What will happen when the JOBS Act passes?

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BarackObamaSigningLegislationFirst learn the background about the JOBS act here: JOBS

Well I am not a prophet but that doesn’t mean I can’t voice my opinion. Right now you have a good number of portals working on the internet to gain the investment dollars of less than 90% of the American public which accounts for a $800 Billion dollar industry of private placement investments per year. Now if you take a look at these investments you will see that they seem very attractive you can invest in an income producing commercial real-estate building in NYC with an annual return of 10% that sounds pretty good right? Well if you are an accredited investor (link) it is a great opportunity. What will happen then when the market is opened up to the other 90% of Americans? There are two sides to look at. On one hand it seems like the demand will completely outweigh the supply. There will simply be so many potential investors out there and only so many offerings available. The result may be that these offerings will become less attractive. They sponsors will be able to offer a lower rate of return as they will be able to find investors easily. Although normal economic reasoning of supply and demand may dictate this eventually it may not be so simple.
I would consider three other factors as well. First of all as the financing for these investments becomes easier for companies and business to obtain, more and more will turn to using this avenue to raise money. As the process becomes more efficient and streamlined, it will make equity crowdfunding the most preferred way for companies to raise money. Currently only a select few companies and real estate projects have turned to this avenue for funding but as the market opens up we can expect that more offers will come to the market as well. This will at least in the long term make the supply of investments grow and will keep the returns steady. A second issue that should be considered is that investors are not foolish they realize these investments carry a certain amount of additional risk that classic equity investments usually don’t that being the case they won’t accept deals that have a lower rate of return. Lastly, when the legislation passes the non-accredited investor will still be regulated in how much they can invest. This means that although the investor pool will grow dramatically the actual amount of money available will not grow as dramatically (it will still mean a huge influx of available capital) but it won’t be 9 or 10 times what is currently available.
I wouldn’t be surprised if in the short term that there is a slight decline in the average return on these investments that the sponsors offer but in the long run it should all even out. But nobody really knows what will happen. I do not expect though that the risk adjusted returns will increase with the passage of the legislation. If you are an accredited investor and have the capital I would act now to lock up some of the great offers that are currently out there instead of waiting for these to open up to the masses.
What do you think will happen when JOBS passes?

REITS vs Crowdfunded Real Estate

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You may be wondering, if I really want to enter the commercial real estate market as an investor why would I use crowdfunding to invest? After all there already exists a great way for me to invest and gain equity exposure in commercial real estate in the form of REITs.

REITs are an acronym for Real Estate Investment Trusts. These are basically investment companies that pool together investor money and invest in a portfolio of various types of real estate investments. So what is the difference between buying a share of a REIT and owning part of an actual property through crowdfunding?

Well from an investor perspective there are a few main differences. Depending on your goals and investment horizons these may be the determining factors in which investment tool to choose.

Diversification and Risks

In terms of diversification a REIT will hold a portfolio or share of numerous properties. As an investor in the REIT you will have your money spread over the entire portfolio instead of in one property. If one property loses value or rents decrease, something needs repairs etc. the loss on one property can be offset by the gains on another property. Whereas if you crowdfund in a real estate project your entire investment is tied to one property. This makes your investment riskier as a loss to the property will no doubt translate to a negative return as there are no other properties to offset those losses. Consider this similar as owning a share in a Mutual Fund versus owning the stock of a single company.

Yield

On the other hand the diversification costs money. It costs more to receive the type of diversification that REITS offer. Unlike stocks which are relatively easier to buy and sell and create a diverse portfolio buying and selling real estate isn’t as simple which makes the costs associated with that diversification greater. As an investor you pay for that type diversification which means your yield overall will be less. Although some may claim that the yields are lower simply because it is a diverse portfolio and as there will always be some winners inevitably there will be losers which will negatively impact the yield, I don’t think this totally explains yields of 3%-3.5% that REITS are returning compared to high quality income producing commercial real estate projects that you can invest through crowdfunding paying 10% yields.

Time Horizon

Figure out how much time you are willing to tie up your money for. If you invest in a publicly traded REIT and decide you need the money in a few months all you need to do is logon to your online broker and sell your shares. When it comes to crowdfunded real estate your money is basically tied up for the duration of the investment which may be a number of years. The lack of any secondary market makes it almost impossible to sell your shares and pull out your money.

Valuation and Secondary markets

Although there exists no secondary market on which to sell your investment this may actually prove in many cases to be beneficial, especially if you don’t need your capital back in the short term. When the REIT’s shares are traded in the market it makes the valuation of your investment dependent on market factors which may not at all reflect the real value of your investment. Take for example a REIT that invests solely in properties in NYC they own Billions of dollars of commercial real estate and they have great tenants all paying rent. The yields are at 8% a year and all of a sudden there is a huge crash in real estate prices now this crash doesn’t have any real effect on property valuations in NYC as those prices keep going up. It would be hard to imagine though that the shares of your REIT would not see a sharp drop in price. This is totally based on market sentiment and not on reality but that is how the market works and any asset traded on the market is subject to the same volatility. So despite the fact that you have a 8% yield your overall return could very well be negative. The beauty of crowdfunded real estate is to give an alternative investment opportunity which is specifically not market tied. This in fact gives great deal of diversification as an asset which is part of a greater portfolio of stocks and bonds.

Although they both offer investments and exposure to the commercial real estate sector REITs and crowdfunded real estate offerings vastly differ. If you have clear goals in your investment strategy crowdfunded real estate can add an entirely new dimension to a diversified portfolio that a publicly traded REIT simply cannot offer.

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CircleUp Review

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Although we regularly write about real estate crowdfunding platforms  we still decided to take a look at a great equity investing platform which focuses on early stage companies in the consumer goods sector. Keep reading for our full review of CircleUp.com.

Offerings:

CircleUp.com could be called a niche platform in that its offers are basically consumer brands only. This means you are funding companies that sell an actual product. In general these companies will be more established as they have running operations and not just an idea. This isn’t really seed investment to start a company but more of an early stage investment in a private company. The offerings will usually be generating revenue which allows you to make a much better assessment of future earnings and company valuation. This model helps mitigate the risk that is normally accompanied by investing in start-ups. What we love about CircleUp.com is that we feel this niche is specifically suited for crowdfunding as it can properly take advantage of many of the opportunities to rally the crowd behind a specific product or consumer good. To read more about this you can check out our article Crowdfunding vs. VC or Angel funding  on the various advantages of using crowdfunding to raise capital as opposed to VC or Angel funding.

Interface:

The platform allows you to also see how popular these companies are amongst the investors and who the investors are which should give a good indication of how these companies will be received by the larger public, another factor which helps mitigate risk. The offerings are a mix of equity and convertible notes. Again they are looking to build a community around and within their platform which becomes a drag for anyone who wants to keep their privacy in terms of investing. They try to force you to integrate your social media profiles and they keep a lot of the deal specifications hidden until you do.

Conclusion:

A very good platform if you are looking for a stable investment in high growth potential private companies. They also offer the ability for you to invest through a IRA/Roth allowing your investments to grow tax free. If you are looking to fund the next big tech start-up though, this isn’t the platform for you. This is a great option though to add to a diversified portfolio of crowdfunded equity investments as it is a relatively lower risk investment compared to non-real estate crowdfunding investments.

For a great addition to your real estate investments check out CircleUp.com or read more circleup.com reviews.

 

Crowdfunder Review

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crowdfunder-logoCrowdfunder.com is a growing equity crowdfunding platform which offers many different investment opportunities in various start-up and early stage companies. The minimum investments are usually significant starting at $10k. The companies offer a mix of convertible debt and equity. The platform is easy to use although the dashboard could be a little more visible, you need to look to find it. The platform uses a mix of a social media within their investment platform. This allows you to check who is investing in which companies and to connect very easily with the active company managers who are active within the network. The downer to this is that the companies raising capital have representatives who start pursuing the end user. I am not sure that this is the best method for a company to pursue. In my opinion they should focus on the investing aspect and not on building a social media network. But if you like that kind of interaction then this is a great platform to join. The financial information and forecasts for the companies should also be more accessible. Currently you need to request approval to get access. This is a bothersome step added to the due diligence process.

TycoonRe Review

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tycoon

We decided to take a look and review a niche real estate investing site Tycoonre.com. Here are our thoughts on their platform, offers and technology. Keep reading for our review and breakdown of tycoonre.com.

User Friendly:

We were not impressed with the setup of the site interface. There is a dashboard but it is somewhat hidden. Most investment sites as soon as you  login to your account take you straight away to the dashboard, showing you your holdings etc.  This is a simple change that can be made and we hope to see this improvement. What we didn’t like is we were experiencing broken links on some pages.

Offerings:

The investments at the time of this review are only in residential single family homes and for debt with a buy and hold strategy. These are not really the high grade institutional grade investments opportunities that you might be looking for. But I do think they have promise in terms of their strategy as they have very low minimum investment thresholds on these offers of $1k which is the smallest of any the platforms we reviewed. These debt crowdfunding investment offerings might be a better alternative to people looking to engage in peer-to-peer lending with the guarantee of an asset backed loan providing more security than a unsecured loan.

Conclusion:

The site has potential especially for the small investment minimums and although some of the investments might be a bit riskier the small minimums allow investors to gain needed diversification.

 

Click here to sign up and start investing with tycoonre.com .

 

 

 

CrowdStreet Review

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crowdstreet-logo

 

Although you may not have heard of them yet Crowdstreet.com is a great platform to look at. They aren’t as well known and don’t have huge sums of VC  capital backing them as some other crowdfunding investment platforms do  but they have done an outstanding job creating their platform. We decided to take a closer look at what they offer on their site keep reading for our review.

Userfriendly: The site is pretty easy to navigate once you get in, but there is a big problem as their homepage is missing a login tab. You need to go to their Join link in order to be prompted for your login credentials if you already have an account. This can easily be fixed and I assume they will make the change. The information on each offer is very transparent and clear with visible buttons to submit questions. Additionally the information of the executives of each sponsor are clearly visible with a bio on each which helps give the investor a good idea of who is backing the project. We especially like a detailed breakdown of projected investment returns based on your investment this is a nice touch for prospective investors.

The interface could use some work in terms of creating a more investor friendly dashboard. We would like to see a more traditional dashboard which will showcase the holdings of the portfolio and performance this seems to be missing.

 

Offers: There were only three offers up when we reviewed crowdstreet.com but based on those offers as well as their previously funded offers it seems like they have a great mix of real-estate options. They have funded or are funding large residential, commercial retail, office, various development projects as well as a mix of investment fund options. They include offers for both equity investments and Mezzanine Debt investments. The big downside is that the minimum on the investments is $25,000 which is larger than many other platforms making it difficult to diversify your investments.

 

 

Conclusion: Crowdstreet.com has put together a great platform with a big mix of offers. If you are patient and willing to wait for the right offer to come along and are able to meet the $25,000 minimum then this is for sure a great platform to check out. We feel they have done a great job with the resources they have at hand and as they grow we expect the platform to improve greatly both in terms of their tools for investors , the number of offers and hopefully they will be able to drop their minimums a bit : )

Check out crowdstreet.com and start investing!

 

 

 

 

 

 

EarlyShares Review

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EarlyShares-logo

EarlyShares is another great crowdfunding platform launched in 2012 and run by CEO Joanna Schwartz.

We took a inside look, continue reading our full review of EarlyShares.com platform and offerings.

Interface:

The Earlyshares.com interface and dashboard is very good, clean and easy to navigate. We were a bit disappointed as the dashboard seemed to be missing any tools for real investment analysis. This includes projections of specific offerings as well as overall portfolio performance. The site is also missing out on showing the percentage of funding the specific offering has already received. This is a indicator as to how well investors perceive the offer and can give perspective investors some great guidance. We give the interface a B+ .

Offerings:

The offerings on EarlyShares.com really meet our expectations for a number of reasons. First of all the have the best mix of any platform we have seen. They give you a little of everything on their platform. Whether you are looking for growth stage private companies, real estate investment funds, commercial Class A real estate offerings or real estate development projects they have it all. They also include a mix of equity and debt offerings for the real estate investments. Of course a great variety of each would be better nevertheless they have managed to bring it all together. The minimums vary greatly as some investments have a minimum of $5,000 while others request a minimum investment of $250,000. The returns seem solid and we look forward to seeing more great offerings. We give their offerings an A .

Due Diligence:

We were a bit disappointed about their due diligence although they claim that they only accept 5% of the offerings that apply to raise funds on their platform and say they thoroughly vet the offers this seems to be limited in scope. When you actually look into any particular offer they have a disclaimer stating  “All elements of the Offering – including the Legal Docs, Investment Terms, and Due Diligence – were the responsibility of the Issuer. EarlyShares and its partners have conducted only a qualification screening and regulatory compliance check on the issuer.” This is a bit disheartening but I think this is more a legal formality for protection than an indication of how well the offer has been checked. Since EarlyShares.com has a partnership with crowdcheck.com a third party site which offers outside auditing of the sponsors and all of their sponsors go through this auditing process, this certainly adds to the credibility of the offers. We give their due diligence a B+ as well.

Conclusion:

Although there are some things that earlyshares.com could still improve on they are off to a great start and have a great basis for a site that can really shape the face of equity and debt crowdfunding. We were a bit annoyed by there hyper focus on social media throughout the dashboard trying to get you to invite, share and link your social media at every turn. It is important to keep an eye of EarlyShares.com as they are a pioneer in offering a little but of everything on their site. The main question is will they be able to attract the high quality offers that a more specific equity platform would be able to garner as well. If you are trying to raise money for a real estate project will you go to Earlyshares.com or focus on a site that is totally dedicated to real estate crowdfunding such as fundrise.com or realcrowd.com.

 

 

 

 

 

 

RealtyShares

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realtyshares-cb_861c906964a1c61ed80b9cb711d21454This is also one of our favorites. A very clean and easy to use site they have both equity and debt offers with some of their yields reaching 12.5%. It is also worth mentioning that they accept bitcoin as a form of payment from investors. I love the dashboard with their portfolio summary this really gives a good snapshot of what your investments look like and their performance. They have tailored this like any other brokerage site which makes it very attractive for savvy investors. In our opinion their dashboard is the best one out there. The biggest downside is they don’t have up many offers, at least at the time of publication. We would like to see a handful of options at any given time and this is missing.

RealCrowd Review

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real-crowd-logo

We decided to take a look at another great real estate crowdfunding platform realcrowd.com. and we are pleased to say that they are for real (pun intended). Their platform although might not get as much press as some of the other crowdfunding platforms out there we certainly think they are in the top 3. Continue reading to see our full review of realcrowd.com and our take on their platform, offers and interface.

We can sum up our thoughts in one sentence. We like it, we like a lot.

Interface:

The realcrowd.com site is very clean and easy to navigate site. The information is easily accessible and you don’t have to jump through hoops to get access and information you need to vet the offers you are interested. They also offer some great investment advice and articles some which we even feature on crowdtrader.net from time to time.  A downer is that they don’t tell you how far along the project is in terms of funding but this is a quick fix that they can make in the interface. They get an A- for a good smooth platform.

Offerings:

The more the better seems like the theme for realcrowd.com. Don’t think they are sacrificing quality for quantity because they have a large selection of offers without compromising on quality.  I can safely say they offer (at the time of writing) the widest range of real-estate investments we have seen so far. This includes debt and equity offerings as well as the opportunity to invest in real estate funds. The offers have a wide range of minimums but some were as low as $5k with yields on equity investments reaching close to 13% cash on cash. They get an A+ for a great range of offerings.

Concerns:

What we don’t like is they don’t make any claims to have really vetted the sponsors, but sponsor information is readily available, including contacts of the managing partner/s. We would still like to see a little more transparency and assurance that they stand behind the offers they are accepting to their platform.

Conclusion:

Realcrowd.com is a crowdtrader.net favorite. A combination of a great interface, a large selection of offers and great returns makes this platform a first stop for anyone looking to build and diversify their crowdfunding portfolio.

If you want to read more about realcrowd.com click here or just sign up and start investing.

 

Guide to Crowdfunding Investing

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crowd-trade-logo3e-transparentCrowdfunding has exploded as a great way to raise money on the internet for many different causes and projects. It basically allows anyone to share their project or cause and appeal to the masses for financial backing. It has recently been adopted (thanks to the JOBS Act) by various businesses as a new an innovative way for them to raise capital by selling equity or debt  in their project or business venture. This has evolved to create a new asset class for investors allowing “the crowd” to participate in funding start-ups, real-estate developments, or large income producing properties in return for equity or interest payments. In general I would categorize the offers available in to three groups:

Start-Ups

Start-up businesses offer equity to investors and although this is highly speculative the returns can be huge as well. These companies may only be an innovated idea or a company with a prototype of a product. They have no revenue or past performance to base their projections on. More about funding start-ups here.

Growth Companies

Private early stage companies are small private companies which are already selling a product or service and have already generated revenue. These companies are looking for financing to increase production or expand their businesses. These investments are more stable as they have a business model which is already producing revenue although they may not yet be profitable. The returns can be forecasted with much better accuracy and the company value is easier to determine. Some of our favorite platforms offering these type of investments are Circleup.com, Seedinvest.com and crowdfunder.com. Make sure to read our full circleup reviews , seedinvest reviews and crowdfunder reviews as well for more info.

Real Estate

Real Estate companies offer a number of options as well. They may sell debt, offer equity or a combination of both. These offerings may range from development projects of high-rise apartment buildings or single family homes to income producing properties such as elderly care facilities, hotels or commercial real estate. Some of our favorite options for real estate investing are fundrise.com, realcrowd.com, realtyshares.com and realtymogul.com click to see our thoughts and reviews.