Cold feet before dumping 25K into crowdfunding real estate?

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Phinance
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Cold feet before dumping 25K into crowdfunding real estate?

Post by Phinance »

Hey y’all, I’m an avid boglehead and follow all the basics: 3 fund portfolio, fully fund retirement accounts, save, live below ones means etc.. I have some “fun money” ~25K that I was going to put into a crowdfunding real estate deal Crowdstreet, does anyone have any experience with them? Does such an investment violate the Boglehead mantra? Am I better off investing into the 3 fund portfolio in my taxable account? I guess my question is: is there a gain in diversifying and trying different/maybe riskier investments or stick with tried and true? Complicated question, thank you in advance.
Last edited by Phinance on Wed Feb 17, 2021 9:07 pm, edited 3 times in total.
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Raymond
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Re: Cold feet before real estate crowdfunding

Post by Raymond »

I don't think it's so much "violating the Boglehead mantra", but more of, "does this pass the sniff test?"

What due diligence have you done? Why aren't the organizers of the deal getting bank loans or other funding sources? What are the fees like, and how liquid is the investment?

Insufficient information to give a sensible answer.

And don't ignore the little voice that's giving you the second thoughts.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by Phinance »

Good points, this is not a liquid investment, tied up for 4 years, commercial real estate office renovation in growing city.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by Smartbutnotenough »

Is the medical office in Phoenix they are about to release? I read through the documents and feel it's not a worthwhile investment for me. Plus there are typos in the documents that makes me feel a little uncertain about them.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by Scott S »

Is the premise that commercial real estate will be a thing again in 4 years? ;)
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by Lynn1987 »

I recently made my first investment into Crowdsteet (at the minimum $25k) and thinking of funding maybe one offering a year. Crowdstreet piqued our interest as DH and I like real estate investing, but as we move closer to retirement we would like something more passive either in addition to or possibly eventually instead of the single family home rentals we currently have.

As far as due diligence, we discussed it with some other local real estate investors who have invested in Crowdstreet and some other crowdfunding sites and have been pleased with the results. There are SO many documents and we knew nothing about commercial real estate so really having to trust their knowledge and experience as we continue to learn more.

This investment was made out of taxable and I was considering making future investments from either a traditional or Roth SDIRA so as to be able to better control when the profits are taken as income and possibly eliminate income tax on the profits. But now I'm researching UDFI (unrelated debt financed income), as it can evidently can come into play and trigger some UBIT even within Roth investments since these offerings are leveraged. Were you thinking of investing from taxable or SDIRA?
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by Phinance »

I don't know anything about SDIRA, this was some extra monies (play money) in taxable category, my assumption is income from this would be treated as ordinary income? Hope I'm not violating any forum rules, this is the commercial real estate building in Boise.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by High Income Parent »

I would recommend you read The Hands off Investor by Brian Burke before investing in crowdfunded real estate. I've done real estate syndications but never through a web based crowdfunding site because I think the syndicators should be able to raise money themselves and not need an internet platform to do their marketing and potentially get their cut of the profits as well.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by SuperXmas »

Phinance wrote: Wed Feb 17, 2021 8:42 pm Hey y’all, I’m an avid boglehead and follow all the basics: 3 fund portfolio, fully fund retirement accounts, save, live below ones means etc.. I have some “fun money” ~25K that I was going to put into a crowdfunding real estate deal Crowdstreet, does anyone have any experience with them? Does such an investment violate the Boglehead mantra? Am I better off investing into the 3 fund portfolio in my taxable account? I guess my question is: is there a gain in diversifying and trying different/maybe riskier investments or stick with tried and true? Complicated question, thank you in advance.
Nothing wrong with a small part of your overall AA but reading every page of the offering docs is a must.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by Grover201 »

I did 4 crowd funding through crowd street only one is doing ok. I have two in reality mogul one of them is doing extremely well, like 25% a year. My friend did a lot with reality mogul he had better luck. I will not invest in crowd funding anymore, it is not fun and too slow for me. Not to mention it is illiquid. Don’t forget that distribution are taxed like an income.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by playtothebeat »

You do get some benefits such as depreciation etc (of course you still have to pay tax later, unless you do a 1031 or similar).
I disagree with the comments that crowdfunding means that the developer couldn’t raise equity otherwise or is inexperienced. I think this is just another source of capital. I work in commercial real estate and can tell you that some of the companies I have seen on Crowdstreet are top tier names I am intimately familiar with (and thus can’t invest with, unfortunately).
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by txgolfer_19 »

playtothebeat wrote: Thu Feb 18, 2021 12:22 am You do get some benefits such as depreciation etc (of course you still have to pay tax later, unless you do a 1031 or similar).
I disagree with the comments that crowdfunding means that the developer couldn’t raise equity otherwise or is inexperienced. I think this is just another source of capital. I work in commercial real estate and can tell you that some of the companies I have seen on Crowdstreet are top tier names I am intimately familiar with (and thus can’t invest with, unfortunately).
Agree with this. I’m a lender for institutional CRE and Crowdstreet has become a much more common way to raise equity. It’s often times cheaper equity for the Developer vs raising it via a private equity firm, family office, etc. There are many top tier names raising funds this way.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by sd323232 »

Phinance wrote: Wed Feb 17, 2021 8:42 pm Hey y’all, I’m an avid boglehead and follow all the basics: 3 fund portfolio, fully fund retirement accounts, save, live below ones means etc.. I have some “fun money” ~25K that I was going to put into a crowdfunding real estate deal Crowdstreet, does anyone have any experience with them? Does such an investment violate the Boglehead mantra? Am I better off investing into the 3 fund portfolio in my taxable account? I guess my question is: is there a gain in diversifying and trying different/maybe riskier investments or stick with tried and true? Complicated question, thank you in advance.
i wouldnt get cute with my investments, VTSAX and chill here.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by Phinance »

Very helpful. If I live in OR, the property is in ID, do I pay Idaho tax? Crowdstreet is based in OR, is the income from an investment such as this “sourced” in OR or ID? I hate filing multiple state returns :oops:
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by bertilak »

I know nothing about Crowdstreet but of course I have an opinion anyway!

It sounds to me like there is potential for a great return but, being so focused on a single project, there is also a lot of risk. This seems to be the kind of thing you would want to diversify on instead of putting it all on one spin of the wheel. Even if the general concept is sound, I wouldn't do this kind of thing unless I had some (positive!) insight into the particular project.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by ActiveIndexer »

I do not have experience with them, but plenty of experience as a hard money lender and general real estate investor. Besides what others mentioned, many of these firms and those seeking funding from these firms scale rather quickly. When that happens you'll find each deal from them may get progressively worse and firms dealing with the funding side give you best case scenarios that rarely happen.

There are better options IMO. If you are set on real estate investing and prefer something semi-passive (as I do), you can dip your feet in hard money lending through a local REIA group or partner with a flipper (riskier). Turnkey rentals are also a semi-passive investment but only 2 or 3 firms I would deal with in the US who can consistently source good deals and deliver over the course of the investment. Both require significant due diligence. Feel free to PM me if you go that route and ever have questions.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by Phinance »

Lots of gratitude for these very helpful comments, thank you :beer Any insight on the tax implications?
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by ActiveIndexer »

Phinance wrote: Thu Feb 18, 2021 9:57 am Lots of gratitude for these very helpful comments, thank you :beer Any insight on the tax implications?
Depends on the structure. Sorry, no way of knowing without reading about the specific deal. Those can be complex depending on the type of payouts and partnership structure. If you do not have an accountant, reach out to one who specializes in real estate. They should not charge you for a consultation.

Other options in real estate provide great tax benefits. Rentals allow for some nice deductions from your income: depreciation, interest paid on your loan, management fees, and maintenance expenses to name a few. For hard money lending, I personally pull an equity loan form my primary and rentals then invest that so I can deduct the interest paid on that home equity loan as an expense. Many leave their $ from their primary or rentals sitting there when it can be earning >10% in a hard money loan (relatively safe if LTV is ~60-70%).
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by medic »

Phinance wrote: Thu Feb 18, 2021 9:40 am Very helpful. If I live in OR, the property is in ID, do I pay Idaho tax? Crowdstreet is based in OR, is the income from an investment such as this “sourced” in OR or ID? I hate filing multiple state returns :oops:
You're not investing in Crowdstreet, they're just a conduit. Your investment is in the property. You will pay tax in the state where the property is located. You'll get a K1 and then file state taxes.

I have several syndications I'm in - two from crowdstreet. I think I'm up to about 8 states now. Really doesn't take much energy to file the states though I'm probably switching to a CPA this year because I'd rather spend my energy elsewhere.
If you want to avoid the state tax filing, pick investments in income tax free states - TX, WA, etc. Lots of opportunities.

Before you invest, read a lot of the PPMs. The deal flow was the original reason I signed up for crowdstreet to be able to learn more about what's standard or what strange things firms try to do. There's a lot of "junk" IMO, but there are also some gems.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by Jack FFR1846 »

Before investing in something like this, you should know so much about it that you could invite new investors in a room and teach them everything they need to know about this. Then, you should be able to answer every single question they could come up with.

If you can't do that, be wild and buy some FZROX.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by illumination »

Sounds like a perfect combination of high risk, zero liquidity, and complicated book keeping and taxes.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by investuntilimrich »

I personally wouldn't want to invest in something unless I had a lot more information, I'd want to know the projects I was invested in inside and out. For lazy investing, I prefer indexes. I've made money in real estate, this year even, it's a great way to make or lose a lot of money depending on how well you understand the situation. I'll be a real estate buyer again after the next housing crash.
Last edited by investuntilimrich on Thu Feb 18, 2021 11:21 am, edited 1 time in total.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by augustwest73 »

Commercial real estate is getting slammed now as businesses try to downsize their space as they implement permanent WFH policies. It's all in a state of flux but a week doesn't go by that I don't get a call from a commercial realtor asking if we need any more space. We're in a business that will always require a physical footprint to some degree. I'm currently negotiating a commercial lease in a MCOL for $.75 a square foot (their first offer) that pre-COVID would have been $1.25 and we're thinking of countering with $.65 sq. ft. because of the market.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by Watty »

Phinance wrote: Wed Feb 17, 2021 8:42 pm I have some “fun money” ~25K ......

I guess my question is: is there a gain in diversifying and trying different/maybe riskier investments or stick with tried and true? Complicated question.....
Another big question is if it is actually with the effort.

You did not say what returns you were expecting from it but if it goes great and you earn 10% more than you could have with a conventional portfolio then that would be all of $2,500 before taxes or maybe $2,000 after taxes. I don't know anything about what the actual risk or return might be but that does not seem like it would be worth the risk and effort.

One big risk with any investment like that is that it might actually do well as much by random chance as for having been a good investment choice. If that happens then you might be tempted to increase your investments and have more significant amounts invested in things like this and that can be risky.
Last edited by Watty on Thu Feb 18, 2021 11:23 am, edited 1 time in total.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by investuntilimrich »

augustwest73 wrote: Thu Feb 18, 2021 11:19 am Commercial real estate is getting slammed now as businesses try to downsize their space as they implement permanent WFH policies. It's all in a state of flux but a week doesn't go by that I don't get a call from a commercial realtor asking if we need any more space. We're in a business that will always require a physical footprint to some degree. I'm currently negotiating a commercial lease in a MCOL for $.75 a square foot (their first offer) that pre-COVID would have been $1.25 and we're thinking of countering with $.65 sq. ft. because of the market.
I've talked to 2 companies in the last week that half sized their office space as a result of WFM. Will it last forever? I have no idea, but it's not going to change in the next few months for sure. I expect a lot more downsizing of office footprint over the next few months.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by SethJane42 »

We've yet to see the full effects of the shutdowns, eviction moratoriums, work at home, and joblessness on commercial real estate. There could be a crash coming in the sector. Plus, I don't trust things like this entity you are going to throw 25k at. If I was going to take on some risk, and I considered the money "fun", I'd put it in AAPL, MSFT, or some other good company that is making money hand over fist and that has a bright future. Good luck.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by stoptothink »

investuntilimrich wrote: Thu Feb 18, 2021 11:23 am
augustwest73 wrote: Thu Feb 18, 2021 11:19 am Commercial real estate is getting slammed now as businesses try to downsize their space as they implement permanent WFH policies. It's all in a state of flux but a week doesn't go by that I don't get a call from a commercial realtor asking if we need any more space. We're in a business that will always require a physical footprint to some degree. I'm currently negotiating a commercial lease in a MCOL for $.75 a square foot (their first offer) that pre-COVID would have been $1.25 and we're thinking of countering with $.65 sq. ft. because of the market.
I've talked to 2 companies in the last week that half sized their office space as a result of WFM. Will it last forever? I have no idea, but it's not going to change in the next few months for sure. I expect a lot more downsizing of office footprint over the next few months.
My employer finished construction on a new office facility, about a mile down the road from our global campus, in January '20. It was meant to house our call center and a few other departments (so ~2,000 employees - it's a LARGE building). One part of the building has been used as a separate distribution center, but otherwise no employees ever moved in. The building has been for sale since the summer.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by playtothebeat »

augustwest73 wrote: Thu Feb 18, 2021 11:19 am Commercial real estate is getting slammed now as businesses try to downsize their space as they implement permanent WFH policies. It's all in a state of flux but a week doesn't go by that I don't get a call from a commercial realtor asking if we need any more space. We're in a business that will always require a physical footprint to some degree. I'm currently negotiating a commercial lease in a MCOL for $.75 a square foot (their first offer) that pre-COVID would have been $1.25 and we're thinking of countering with $.65 sq. ft. because of the market.
“Commercial real estate” is more than just office.. industrial has never been in more demand than today. Self storage is doing great. Apartments, despite what you see in the news, are doing quite well outside of certain luxury markets.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by White Coat Investor »

Phinance wrote: Wed Feb 17, 2021 8:42 pm Hey y’all, I’m an avid boglehead and follow all the basics: 3 fund portfolio, fully fund retirement accounts, save, live below ones means etc.. I have some “fun money” ~25K that I was going to put into a crowdfunding real estate deal Crowdstreet, does anyone have any experience with them? Does such an investment violate the Boglehead mantra? Am I better off investing into the 3 fund portfolio in my taxable account? I guess my question is: is there a gain in diversifying and trying different/maybe riskier investments or stick with tried and true? Complicated question, thank you in advance.
I've had some crowdfunded real estate work out exactly as advertised and also have had at least one investment that appears to be heading toward a major if not total loss. Every deal is unique.

My general advice about accredited investor investments is that you need to really make sure you're an accredited investor, i.e. one that can evaluate an investment without the assistance of the SEC and can afford to lose the entire investment.

The law is $200K of income OR $1M in investable assets. I would double those and make sure you meet both criteria before looking at these investments. Have a plan to diversify them, keep costs down, and deal with illiquidity issues.

Another issue with crowdfunding sites in particular is you may not have the time you need to do the due diligence before the opportunity fills, nor is it particularly cost effective to do real due diligence on deals of only $2-25K. You're not going to go walk those properties interview the principals, or do background searches on them.

Caveat emptor.

As far as Crowdstreet, it's likely one of the better ones out there as these companies go.
Last edited by White Coat Investor on Thu Feb 18, 2021 12:28 pm, edited 1 time in total.
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Phinance
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by Phinance »

This advice is pure gold, thank you WCI and others, I clearly need to do more homework :)
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by Pickle11 »

txgolfer_19 wrote: Thu Feb 18, 2021 9:05 am
playtothebeat wrote: Thu Feb 18, 2021 12:22 am You do get some benefits such as depreciation etc (of course you still have to pay tax later, unless you do a 1031 or similar).
I disagree with the comments that crowdfunding means that the developer couldn’t raise equity otherwise or is inexperienced. I think this is just another source of capital. I work in commercial real estate and can tell you that some of the companies I have seen on Crowdstreet are top tier names I am intimately familiar with (and thus can’t invest with, unfortunately).
Agree with this. I’m a lender for institutional CRE and Crowdstreet has become a much more common way to raise equity. It’s often times cheaper equity for the Developer vs raising it via a private equity firm, family office, etc. There are many top tier names raising funds this way.
So you are saying institutional investors demanded more returns for the project risks and now the projects are trickling down to retail?

Added

Or maybe there is the removal of professional costs as DIY individuals avoid all the institutional expenses and a not compensated for their time.
Last edited by Pickle11 on Thu Feb 18, 2021 3:42 pm, edited 1 time in total.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by Phinance »

Thanks gwe, very helpful comment.
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Negative experience with Crowdstreet

Post by joeker »

[Merged into existing discussion -- moderator oldcomputerguy]

In late 2019 I invested in a Crowdstreet blended portfolio. This was touted as a way to invest in a diversified portfolio of commercial real estate projects curated by the folks at Crowdstreet. The investment was open only to accredited investors. It was made clear that these are generally illiquid and the holding period is 5+ years. I was fine with that. What I didn't realize was the tax complexity of the investment. The complexity is not just that one receives a K-1, I have multiple investments that send me K-1, but that one has to file individual tax returns in every state based on individual state tax K-1 in which the blended portfolio has a portfolio investment - so far 8 states. If the headache of filing 8 state tax returns was not bad enough, what was indicated to me is that investors should expect the K-1s only by September of the following year for the prior tax year. So get this, one has to file 9 extensions (8 state + 1 federal) and then file the actual returns before September. Crowdstreet states that their offering documents indicate the possibility of delayed tax filings but to state that they did not describe the tax situation investors can expect is a massive understatement.

Because Crowdstreet doesn't allow secondary sales, it appears that I am stuck with this problem. If anyone has any solutions or ideas on how I can get out of this, please let me know.

Thanks,

JK
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Re: Negative experience with Crowdstreet

Post by annu »

Finding this is what stopped me from going in, had checked everything else about a storage facility fund, really liked all the numbers. But the hassle of tax time, really made it look like a lot more active investment then passive one.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by joeker »

You were smart! I am very disappointed in Crowdstreet that they don't make this super clear though.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by skiguy18 »

Great thread! OP- I have experienced the same cold feet with crowdfunding. I was looking into Equity Multiple. Their track record seems good, but I got cold feet after reading through the investment material 5 times and still felt like I did not have a clear picture of the structure. Put the tax complexity on top of that, and I realized I was in over my head before pulling the trigger.
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by av111 »

ActiveIndexer wrote: Thu Feb 18, 2021 9:46 am

There are better options IMO. If you are set on real estate investing and prefer something semi-passive (as I do), you can dip your feet in hard money lending through a local REIA group or partner with a flipper (riskier). Turnkey rentals are also a semi-passive investment but only 2 or 3 firms I would deal with in the US who can consistently source good deals and deliver over the course of the investment. Both require significant due diligence. Feel free to PM me if you go that route and ever have questions.
Great post. How risky is hard money lending? What do you do to reduce the risk

Turnkey rentals is also a topic that interests me. Could you please share your experiences

Re OPs question, Generally speaking, the return on money is likely to be smaller with crowdstreet when compared to an equivalent syndicated deal because crowdstreet's costs are going to be higher.

If 25k is a small part of the net worth and you like to take a chance on an illiquid investment that makes your tax return more complex but could get you 20% IRR, go for it
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by ActiveIndexer »

av111 wrote: Sat Apr 03, 2021 8:20 am
ActiveIndexer wrote: Thu Feb 18, 2021 9:46 am

There are better options IMO. If you are set on real estate investing and prefer something semi-passive (as I do), you can dip your feet in hard money lending through a local REIA group or partner with a flipper (riskier). Turnkey rentals are also a semi-passive investment but only 2 or 3 firms I would deal with in the US who can consistently source good deals and deliver over the course of the investment. Both require significant due diligence. Feel free to PM me if you go that route and ever have questions.
Great post. How risky is hard money lending? What do you do to reduce the risk

Turnkey rentals is also a topic that interests me. Could you please share your experiences

Re OPs question, Generally speaking, the return on money is likely to be smaller with crowdstreet when compared to an equivalent syndicated deal because crowdstreet's costs are going to be higher.

If 25k is a small part of the net worth and you like to take a chance on an illiquid investment that makes your tax return more complex but could get you 20% IRR, go for it
Hard money is risky but can’t quantify to compare. You control most risk and it’s backed by a tangible asset that you take over to recoup most losses or even turn a profit. I target 60-65% of the after repair value so there’s a decent amount of meat on the bone. There are many different exit strategies if things go south with the flipper or the market- rehab and sell it, rent it out, sell as-is, sell the note (mortgage), etc. The paperwork is a major part but it’s not difficult with some research or working with a title company. Wish I could share more here but it would be a book. Never had a deal go bad but only 3 years experience. I make 12% on local deals (Delaware) and 12-15% in Florida (Pensacola area). There are strategies to shelter some income from taxes.

Turnkeys have gotten tougher in the last year. Most are bad actors or flat out don’t belong in the business, which has always been the case, and it’s difficult to find no brainer deals since real estate has been on fire. Info is scarce on forums beyond an owner’s first year or two which makes is tough to research a turnkey company and successes. Biggest thing is due diligence on the market, the operator, and the deal. Look for a market that trends toward renting and has a diverse/sticky economy- mix of military, government, service, corporate jobs. Ask to speak with someone who has a few turnkeys with them for at least a few years. Manage the property manager, it’s not totally passive but it’s only an hour or two per month of emails and reviewing statements. I mean it when I say there are only a couple I’d do business with in the country- I’ve searched many markets.

Bottom line on turnkeys: I make 13-17% cash on cash depending on the property, this does not include the equity I’m building and the tax benefits. I have one tenant who is never late and never had a maintenance request. On the other end of the spectrum, a duplex where both are always playing catch up and requesting maintenance. Again, managing your property management is the way of the turnkey game.

New so not sure about private messages but if that’s a feature happy to answer specific questions. Passionate about sharing what I learned and enjoy pointing out the traps I’ve encountered along the way.
Derby
Posts: 164
Joined: Tue Sep 09, 2014 1:56 am

Re: Negative experience with Crowdstreet

Post by Derby »

joeker wrote: Fri Apr 02, 2021 6:23 pm The complexity is not just that one receives a K-1, I have multiple investments that send me K-1, but that one has to file individual tax returns in every state based on individual state tax K-1 in which the blended portfolio has a portfolio investment - so far 8 states. If the headache of filing 8 state tax returns was not bad enough, what was indicated to me is that investors should expect the K-1s only by September of the following year for the prior tax year. So get this, one has to file 9 extensions (8 state + 1 federal) and then file the actual returns before September.
You should really talk to an experienced CPA. There are certain circumstances in which you may not need to file the extra state returns, especially if you only have losses. I imagine you will find it worth the cost.
Carpe Diem.
av111
Posts: 222
Joined: Mon Jan 26, 2015 1:27 pm

Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by av111 »

ActiveIndexer wrote: Tue Apr 06, 2021 8:11 pm
av111 wrote: Sat Apr 03, 2021 8:20 am
ActiveIndexer wrote: Thu Feb 18, 2021 9:46 am

There are better options IMO. If you are set on real estate investing and prefer something semi-passive (as I do), you can dip your feet in hard money lending through a local REIA group or partner with a flipper (riskier). Turnkey rentals are also a semi-passive investment but only 2 or 3 firms I would deal with in the US who can consistently source good deals and deliver over the course of the investment. Both require significant due diligence. Feel free to PM me if you go that route and ever have questions.
Great post. How risky is hard money lending? What do you do to reduce the risk

Turnkey rentals is also a topic that interests me. Could you please share your experiences

Re OPs question, Generally speaking, the return on money is likely to be smaller with crowdstreet when compared to an equivalent syndicated deal because crowdstreet's costs are going to be higher.

If 25k is a small part of the net worth and you like to take a chance on an illiquid investment that makes your tax return more complex but could get you 20% IRR, go for it
Hard money is risky but can’t quantify to compare. You control most risk and it’s backed by a tangible asset that you take over to recoup most losses or even turn a profit. I target 60-65% of the after repair value so there’s a decent amount of meat on the bone. There are many different exit strategies if things go south with the flipper or the market- rehab and sell it, rent it out, sell as-is, sell the note (mortgage), etc. The paperwork is a major part but it’s not difficult with some research or working with a title company. Wish I could share more here but it would be a book. Never had a deal go bad but only 3 years experience. I make 12% on local deals (Delaware) and 12-15% in Florida (Pensacola area). There are strategies to shelter some income from taxes.

Turnkeys have gotten tougher in the last year. Most are bad actors or flat out don’t belong in the business, which has always been the case, and it’s difficult to find no brainer deals since real estate has been on fire. Info is scarce on forums beyond an owner’s first year or two which makes is tough to research a turnkey company and successes. Biggest thing is due diligence on the market, the operator, and the deal. Look for a market that trends toward renting and has a diverse/sticky economy- mix of military, government, service, corporate jobs. Ask to speak with someone who has a few turnkeys with them for at least a few years. Manage the property manager, it’s not totally passive but it’s only an hour or two per month of emails and reviewing statements. I mean it when I say there are only a couple I’d do business with in the country- I’ve searched many markets.

Bottom line on turnkeys: I make 13-17% cash on cash depending on the property, this does not include the equity I’m building and the tax benefits. I have one tenant who is never late and never had a maintenance request. On the other end of the spectrum, a duplex where both are always playing catch up and requesting maintenance. Again, managing your property management is the way of the turnkey game.

New so not sure about private messages but if that’s a feature happy to answer specific questions. Passionate about sharing what I learned and enjoy pointing out the traps I’ve encountered along the way.
Thank you for the detailed reply. I have managed rental properties for a few years but never dipped the toes in HML. Never even gone to a local REIA meet up. It sure looks like a great idea particularly when RE market is going up.
AV111
NativeTxn
Posts: 111
Joined: Mon May 20, 2019 9:32 pm

Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by NativeTxn »

I've not invested in RE crowdfunding, but a friend of mine has. As others have said, some of the "issues" he and I've talked about are:

1) Illiquid - most deals tie up the money for 3-5 years. But he told me that you're at the mercy of the deal because they can extend the deal. Typically, this may mean that it's going well so you may not mind, but it's worth noting that you may be all right with tying up those funds for 3-5 years, but are you okay potentially having them tied up for 6, 7, or more years?

2) Tax issues - not issues per se, but rather the fact that you have to file a state income tax return in any state that you're invested in (assuming that state has a state income tax). May not be that big of a deal, but may not be something you want to hassle with.

3) Some good, some bad - he's had some deals that have paid around what they estimated (roughly 14-15%), others that have paid less, some that are too new to know whether they'll turn out good or bad, and he's in one deal for a hotel that was doing well before Covid, and may now end up being a total loss as it looks like the hotel is going to close permanently.

Issue here is that with stocks, if you have a loser, you can cut ties and move on. With this, see #1 - there's really no way to get out if a deal is going bad. So, you would want to make sure that your RE investments are well diversified, so if you get hit with a bad deal, it doesn't hurt as much.


Obviously, as others have said, you'd want to do extensive DD on any of the deals you're considering because they're going to tend to be higher risk (which is part of the reason they can pay double digit returns). There's a reason the accredited investor rules used to be tied strictly to income and/or net worth (in 2020, they added other ways to qualify such as having your Series 7 or Series 65 licenses regardless of financial qualifications), and that was basically to make sure you have enough money that you could afford to lose the entire investment and not be destitute.

The investments can certain turn out well; however, if you're having cold feet about it, I would stay away - at least until you've done enough research and DD to warm up those feet.
Intrepyd
Posts: 88
Joined: Thu Sep 25, 2014 6:34 pm

Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by Intrepyd »

I read Brian Burke’s book The Hands Off Investor, which teaches you how to vet sponsors, syndications and properties. The book convinced me that vetting the sponsor is the whole ballgame. There are enough tricks a sponsor can pull with underwriting that it would take a very thorough and savvy investor to detect by doing arm’s length due diligence on a property. Unless you’re an expert, better to vet the sponsor’s track record and trust that they themselves are doing proper due diligence.
engineeronfire
Posts: 2
Joined: Sun May 02, 2021 6:22 pm

Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by engineeronfire »

There is another thread about crowdstreet 'Tell me about your experience with CrowdStreet'. I have posted few things I learned from this thread over there.
My current thought is to treat the investments on CS like a CD with uncertain interest rate and uncertain duration. Like any other investment beyond indexing, work is required for a chance of higher returns, and it comes with higher risks.
RudyS
Posts: 2190
Joined: Tue Oct 27, 2015 10:11 am

Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by RudyS »

Reminds me of Master Limited Partnerships which were "a thing" about 40 years ago. Sounded great, but the hassle of dealing with the K-1s, etc., was a real pain. But the real problem was that by the time these were closed out, I was lucky to break even (had 3 of these). But the promoters made out just fine. I think one was real estate, one was oil, and one was feature films.
Northern Flicker
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Joined: Fri Apr 10, 2015 12:29 am

Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by Northern Flicker »

What regulatory protections are in play? Why is this better than a REIT mutual fund or ETF?
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
playtothebeat
Posts: 453
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Location: southern california

Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by playtothebeat »

Northern Flicker wrote: Sun May 02, 2021 9:29 pm What regulatory protections are in play? Why is this better than a REIT mutual fund or ETF?
There are many benefits to physical real estate over REIT or ETF. There are also many disadvantages. One needs to ver both sides and determine what’s best for their portfolio.
Northern Flicker
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Joined: Fri Apr 10, 2015 12:29 am

Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by Northern Flicker »

Are you the direct owner of real estate with Crowdstreet? Seems like you take on exposure to the risks of a pooled investment without the regulatory protections of the Investment Company Act of 1940.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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JonL
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Re: Cold feet before dumping 25K into crowdfunding real estate?

Post by JonL »

Phinance wrote: Wed Feb 17, 2021 8:42 pm Hey y’all, I’m an avid boglehead and follow all the basics: 3 fund portfolio, fully fund retirement accounts, save, live below ones means etc.. I have some “fun money” ~25K that I was going to put into a crowdfunding real estate deal Crowdstreet, does anyone have any experience with them? Does such an investment violate the Boglehead mantra? Am I better off investing into the 3 fund portfolio in my taxable account? I guess my question is: is there a gain in diversifying and trying different/maybe riskier investments or stick with tried and true? Complicated question, thank you in advance.
So, you want to invest in real estate?

I think the above should be the title of a long over-due post I need to write on the subject. So, perhaps I'll use this response as a draft for that future post. :D

I approach real estate the same way I approach stock market investing.

I know that it's a risky venture. I know keeping costs low is critical to success. I know that hiring a manager to pick real estate for me is a loser's game - just as it is with stocks. And I know I need to diversify.

Yet, unlike stocks, I can't scoop up a low-cost diversified index fund of direct real estate. And, since hiring a middleman will simply light money on fire, I know that I must do the work myself.

Said again - for me, successful real estate investing comes with doing the hard work of locating the right investment properties, hiring the right property managers and contractors. It's just like stock picking. But, instead of evaluating companies, it's evaluating buildings and people. Once I've found a team, I look at properties to determine the potential costs and potential profits. I look at quite a few properties that won't fit my goals. That's part of the game. It takes time.

I couldn't imagine outsourcing this process to someone else as much as I could imagine purchasing a mutual fund charging 1%.

I hope that helps!

*Edited for typos*
Jon Luskin, MBA, CFP® | Advice-Only is the New Fee-Only
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