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:
- 25% Total Stock Market Index Fund
- 15% Small Value Index Fund
- 15% Total International Index Fund
- 5% Small International Index Fund
- 10% TIPS Fund
- 10% Nominal Bonds (split between the TSP G Fund and an intermediate muni bond fund)
- 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
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.
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%.
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.
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!)
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%.
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.
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:
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
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!