[Editor's Note: Full disclosure, AlphaFlow is a sponsor of the site, but this is not a sponsored post.]
Real estate crowdfunding is a great way to invest passively in real estate. In essence, it connects real estate professionals looking to fund their projects with investors looking for investment opportunities. In the past, this connection might have been quite difficult to make without knowing someone personally. However, with the JOBS Act of 2012, all of that changed. Now, online platforms have created a marketplace for these connections to happen. This has lowered the barrier of entry and has allowed normal folks like you and me to more easily become real estate investors.
I actually started my real estate investing career through crowdfunding. Armed with a little bit of knowledge, a little bit of cash, and a good amount of hesitation and fear, I made my first real estate investment with just $5,000. That first step was a difficult mental hurdle to get over. But once I started seeing interest deposits hit my bank account each month, I realized how powerful this could be for creating a steady stream of cash flow. I was hooked.
Since then, I’ve invested in nearly $300,000 worth of crowdfunded real estate deals and (knock on wood) have not had any loss of capital. Doesn't mean I won't have any losses in the future, but I'm also getting better at vetting each deal. Crowdfunding also opened the door for me mentally to invest in other areas of real estate including single family homes, multifamily (apartment buildings), and different syndications.
Because of the nature of the investments (shorter terms, good returns, lower minimums), real estate crowdfunding is a great way for investors to not only get a taste of what it’s like to be a real estate investor, but it’s also a decent source of passive cash flow. I get asked all the time on this site, by email, and on our Facebook Group, “How can I get started investing in real estate?” I always like to say that crowdfunding is an easy way to get yourself in the game immediately – and you don’t have to put a large amount of capital at stake.
However, there are some challenges with real estate crowdfunding. The three biggest I've found are:
- Proper due diligence
- Being able to get into the deal you want in time
Performing proper due diligence means being able to assess the deals and the operators to see whether the investment is worth the risk. The platforms themselves all do their own due diligence, with many touting that of all the deals that come across their desk, less than 5% ever make it on the platform. However, it's up to you as the investor to take it the rest of the way.
However, without much experience, how are you able to navigate the world of After Repair Values, Loan to Stabilized Values, Metropolitan Statistical Areas, and the loans themselves? There is a learning curve, however, with a little experience, you can become more adept at reading and assessing investment summaries.
Often times, the best deals that make it on the platforms go fast and fill up quickly. Although the minimums are low, investors comfortable with the process typically invest way more than the minimums. I remember many times thinking about making an investment, only to check on it a few hours later and finding that the deal was long gone. With these platforms, acting quickly is crucial. Make sure to sign up to be on the deal feeds and take a look quickly once it hits your email inbox.
People always wonder whether it’s better to go all-in on one deal or spread that risk among many. There’s no perfect answer to this, simply because there are so many variables. But like a mutual fund, I think diversification can be helpful. If you have a higher degree of confidence in a particular deal or operator though, you may want to be a little more aggressive than the minimum.
Diversification normally means that you put smaller amounts into a good number of deals, and try to spread them out over different areas and different operators. However, if minimums are $5,000 or $10,000, trying to diversify can easily make it a $45-50k investment.
Zero to 75 Real Estate Deals
So what options do you have in trying to mitigate some of these challenges? Well, last year I heard of a site called AlphaFlow that was created to address these issues and was unlike anything else in the space. I did some digging and found out it was headed by Ray Sturm, one of the most experienced individuals in the field of crowdfunding and one of the co-founders of RealtyShares. However, I actually didn’t know of anyone who had invested in AlphaFlow until I talked to Dr. Jim Dahle, the White Coat Investor, and found out that he himself had invested with them.
So that motivated me to look into it a bit further. Here is some basic info on AlphaFlow:
- Minimums are $10,000.
- 8-10% blended returns after their 1% fee.
- They’re a Registered Investment Advisor (RIA) and therefore are legally bound to have your best interest at heart (a fiduciary).
- They disperse your funds with micro-investments in 75-100 deals across the most reputable crowdfunding platforms in 30-45 days.
- Deals are spread all over the country, across many platforms, and with many different operators.
- They use advanced analytics and years of experience in the field to determine which deals are best and say they use at least 50 different factors in making that determination.
- Large institutions, hedge funds, and endowment funds are now investing through AlphaFlow to gain access to the world of real estate crowdfunding.
- You need to be an accredited investor.
So, like they set out to do, they do in fact address all three major challenges described above:
- Due diligence ✓
- Timing ✓
- Diversification ✓
So Who is This For?
If you like to be very intentional about each deal and like to do your own due diligence, this is probably not the best for you. Perhaps you want a return of capital all at one time, and have a date for that (for example in 8 months), this is not for you. If you're not an accredited investor, unfortunately you're not eligible.
If you're looking to make one investment that gives you a broadly diversified real estate investment portfolio and would like to do it as passively as possible, this might be a good fit. With one $10,000 investment with AlphaFlow, you could be an investor in 75 loans and have a steady stream of passive cash flow within 4-6 weeks.
Does this appeal to you? Has anybody invested with them and have any feedback? Would love to hear your experience.