About twice a year, I update readers on how our real estate investments are doing. Every month in the monthly newsletter I update readers on how the other 85% of our portfolio is doing with our market update. For those unfamiliar with our portfolio, it's 60% stocks, 20% bonds, and 20% real estate and small businesses, basically split like this:
Stocks:
- 25% Total Stock Market Index Fund
- 15% Small Value Index Fund
- 15% Total International Index Fund
- 5% Small International Index Fund
Bonds:
- 10% TIPS Fund
- 10% Nominal Bonds (split between the TSP G Fund and an intermediate muni bond fund)
Real Estate:
- 5% REIT Index Fund
- 5% Debt Funds
- 10% Equity real estate and other small businesses
As you can tell, most of this portfolio is a real yawner. My investing is not exciting, but it has been very effective for us over the years and it certainly doesn't require much effort. For those keeping track at home, the 1, 5, and 10-year returns on that REIT fund are quite good, 12.21%, 7.69%, and 15.46%. My own XIRRed returns on that fund since I first bought it in 2006 (I know, great timing right?) are 8.67%.
In this post, I'm just going to talk about the last two categories and similar “interesting” investments.
Individual Debt Syndications Through Crowdfunders
For a while, I was picking individual properties to loan money against on the various crowdfunding platforms. These are mostly home flippers. I didn't find it to be very fun nor did I feel like I was particularly good at doing it. These tend to be only one-year holds, so eventually, if you quit buying them you don't have any. My second to last one finally paid off last month. It was purchased through the now-defunct RealtyShares. Their communication with me about this investment the last few months looked like this:Sounds good right? Other than the fact that I was supposed to get all my money ($5000) back last June. Well, I got paid most of the interest I was due (at 8%) and then I got a big check on June 10th for…$4,965.83. Where's my $34.17? And what happened to the interest payments from January, February, April, May, and June It was still listed as “active” on the website, so I sent them an email, but no response. Then a few days later, they posted this:
Finally just last week the money came in leaving me with the expected 8% return. But not only did I not get my principal back for 24 months on a 12-month loan, but there was a lot of doubt as to whether I was going to get all of my principal back, much less the interest. In the end, all's well that end's well and I got out of the now-defunct RealtyShares without having lost any principal or expected interest across five different investments.
The only remaining individual loan I've got now is through Fund That Flip. This was also supposed to be a 12-month loan and I'm currently 20 months in and this home flipper is only 63% done and was just approved for an extension to 27 months. At least this guy hasn't missed any interest payments. Here's what the latest communication looks like:
It sounds bad when I share my two worst experiences. Bear in mind I had seven other individual loans that all paid on time as agreed and paid back the principal on time or early.
Speaking of individual loans, I'm still slowly plodding along with my old Prosper and Lending Club investments. At Prosper, I'm down to $39.79 spread across just 5 loans. Almost done? No. Two of those are 5-year loans starting in January 2016. I've got a year and a half before I'm out of there completely and no market to sell them on.
At Lending Club, I'm also almost out with just 7 notes left to go, worth about $218. At least I can sell loans there. I'm actually now selling these last few at a significant discount to try to get out before the Strata Self-directed Roth IRA assesses it's $100 annual fee in September for having a balance under $5K. We'll see if I make it and can roll the last little bit of Roth IRA money out of there and back over to Vanguard. Illiquidity has its downsides!
I started liquidating that Lending Club Roth IRA 2 1/2 years ago and am still not out! I always did fine in there, with double digit returns the years I had the most money invested. Even the little Prosper account eventually came around to 5.61%. But the platform risk made me uncomfortable and when I saw I could do real estate backed loans and have the same return, I though that was more attractive.
Debt Funds
Now let's talk about my four real estate debt funds.
#1 Broadmark Fund II
This is my favorite of the four so far. I've been investing since November 2017. It invests in real estate loans in Utah and Colorado. Returns continue to be quite good and I like their management and communication. I own it in taxable (not ideal obviously with such a tax-inefficient asset class), so I was pleased to see them convert to a REIT to give me a little 199A tax break. Some changes are afoot here that I can't reveal, but hopefully, there will be something interesting to report with my next update. My annualized return here is 10.14%.
#2 AlphaFlow
This one is actually a financial advisor who invests in notes from the various crowdfunding companies for a 1% fee. Beats picking the loans myself and provides liquidity and diversification. My returns have been a little less than Broadmark, but pretty much exactly what I expected at 7.76%. I only have about 1/4 as much invested here ($22k vs $88K) as in Broadmark, but it is spread across 157 notes.
#3 Arixa
This one lends in California. They have two funds, one leveraged about 50% and one unleveraged. That's the one I'm in, although I've considered changing to the other one to hopefully get a little bit higher returns. My returns here have been only 7.28%. They're actually slightly better but the reports are delayed over a month so that's what I use. I've got about $80K invested here. Other than the somewhat lower returns, my only beef here is the lack of online infrastructure. I get emailed statements once a month like this is 1999.
#4 DLP Fund III Via CityVest
This is the one I wrote about here a few months ago. I'm invested in it with a lot of you. I expect to hold this fund for 3-5 years and have $100K invested. Communication here has been less than ideal but seems to be improving. There have also been several disappointing delays. For instance, it took longer than expected to close the fund and get it fully invested. The first distribution was supposed to take place last Friday, so hopefully today.
Overall, I'm happy with the performance of the debt portion of my real estate portfolio. Over the last couple of years, I've made 8.20% overall.
Equity Real Estate Syndications
I have four of these right now.
#1 Medical Office Building
The first is the building my medical partnership operates out of in Salt Lake City. I'm actually at least nominally in charge here as the chairman of the board. It's fully rented now and appreciating.
The loan is rapidly being paid down and the loan to value ratio on it is only 0.23. Yes, the board is very conservative. We don't even make distributions, we just pay down the loan for now. Eventually, we'll have to start making some distributions obviously or perhaps refinance it and redeploy the capital elsewhere.
The share value increased 4.6% this year. I was actually kind of disappointed with that and I think it is partly an artifact of the share valuation process. Oh well, doesn't really matter for a long-term investor and pretty much all of the investors are. I have maybe $34K invested here. Overall returns since I bought in back in 2012 are 9.2% annualized.
#2 Indianapolis Apartment Building
This one is my longest owned crowdfunding investment, originally a $10K investment bought in November 2014 through the RealtyMogul crowdfunding site. It has had its issues where it underperforms the pro-forma and management makes excuses. You don't really know what the overall return will be until it goes round trip. The original plan called for a 5-7 year hold and we'll be at 5 years at the end of 2019, so hopefully, I'll know soon how I did on this small investment. It has yielded 4.78% so far, but the next distribution will come next month and increase that a bit. It just kind of plods along doing okay.
#3 Houston Apartment Building
I bought this one through Equity Multiple with $20K. I've been pretty happy with it, despite the fact that it got walloped in that hurricane and the updates from it are less than positive. Yield has been 6.53%. I have no idea how much it has increased in value over the last year and a half since I bought it. It's actually a relatively short hold on this one, I'm supposed to be halfway through it. Here's an example of the issues they're running into:
I think it's a good example of how these crowdfunding companies can add value for the sponsors and the investors.
#4 Fort Worth Apartment Building
I bought this one through 37th Parallel, who I know many of you have also used. I invested $100K into it and I calculate my return so far at 4.46%. Communication has been great and I'm told that it's performing at pro-forma. Like most projects, the updates don't sound as rosy as the initial paperwork! Here's the latest:
I've had two other equity deals that have gone round trip, one with returns of 13.66% (Fundrise) and the other with returns of 17% (RealtyShares), both exactly what was predicted by the pro-forma.
Equity Real Estate Funds
I've still only got one of these, but expect to eventually have several more.
Origin Fund III
I'm actually still not completely invested in this yet. My commitment is $100K, but they've only called about 80% of the capital so far over the previous 2+ years. That surprised me a bit, but doesn't bother me. If they don't have a good use for my money, I'll invest it elsewhere and can use new cash flow to meet the capital calls.
No distributions yet, but they report that my investment has increased in value so I calculate an annualized return of 1.19% so far. If you're looking for something that pays a more regular income than this, they have a newer income fund.
I skied with most of the company this Winter and was impressed by them, but this is a long term deal so no sense in judging them on what happens in the first couple of years. I do appreciate the advance notice they give on the capital calls.
WCI Network Websites
My three best investments, as usual, are ones that I am actively involved in and that I use WCI, LLC to actively grow. You know them well (and if you don't, please get to know them better!)
Physician on FIRE, LLC
I'm very proud of the work Leif has done with PoF over the last couple of years. It is the premier blog for doctors interested in early retirement. He is an expert at promoting it and churns out high-quality content post after post after post. I think the income it is now making is a bit surprising to him (although not to me) and certainly will allow him to spend more in “retirement” than he previously planned if he so desires. Of course, so does the fact that he kept working the last year or two! I calculate my return at an annualized 278%.
Passive Income MD, LLC
Peter Kim might be one of the hardest working folks I know. He loves entrepreneurship for entrepreneurship's sake and has grown his site and FB group into a destination for doctors looking for non-clinical income of any type. His excitement is infectious. He is particularly good at outsourcing everything he can and monetizing what he has. His new course on generating passive income with syndications had its first enrollment the last couple of weeks and the sign-ups were pretty encouraging. There is also a rumor going around about an upcoming conference. Annualized return there is 460%, although I expect that to drop significantly in the next year as there is a lot of reinvestment going on there right now.
The Physician Philosopher, LLC
Jimmy Turner brought in the newest addition to the WCI Network a few months ago. My original capital has already been returned in the first three months, so I count that as a success. Generally, the guideline for buying a website is to get your money back within 9 months, but this is not just a little website. This is a physician financial blog by a successful author with a heavy focus on wellness, burnout, and early career financial literacy. An annualized return from just a few months doesn't mean much and I can't even get Excel to calculate it but it's got to be something like 2000%. No, I don't expect THAT to continue!
I originally lumped in these WCI Network investments into the equity portion of my real estate portfolio. They're certainly not real estate debt, stocks, or bonds but they're not really equity real estate either. The problem with having them in there is that they are growing so rapidly in value that they will soon be dwarfing my equity real estate holdings. I haven't bought any true equity real estate in a long time and I'm still well overweight in that category. At some point in the next year, I'll likely move them out of my asset allocation completely, just like I don't have WCI, LLC in there. But as long as they're there, I might as well report out the return on the overall equity real estate and website portion of the portfolio — an annualized return of 13.96% per year over the last 7 years.
Overall, I'm happy with the performance of this portion of my portfolio. If you're interested in investing in similar investments, be sure to check out my affiliate partners and advertisers in this space:
#1 Equity Multiple
Offers equity and debt investments to accredited investors. Management fee waived on your first investment when using this link
# 2 Alpha Investing
A newer crowdfunder I'll be reviewing in an upcoming post. PIMD works with them.
# 3 CrowdStreet
Offers mostly equity, some debt investments, and funds to accredited investors
# 4 RealtyMogul
Offers equity and debt investments to accredited investors and REITs to non-accredited investors
# 5 Fundrise
Offers REITs and funds to non-accredited investors
#6 Roofstock
Marketplace for buying and selling single-family rental homes
# 7 PeerStreet
Offers debt investments to accredited investors. Get a 1% bump in yield on your first investment by signing up through this link.
# 8 CityVest
Provides “Access Funds” that for an additional layer of fees, lowers the minimum to invest in private real estate funds.
# 9 Fund That Flip
Offers crowdfunded debt investments
# 10 Origin Investments
Offers private real estate funds
What do you think? Do you have any crowdfunded, syndicated, or private real estate investments? How are they performing for you? Are you likely to buy more or get out of them? Which companies do you like? Comment below!
Obviously your continued investing with these groups means you think they will pay off. Do you ever wish you just stuck to boring index funds?
I wonder how they will fair in a poor market. I feel the real risks are actually real with these kids of funds. Plus the work involved picking and tracking makes it seem not worth the risk for me. However I am a new investor and we do not have a ton of capital to play with. Maybe thinks will be different when 200-300k is only <10% of our portfolio not almost the whole thing.
Great to know about these kinds of investments. Good luck.
You won’t have to wonder, as I’ll report that too.
If your gonna pay for a fund check out doublelines REIT. It’s run by Jeff Gundlach and it is outperforming the market. Outperforming the fundrise type funds also
Not a big fan of actively managed mutual funds, especially with such a short track record and high expenses.
I am dipping my toes into real estate with some REITs first. After I save up some money, I’ll jump into some syndicated funds after learning a lot as a beta tester in the Passive Income by Investing in Syndications course (which I hear has a wait list for the next go round already!)
I am glad that my site met the goal 9 months early! The three WCI partners had a lot to do with that! Thanks for your support.
TPP
Everyone is so willing to hand their hard earned money to someone else- essentially a stranger. Never understood that
And WCI help me understand this – we praise low cost funds like Vanguard and talk about how the fee structure of a lot of funds crush our returns in the long run. Why then would people invest in syndicated or crowd funded real estate where the fees are sometimes if not usually worse?
And for the record—why does everyone rush to invest 10k? its no money and unlikely to have a meaningful impact.
Use the 10k to invest in yourself so that you can make and stack some real money to invest.
Would rather advocate for exercising discipline and saving 100 or 100k and then investing. If you are worried about losing the money then you shouldn’t be investing the 10k in the first place.
Throwing 10k here and 20k there is not a great strategy.
Not a fan of this – some call it diversification…I call it lazy
JustSayin
And don’t mistake this as being too critical of WCI – just comments & opinions in general
As always
Justsayin
Seems like an awful lot of work and oversight for all these real estate crowdfunding ventures. Index funds are touted for their simplicity and lack of active involvement, but this seems the antithesis of that.
Valid criticisms, but how nice that you can see someone else’s experience without having to do it yourself!
I also do not get the appeal. Lots of work, low liquidity, high risk, high fees. Maybe it will work out and pull in somewhat higher returns than REITS and bonds, or maybe not.
I suspect WCI does this to provide information for his readers.
Hardly seems worth it for the payoff.
Some people with enough time, expertise and money can eliminate the middle people and do direct real estate investing and loans. For those without those resources it is hard to see how this is a good deal.
But it is definitely interesting to hear about it.
Agreed Afan – JustSayin’
Appreciated WCI
Though – past performance doesn’t predict future.
Still nice to see you work through the process
You know me – I like ‘real’ real estate – as in homes I can touch. Ramped up my portfolio quickly and about to hire a property manager – it’ll cost me $12k/year, but the peace of mind will allow me to focus on other projects – I’ll make multiples of the 12k cost each year by using that time on other projects. Still hitting returns >10% on portfolio with the manager!
Just Sayin
Part of the issue with these syndications is you don’t really know your return until you go full circle. So the returns don’t look so hot because all you’re seeing is cash flow. But the only one I’ve had that went round trip hit is pro-forma of 17% IRR. Certainly 17% is worth the hassle.
As far as not doing it directly like you are….I’ve already got two jobs and I have an edge at both of them that I wouldn’t have in direct landlording.
I hear ya – looking at IRR climbing over time (anything I reno has a much higher IRR).
Also with 2 jobs been trying to outsource what I can.
Encourage people to look at Upwork.com – I hired someone to do all my book keeping ($7/hour)
Focused on generating alot of cash flow year over year
With that in mind WCI – what’s your thought on stacking cash in coming years for possible hiccup in the economy? So many talking heads have suggested it. In the meantime the rally continues. But things don’t go up forever.
Thoughts?
JustSayin
I generally stay fully invested, riding the market all the way down, but also all the way up. Lower taxes and costs that way and my crystal ball is always cloudy anyway.
CrowdStreet just announced that one of their recently closed syndicated deals ended up with a 74% loss. Those who invested the required $25k ended up with $6,500. So even though there may be a tangible asset behind the investment it doesn’t mean you can’t lose your shorts. I was about to pull the trigger on investing in one of their other deals, but decided to just go with a Vanguard REIT. Sure you can still lose a lot of money (see the fund’s performance in 2007-2009), but the diversification is better than just investing in one hotel, or one apartment or business complex.
I agree. Not that REITs are perfect butI feel a lot better about paper losses then real losses. If I plunked down 100K in VNQ in 2008 it would have taken 10 years to get back up to the precrash value but it would have been throwing off dividends all the way. It is a well diversified fund so I would not panic and sell out. I would stay the course and wait it out. Now I do not invest in REITs but I do in VTSAX. Same theory but way more diversified. If there is a major crash I have no fear that it will not rebound eventually. Might take 10 or 20 years but hey I got time. I will buy it on the way back up. If it for some reason does not go back up then we are all screwed anyways.
I cannot say the same about these new companies and syndication deals. If I lost my shirt I would bail out. I would not take my meager 6500 and roll it into the next investment. So obviously I lack the risk tolerance to handle it.
I am glad WCI does do it because it is nice to see the results without any risk to my money. Thanks WCI!
I do a lot of what the WCI does in terms of syndicated deals, some individual properties, my own practice’s medical office building, and debt funds. I think if you’re either fully or mostly “FI” and have extra cash to invest, the passive income can be a beautiful thing, and these investments add diversity to a base portfolio of stocks/bonds. However, as everyone has said, these deals have to be researched, vetted, and still hold risks – as do most areas of investing, including the equity and bond markets.
Thanks for the comprehensive list WCI, it really helps narrow the options. I had read about Rich Uncles NNN REIT from a partner article from Passive Income MD and invested a small amount ($5k) to try them out. So far the communication has been good but I haven’t been in long enough to make an impression. Any personal experience or thoughts on them?
I don’t know them that well, but hey, it’s $5K….
I’ve tried quite a few things with $5K and actually done very well on those little investments.
Way over my pay grade!