Note: As of April 19th, 2019 the operations of RealtyShares was taken over by IIRR Management Services, LLC.
If you have any dreams of retiring one day, then you have likely heard about the importance of investing your money. You have many investment options for your hard earned money. A large number of view real estate as an important component of their investment plan.
You may have looked at real estate and decided that the capital involved in buying a rental property may just be out of your price range right now. Another reason that people choose to forgo real estate as an investment platform is the time you may have to put into the business in terms of your duties as a landlord.
Would you be eager to invest in real estate if you could remove the obstacles of management and a tremendous amount of available capital? If you answered yes, then RealtyShares may be the perfect solution to your situation.
In this article, we will take a closer look at RealtyShares and hold an interview with a current user of the platform. By the end, you should feel confident in your knowledge about this growing company and how it could help to diversify your investment portfolio.
RealtyShares provides a way to start small with your real estate investments and begin earning passive income. Find out more in our RealtyShares review.
Ease of use
Accredited investors only
- Variety of offerings
- Low minimum to start
- Accredited investors only
- Not available in all states
What is RealtyShares?
RealtyShares is an online investment platform. As you may have already guessed, the specialty of this company is real estate. RealtyShares focuses on smaller investments than other businesses. Instead of your options consisting of high rise condominium complexes, you have the option to participate in a single family home flip instead.
The company pulls together all the aspects needed for a successful real estate investment. By allowing investors, borrowers and sponsors to all meet in one easy to use setting, it makes the whole process of real estate investing very painless.
The whole system is very easy to use. It will walk you through the steps to making your first investment. In addition to the ease of use, you will find that the company has a great customer service team that will be ready to assist you whenever you have questions.
How Does It Work?
Once a property has met the criteria set by RealtyShares it will be listed on the site. In the listing, RealtyShares will include important information like the broad facts about the property to the specific risk factors and legal documents associated with the deal.
After you have reviewed a property, you have the option to purchase a smaller piece of the whole investment or the whole entire property!
It is important to note that in order to invest with the platform, you will need to make a minimum investment of $5,000, which is a significant amount of money. However, when you compare a minimum investment of $5,000 to other real estate investments that you could make on your own, it may seem small in comparison.
Let’s do a quick bit of math. Say you are looking to buy a single-family home as a rental property in your area for $100,000. It is likely that you will have to put down $20,000 because traditional mortgage lenders expect around 20% down.
If you are like most other people, then you might not have $20,000 to invest in real estate at the moment.
Just imagine all of the other people in a similar situation around the country! Crowdfunding will allow you to pool your money with other investors in order to afford the purchase of a property.
As you browse through the site, you will find that you have the opportunity to invest in real estate deals that you might be unable to afford without the benefits of crowdsourcing.
How Does RealtyShares Choose its Investment Properties?
The company does not randomly choose investment opportunities for you. There is a strenuous selection process that follows this pattern.
First, potential borrowers apply to RealtyShares through the website. The applications are then prequalified on the basis of their financial viability and the expertise and track record of the applicant.
RealtyShares then performs an extensive check into the claims of the applicant and the property in question. After passing through this rigorous process, the property will be approved for listing on the RealtyShares site.
The company does not take this selection process lightly. Only about 5% of the applicants have their property listed by RealtyShares.
What are the Greatest Benefits of Investing through RealtyShares?
Low Minimum Investment
The minimum amount to invest in a real estate deal through RealtyShares is very low, so you will have the ability to potentially invest in multiple different properties at one time. This feature allows you to place your money in a large number of investments instead of using all of your available investment capital for only a few investments.
Generally, the minimum investment is $5,000. However, on an infrequent basis, some investments will be available for only $1,000.
It is simple math, but the ability to spread your investment over multiple properties helps to mitigate some of the inherent risks.
If you are looking for a way to start earning passive income, then RealtyShares will be able to help. Most real estate investments are viewed as passive sources of income, but it can be difficult to finance the purchase of an entire rental property by yourself.
With a lower minimum investment, RealtyShares will help you to start generating passive income without a huge upfront investment.
The ability to spread out your money in multiple investment properties will allow you to strategically place funds throughout various geographic regions and different property types. If you are looking for diversification in your portfolio, then RealtyShares may provide a simple solution to your wants.
As you search through the various offerings, you will find that there are so many options for your next investment. The range of properties spans from single family homes to commercial properties.
No Involvement in Management of the Property
When you think of a real estate investment, you probably think of the additional job of being a landlord. The job of being a landlord is not always simple, you have to deal with finding tenants, ensure that they respect your property and fix any problems that arise.
If you bought a real estate investment on your own, you would either have to become a landlord or find a property management company that you felt comfortable working with. It can be a hassle to deal with either of these options, but with RealtyShares you will not have to deal with either of these issues.
Readily Available Information
Throughout the entire process of investing with RealtyShares, you will have access to ample information to make an informed investment choice. After you invest, the company will provide periodic updates about your investments.
Usually, these reports are provided on a quarterly basis. If something pressing comes up about the investment, then you will be informed immediately. The information will be available through your dashboard and an email will be sent directly to you.
You Can Choose your Investment Type
You have the option to invest through debt, equity or preferred equity.
Let’s take a quick look at each of these options:
Debt. Through a debt investment, your money will be used as a loan to the project. You will earn money with this option through the interest that is paid to you. Typically, these loans have a 12-month term and are secured by a deed of trust or mortgage. A debt risk usually has a lower risk than the other two options based on its lower term. The lower risk also translates to lower returns.
Equity Investment. With an equity investment, you will have indirect ownership of the project. You will earn money with this option through any excess cash flow or appreciation at the sale price. Usually, these investments last over a longer period of time in the range of 3 to 5 years. Equity investments are riskier than debt investments but also offered higher potential returns. When the investment goes well, an investor can usually expect a return between 7-10%.
Preferred Equity. A preferred equity deal shares common traits with both a debt and equity deal. The investor does have indirect ownership of the property but is offered more protection if a property loses money or declares bankruptcy. The risk factor for this type of deal is somewhere in between a debt or common equity deal.
The more options you have, the more you can tailor the investment to meet your needs. It is extremely important that you make sure that you are comfortable with your investment. By having the option to choose your investment type, you can make a choice that best suits the needs of your investment portfolio.
Less Legwork for You
In order to get a good deal on an investment property by yourself, it is likely that you will have to do a ton of research on your own time. Based on personal experience, it can take months to find the right property that will serve as a good investment for you.
RealtyShares will do the work of investigating each and every property that is available for you to invest in. You should always do your own due diligence on each property that you invest in but at least RealtyShares will have eliminated unfavorable investment properties for you.
RealtyShares will review each real estate property that they make available on their platform. In their review, they will look at the proforma financial statements, property inspections, title reports, similar sales data and any other pertinent information. In addition to all of this, they run a background check on the borrower or the principal executives for the sponsoring real estate company.
After the thorough investigation done by RealtyShares, you will have access to all of the information they have collected. You can even do extra investigations if you want to, but it is likely that if the property is a good investment.
Investment Period Choices
As you browse through your investment options, you will also have the ability to choose a certain holding period. The periods can be anywhere from less than 6 months to well over 5 years.
You will have the option to choose an investment period that works well for your financial needs.
Compliance and Regulatory Issues Taken Care Of
You don’t have to worry about any of the complicated aspects of purchasing an investment property because RealtyShares will take care of all of that for you.
The company uses a third party to provide execution services that relate to any equity of preferred equity investments. The third party is North Capital Private Securities Corporation which is a member of the FINRA and SIPC. North Capital Private Securities Corporation is also a registered broker-dealer.
The platform that RealtyShares uses to process your investments is extremely secure. The company uses a 128-bit encryption that is similar to the encryption levels used by banks around the world. A third-party security firm regularly checks the security of the website in order to ensure that everything is working as it should.
RealtyShares does not store any of your banking information on their servers. Finally, if you are inactive for more than 15 minutes you will be logged out automatically.
What are the Drawbacks to Investing through RealtyShares?
As with most online investment platforms, there are fees involved in their services. When you register for the site, you will not have to pay any fees. However, once you start investing there will be fees associated with each investment.
For debt investments, a servicing fee is spread between the interest rate charged to the borrower and the net interest being paid to the investors. The amount of the service fee will vary by each investment.
For equity investments, you will be charged an annual fee of 1% to manage the investment. For certain investments, the company will also charge an over-raise fee at the beginning of the process to cover any initial legal fees or other expenses.
The investment you make through RealtyShares is illiquid which means that you will have no choice but to hold onto it until the investment reaches maturity. Depending on your investment holding period, that could mean many years of having that cash tied up.
Once you invest through the platform, you will have no option to sell your share. It is a serious consideration to look into as you decide on the amount of money and the term of the investment you are making.
Potential Additional Capital Calls
Sometimes a real estate investment will require more capital than originally predicted. When this happens to one of your investments through RealtyShares, the manager of the project will request additional capital contributions from the investors.
You may not have to provide the additional capital yourself due to the benefits of crowdfunding. However, someone will have to put up the additional money for the project to succeed. It may affect your projected returns when a capital call happens to one of your investments.
Although RealtyShares does provide you with end of the year tax information, it can still be slightly complicated to file taxes at the end of the year. You may invest in multiple states and you might be required to file income tax returns in each of those states.
Why Should I Invest in Real Estate Through This Platform?
Easy to Trust
RealtyShares uses crowdfunding to fund real estate investments. It is not the only platform that has started to crowdfund real estate properties, you should always look into all of your options. But RealtyShars is a good company to work with.
Many people have decided to work with RealtyShares. In fact, the company covered over $300 million in real estate property value in 2014. At the time, it held over 200 rental properties. It is a nationwide investment platform, so you can choose to invest almost anywhere in the country.
Easy to Use
RealtyShares goes through the difficult part of real estate investing for you. That is not to say that you should not look into each investment you make, but if you are investing through RealtyShares then you can at least know that the property has already met certain investment criteria.
Another thing that RealtyShares offers is an easy way to keep track of your real estate income. In the website, there is a dashboard that will show you exactly how much you have earned from your investments so far. The dashboard will be updated automatically and is segregated by each investment.
The biggest benefit to RealtyShares is that it comes with options. You get to choose so many of the details surrounding your investment. It is your hard earned money, so choices are very important.
As you invest your money through the platform you need to make sure that you are comfortable with the terms. Some of the choices you have include the actual property itself (no need to buy it unless you like it); whether you fund the investment through a real estate loan or equity investment; the term of the investment; and most importantly the amount of money that you are willing to invest.
All of these choices are very important. You get to choose each one. Whereas in an investment where you were doing it all by yourself, you may not be able to find a property that met all of your requirements and budget constraints.
Who Can Invest Through RealtyShares?
The biggest requirement to invest through RealtyShares is that you must be an accredited investor. You may be wondering if you qualify as an accredited investor, so let’s take a look at the definition. An accredited investor is someone that has an annual income of $200,000 or $300,000 joint income for the last two years or has a net worth of $1 million dollars. You may also qualify as an accredited investor if you are a registered broker or investment advisor.
It may seem disheartening if you don’t qualify as an accredited investor, but just continue to invest in other ways. You can reach this status of accredited investor one day and have the ability to invest through RealtyShares.
You must also be a U.S. resident in order to work with RealtyShares.
How Can I Start Investing with RealtyShares?
The process to work with RealtyShares is fairly simple. The first thing you have to do is sign up. Once you sign up, you have to wait 30 days before you can start to invest through RealtyShares.
This provision was set up by the SEC and implemented by RealtyShares as a “cooling off” period to ensure that you have thought through your investment before you make a final decision.
After the cooling off period has passed, you may then make a decision about the investments you have had the chance to browse. You will decide on an investment and complete the necessary paperwork.
Once you have finished that step, you will have to wait for the property to meet its funding goal. It may take a little bit of time for a property to meet its 100% funding goal. Once it meets the goal, the investment will proceed. If for some reason the property does not meet its investment goal, then you will receive a full refund of your investment.
From then on, your participation in the management of the investment and the property itself are fairly limited. You can view your investments in the online dashboard section of the website. You will not have to actively manage anything to do with the property itself, but you will be able to share in the profits (or the losses).
The Perspective of a Current User of RealtyShares
You may still be on the fence about investing through RealtyShares, I don’t blame you. Investing can be an overwhelming experience, but it is an important part of your financial future. Although it can be daunting, you need to find a way to be comfortable with investments of some kind. Even if you choose to not invest in real estate, find something that will work for you and your financial goals.
I interviewed Millionaire Mob about his experience with RealtyShares. Overall, it sounds like he has had a good experience with the platform and would recommend it to others.
How long have you been using Realty Shares?
I’ve been using Realty Shares for approximately two years.
Why did you start using the platform?
I started to use the platform because I needed some real estate exposure to my portfolio. I don’t want the hassles of being a landlord as my time is limited, but real estate continues to be a hot market and a great yield-oriented asset class for increasing your income. For me, increasing my income is a core focus in my pursuit of FIRE.
What is your favorite thing about RealtyShares?
My favorite thing about Realty Shares is the ease of use and ability to invest pretty easily and also on a diversified basis.
What is your least favorite thing about RealtyShares
My least favorite thing is the ability to invest in more yield-oriented products. I like the option to toggle between growth or income, but I would like to see more product options for yield and income.
Has RealtyShares been a worthwhile way to invest your money?
So far, RealtyShares has met my investment return expectations. I’m looking forward to finding ways to continually improve my returns.
Do you have any advice for a first-time user?
For a first-time user, you should only dip your toe into spots that you understand. Additionally, do not get over your comfort level of investing. Start as small as possible and continue to add over time. There is no reason to take unnecessary risk. This should be a vehicle that gives you additional diversification, not the sole source of capital appreciation.
As Millionaire Mob said, only invest in something that you feel comfortable with. Never feel like you have to invest your hard-earned money into something just because everyone else is doing it. Real estate is a great way to improve your portfolio. However, getting in over your head is never a good idea.
RealtyShares might provide a way to start small with your real estate investments. As you go through the process, it is more than likely you will learn along the way. I would recommend starting small and working your way up to larger real estate investments. If you qualify as an accredited investor, then RealtyShares is the perfect way to get started with real estate investments.
If real estate does not sound like something that you want to get into right now, that is okay. Just continue to invest in your financial education. The more you know about personal finance and your situation, the better prepared you will be for future investment opportunities.