet. It may get slightly more complicated but I believe you usually get a K-1.

  4. 2bdr for $600? as john mcenroe said “you cannot be serious!!”

  5. I like these experiments,I joined fundrise to get my feet into it.but backed out.out of the 3 you tried what is better

  6. Are there any good options for non-accredited investors? Or ways to become one if your income isn’t 200k or $1 mil net worth minus house?

  7. Jonathan – can you share any sites that/resources that allow you to research these crowdfunding sites such as this one and FundRise, PeerStreet, etc.? they are popping up by the dozens and wondering what to look for to make sure they are legitimate, financially backed, etc. Thanks.

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