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.

RealCrowd on Allocation Mix

Paul Kaseburg, Chief Investment Officer at MG Properties Group, shares how he thinks about allocation within the real estate asset class on a recent RealCrowd podcast. He spends a majority of the episode discussing strategies to increase diversification within a real estate investment portfolio.  I found his discussion of vintage diversification as a strategy to mitigate market timing risk particularly interesting.  Individual investors can leverage crowdfunding platforms to implement many of these strategies in their own real estate investments.

RealCrowd is a real estate crowdfunding platform for accredited investors. However, they do have a lot of free learning resources available to the public.

RealCrowd on Hard Money Lending

Broadmark Capital's Adam Fountain shares his insight regarding the role of hard money lending in Real Estate investing in this podcast episode. I found his strategies for mitigating risk particularly interesting.  

While most of us do not have the liquidity of a multi-million dollar fund to make multiple loans at the same time, there are still ways we can use diversification to reduce risk.  One strategy is to invest in a fund like Broadmark Capital. Alternatively, investors can use crowdfunding sites to purchase portions of debt offerings to spread their investment capital out over several loans. 

My personal strategy is to make multiple investments of equal amounts so that the total investment income will be greater than any single investment. For example, if my average return is 10% and my investment unit is $1000, I will make at least 11 investments of $1000 so that my investment income can make up for a failed loan. 

RealCrowd is a real estate crowdfunding platform for accredited investors. However, they do have a lot of free learning resources available to the public. 

Using Technology to Unlock Value in Real Estate

Listen as MIT's Steve Weikal and RealCrowd's Adam Hooper discuss some of the ways technology may impact Real Estate in the near future.  I found the sections regarding the Uberfication of buildings to increase usage of space during idle time particularly interesting.  They also discuss how implementing blockchain technology would help address many current challenges of researching title for real property.  Listen to the entire episode on the RealCrowd Website.

RealCrowd is a real estate crowdfunding platform for accredited investors. However, they do have a lot of free learning resources available to the public.