There are many reasons to consider investing in real estate. Perhaps your goal is to save for an early retirement. Maybe you’re planning to pay for your kids’ college. Or maybe you’re seeking a passive income stream that would enable an annual trip to Aruba.
You wouldn’t be the first person to evaluate these assets as a way to achieve your financial goals. According to a 2017 report by UBS and Campden Wealth Management, the very wealthy keep about fifteen percent
of their investable capital in real estate.
As someone with over 25 years of experience in real estate and finance, I believe that RealtyShares is a simple and potentially rewarding way to invest in commercial real estate.
But does it make sense for you? And if so, how might you invest?
At RealtyShares, we believe that commercial real estate assets have differences that can make them an attractive addition to many portfolios. Our goal is to unlock this previously inaccessible investment class and offer it to the widest possible audience of potential investors.
As someone with over 25 years of experience in real estate and finance, I believe that RealtyShares is a simple and potentially rewarding way to invest in commercial real estate. In this article, I’ll tell you how our company can help you reach your goals and share a few of the things that may set us apart. (article continues below)
Find a Partner You Trust
Real estate investing used to be hard.
Historically, if you wanted to directly invest in a real estate project, you had to know somebody who was doing a project. Based on my own experience, the minimum buy-in for these projects was typically around $100,000. So if you didn’t have the money, or if you didn’t know the right people, you were out of luck.
Real estate investing used to be hard. If you didn’t have the money, or if you didn’t know the right people, you were out of luck.
The 2012 Jobs Act changed all that. It facilitated the creation of groups of investors who come together to fund real estate transactions. It turned out to be a great thing for both real estate operators and individual investors. Operators got access to a new funding source; investors got access to a new asset class.
That’s how RealtyShares got its start. On our simple and secure online platform, groups of investors (typically up to 100 in a given investment) come together to fund real estate projects around the US.
Once you sign up, you can browse our current projects and select one
that aligns with your financial goals. Currently our minimums are as low as $10,000; learn about
the investments we offer.
When you’re ready, click the “Invest” button. Then sit back. When the investment has fully funded, we’ll debit your linked bank account. From there, you can expect periodic updates about the progress of your investment. Assuming all goes to plan, we’ll also send you your monthly or quarterly distributions.
Yes, it really is that easy.
We’ve Done the Math
At RealtyShares, we specialize in the commercial “middle market,” which is generally considered to be commercial real estate properties valued at $50 million or less. It’s a very specific piece of the pie, and we chose it for a very specific reason.
Why? We believe this particular market sector—especially outside of the top half-dozen metro areas in America—represents a potentially attractive opportunity for investors, one that has traditionally been underserved by banks and other institutional investors.
Let me explain.
Capitalization rate—or cap rate—is one way to measure a property’s purchase or selling price. It is the annual income that a property is projected to produce, divided by its market price. A higher cap rate can indicate a better value, and the property may produce a higher yield on your investment.
We believe this particular market sector represents a potentially attractive opportunity for investors, one that has traditionally been underserved by banks and other institutional investors.
We sifted data from around the country, and we found that cap rates are consistently higher for smaller-value transactions and for properties in America’s “second cities:” places like Phoenix, Dallas, and Denver. Not incidentally, many of these places also boast strong job growth.
That data seems to indicate that less capital may be available to finance these transactions—and it’s worth paying attention to. The middle market may actually represent the largest sector of the real estate market, both by deal volume and in terms of absolute dollars.
According to data from Real Capital Analytics
(RCA), more than $250 billion flowed through the commercial middle market in 2017 alone. (article continues below)
Unlock the Middle Market
At RealtyShares, we look at those numbers, and we see an opportunity.
On one hand, it’s an opportunity to help middle market commercial real estate sponsors get the financing they need to execute great projects. On the other hand, it is the opportunity to connect individual accredited investors around the country with potentially attractive investments.
We look at those numbers, and we see an opportunity to connect investors around the country with potentially attractive investments.
That idea forms the foundation of our work, and we actualize it through a combination of cutting-edge technology, data science, and our team of in-house real estate experts.
By automating elements of origination, underwriting, and reporting, we can increase deal flow and reduce human inputs. By offering enhanced transparency and performance data, we allow investors to build personalized portfolios that align with their financial goals.
We’ve Got the Right Team
So often in life, when you try something new, the first question people ask is, “Who are you doing it with?” Honestly, I love it when they ask that question, because we believe it’s one of our competitive advantages.
Our team has deep domain expertise in the areas of real estate investing and finance, with an average of 15 years of relevant professional experience per person.
So often in life, when you try something new, the first question people ask is, “Who are you doing it with?”
People like Bryan Schultz
. Bryan is intimately involved with every investment we offer on the platform, and for good reason. He’s been negotiating, structuring, and underwriting deals for 20 years at places like BlackRock, Deutsche Bank, and Realty Mogul.
- People like Amy Kirsch. Amy is in charge of making sure that every investor has an excellent experience when they choose to invest on our platform--and she’s just the person you’d want in that job. Amy has ten years of financial services experience that she earned from places like Merrill Lynch and JP Morgan.
When you invest with RealtyShares, you’re investing with Amy and Bryan. They—and all of us here at RealtyShares—take this stuff very seriously. We wake up every day thinking about how we can make your investing experience consistently excellent. (article continues below)
We Take Vetting Seriously
Ease and affordability are important. But ultimately, whether your investment performs depends on the quality of the opportunities we offer. That’s why we spend so much time vetting real estate projects and sponsors.
At RealtyShares, each of our investments must undergo a rigorous, five-part vetting process. For that reason, fewer than 10% of the deals that come across our desk are ultimately approved and offered to investors.
At RealtyShares, each of our investments must undergo a rigorous, five-part vetting process
before it is approved and offered to investors.
For that reason, fewer than 10% of the deals that come across our desk ultimately pass the RealtyShares test.
If you want the deep dive, you can find it here
In the meantime, here is the executive summary:
Sponsor Evaluation: As a general rule, a sponsor must have executed a minimum of $10 million in transactions in the last 3 years or have a minimum of $20 million in assets under management to work with us. They should be familiar with the market where they’re doing business, and they must pass a battery of credit and background checks.
Asset Evaluation: This is the most important step in our vetting process. We consider the asset type, understand the business plan, evaluate its return potential, review the tenant profile, and assess the leverage allocation. Last, so that the sponsor’s incentives are aligned with the investors’, we ensure that they are making a sizeable investment of their own money.
Underwriting: We believe that proper risk analysis, through the intelligent application of data and industry expertise, is crucial to successful real estate investing. We also believe it’s one of the things that sets RealtyShares apart. Here we’re constantly looking for new ways to employ cutting-edge data science to perform institutional-level analysis, model asset performance, and assess risk.
Transaction Negotiation: We are committed to protecting our investors. We review the legal terms of the transaction and negotiate to ensure that potential risks have been considered and (if possible) mitigated. We seek to create legal frameworks that allow us to leverage the interests of our investors.
- Compliance Approvals: The laws that govern commercial real estate investing are there for a reason: to protect you. Following them—not just the letter, but the spirit of the law—is one of our core values. Therefore, we solicit both internal and external compliance approval at every step, including by our registered broker-dealer, North Capital Private Securities, member FINRA/SIPC.
In short, we believe in these investments. If we didn’t, we wouldn’t offer them.
We’re Different from REITs - and That’s a Good Thing.
Often, when I tell someone about RealtyShares, the first question they ask is, “Are you a REIT?”
Short answer? We’re not. REIT stands for real estate investment trust. REITs are professionally managed funds with certain tax features, and they usually hold multiple properties.
For example, a given REIT might own several grocery-anchored shopping centers in the Los Angeles suburbs. When you buy in, you’re buying an indirect interest in each of those shopping centers, and the performance of your investment depends on how much income they produce.
There’s a lot to like about REITs. For many years, they were the only way the average investor could get into real estate. Many are publicly traded and thus “liquid,” meaning you can buy and sell shares at any time.
Often, when I tell someone about RealtyShares, the first question they ask is, “Are you a REIT?” Short answer? We’re not.
As with other investment types, REITs have limitations. Because they can be traded, the performance of public REITs tends to track more closely with the stock market, which doesn’t help as much if you’re looking for true portfolio diversification.
And—here’s the kicker—you can’t decide which properties you like within a given REIT and which ones you don’t. You’re either in or you’re out with the fund’s properties as a whole.
By contrast, when you invest with RealtyShares, you can build your own portfolio from the ground up. That means hand-picking individual properties, projects, and sponsors from around the United States.
Prefer debt to equity? Think Dallas is heating up? Great news. With RealtyShares, you can select the individual investments that align with your personal financial goals. We give you the power to diversify your own portfolio. (article continues below)
We’re with You for the Long Haul
Deciding to make your first investment is a big step. But as far as we’re concerned, your journey with RealtyShares is just beginning.
After you sign up, you’ll gain access to your investor “dashboard,” where you can find an up-to-date summary of your portfolio, including investment performance and scheduled payouts. We provide the dashboard because we’re committed to transparency in our investments. We believe that you can make better decisions when you know more.
When you invest with RealtyShares, you can build your own portfolio from the ground up. That means hand-picking individual properties, projects, and sponsors from around the United States.
We’ll also start sending you periodic qualitative updates about the progress of your investment. Is the project experiencing construction delays? Or perhaps ahead of schedule?
Our asset management team stays in regular contact with sponsors to measure their progress against the business plan. And of course, if you have a question about the status of your investment, you can call us anytime.
As previously mentioned, each investment must undergo a stringent, five-party scrutiny before it is approved and offered to investors.
Fewer than one in ten passes the RealtyShares test. Still, some investments may still underperform. In that case, we work assiduously
on behalf of our investors to pursue the best outcome.
That means pursuing their rights to the fullest legal extent, including short sale and foreclosure where we have secured property interests.
Our Commitment to Our Investors
We know our investors work hard for their money, and we take their investment objectives very seriously.
That’s why we engage in continuous self-examination and self-improvement: with the aim of providing the best possible investing experience, one that our investors keep coming back to.
That way you can be confident that you’re in good hands, from the moment you begin browsing investments until the day your last investment exits.
We hope you’ll give us a chance to be your partner in this important work.
Keep in mind that real estate investments involve risk and are not insured; as such, they run the risk of loss, including the loss of invested capital. Before investing, you should carefully review the offering materials and arrive at a realistic understanding of your own risk profile.