My thoughts on RealtyShares shutdown

The announcement that RealtyShares was shutting down only 14 months after closing a $28 million Series C round caught me by surprise. While I expect to see many failures as the real estate crowdfunding sector matures, I did not expect RealtyShares to be one of the early losers. A venture backed site (over $60 million raised) with good deal flow seemed to be on the path to long term viability.

I had an open investment on ifunding when that platform failed back in 2017 (Crowdfunding Nightmare). This experience made me acutely aware of platform risk. I think the value proposition of real estate crowdfunding is that it allows investors to make smaller investments so they can build a diverse portfolio to reduce sponsor specific risks. However, crowdfunding sites create platform risk where several investments can stop performing because of a single platform failure.

I think for the near term, matchmaker crowdfunding sites like RealCrowd that facilitate investors participating directly with sponsors, rather than buying parts of deals and then repackaging them into smaller pieces for investors, are the best way to participate in real estate crowdfunding. Investors will definitely face higher minimums (25k+) but reduce their counterparty risk by investing directly with the sponsor.

I think the killer application for RE crowdfunding would be a service that creates a distributed ledger that significantly reduces administration costs for the sponsor making it economically feasible to accept a larger number of smaller investors.

Please use the comment section to share your thoughts on your real estate crowdfunding experience. I have included some relevant articles below.

  1. Financial Samurai discusses The Sad Demise of RealtyShares

  2. The Real Estate Crowdfunding Review

  3. Ben Lane on Housingwire

Disclosure: While I am member of both platforms, I have not participated in deals on either platform. I enjoy listening to the RealCrowd Podcast.

Financial Samurai on Portfolio Composition and Risk

Came across this interesting blog post on Financial Samurai.  The author discusses investment risk and portfolio allocation.  While I'm not a member of the FIRE (Financial Independence and Retire Early) movement, the article was still worth a read.  I found the charts comparing the average annual returns for various hypothetical portfolios particularly interesting.  I was surprised to see that the average annual return for an 80% stock 20% bond portfolio underperformed an all stock portfolio by less than 1% per year over the past 100 years.

Financial Samurai is a personal finance blog created by Sam Dogen.