Investors in 2022 have become accustomed to crowdfunding platforms across the United States. It seems crazy that crowdfunding has only been a legal form of raising capital since 2012. It is exciting to see how much growth and innovation has taken place for crowdfunding over the past 10 years.
As a reminder, a definition of crowdfunding is that organizations use the internet to raise small amounts of capital from a large number of people. These funds are then used to support organizational projects that hopefully result in profits (although there is no guarantee).
Crowdfunding is revolutionary because it enables a large number of investors to supply capital through small investments rather than a small number of investors providing high amounts of capital. In essence, this allows more investors to play in the game rather than just venture capitalists!
One company that has seen success in crowdfunding is EquityMultiple. EquityMultiple launched in 2015 and has its headquarters in New York in the United States.
Since inception, EquityMultiple has had quite the impressive investment platform track record. The total net historical return for investors has been 17.4% and the company has more than $3.7B in total project value. Most importantly though, EquityMultiple has returned $176.2M back to investors.
As time continues to pass, EquityMultiple is expected to see growing platform participation and investor returns. A lot of these investments are for the long play and as such, have not yet seen the full returns.
To learn more about all of the advantages and details of the EquityMultiple platform, head to our EquityMultiple summary. While this article will cover some of the advantages of using EquityMultiple, the main purpose is to cover all of the fees associated with the EquityMultiple platform.
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As detailed out above, EquityMultiple is a real estate crowdfunding platform. Understanding how the platform works is essential to understanding the EquityMultiple platform fee schedule.
The most vital piece of any crowdfunding platform is the deals. EquityMultiple has a vast network of sponsors and lenders that bring in a consistent stream of potential deals and properties to the platform.
These lenders and real estate companies are vetted by the EquityMultiple teams. Only the best partners (measured by successful projects and investor returns) make it to the EquityMultiple platform.
EquityMultiple investors have a couple of options when it comes to investing on the platform. The first option is that investors can directly invest in any investment offering on the EquityMultiple platform.
The investment minimum is $5,000 for direct investing. This type of investing usually carries more risk, with more reward, as there is less diversification in just one specific project.
Within direct investing, investors have multiple investment options. They can invest in debt deals, common equity, or preferred equity. This means that investors can easily invest according to their risk appetite.
The other method that investors can use to invest on the EquityMultiple platform is fund investing. With this method, investors get a percentage of a specific EquityMultiple fund portfolio. These portfolios contain numerous properties. These funds are heavily diversified with reduced risks.
The minimum investment requirement for fund investing is $20,000.
Regardless of the minimum investment requirement, EquityMultiple limits their platform to accredited investors only. Accredited investors must meet one of the below three requirements.
EquityMultiple is not very transparent when it comes to platform pricing and fees. Many of the articles about EquityMultiple fees posted online are old and outdated. Even though the fees are not well communicated, they are still present!
According to the official EquityMultiple website, there are never any fees to establish an account with EquityMultiple. Once an account is created, investors have full access to the deals and offerings on the platform. Once an investor decides to invest though, the EquityMultiple platform is no longer free (as with most crowdfunding platforms).
All EquityMultiple return projections for investments are net all applicable fees. In other words, if the projected annual cash return is 10% and the IRR is 17% then those are the projections for your final return net of all fees. This is nice because you don’t need to net out all the fees yourself to see your potential true return.
For purposes of this article, there are three buckets of fees and offerings associated with EquityMultiple accounts. The three high-level buckets are listed below.
The first fee for equity deals are for the project sponsors to pay and do not impact the investor. However, you may see this fee on the platform so it is important to understand it doesn’t impact you directly. This project sponsor fee is known as a placement fee and is 2% for all deals.
The first investor fee is EquityMultiple’s annual asset management fee. This fee is typically around 1.0% but can range from 0.5% to 1.5% annually.
The last equity deal fee that investors need to be weary of is the profit split fee. This fee is applicable to 10% of all profits above your expected project return. Below is a good example to highlight how each of the equity deal fees work in unison for a project (especially the profit split fee).
For this example, you are investing $10,000 in a project in Santa Monica, CA. The deal is projected to have an IRR of 26-40% over an investor's two year term. The asset management fee for the project is 1.0%.
You are not responsible for the placement fees as those are taken care of by the deal sponsor. You are however responsible for the asset management fee which comes out to be $100 a year ($10,000 x 1.0% annually).
After the two years of the project, the property sells and the deal concludes. You as the investor recoup your entire $10,000 investment before any additional profit pays out. The profit split fee though requires a little more work to uncover.
Let’s say the entire project made $500k profit after paying off the initial $750k investment from all EquityMultiple investors. EquityMultiple will then take 10% of that $500k profit ($50k). The remaining $450k will then be split among all project investors according to their proportional share of the investment.
To complete the example above, assume your proportional share after profit split ends up being $16k. That means that of your share, EquityMultiple took $1.8k as their profit share fee. However, this was all taken into account when the projected IRR was quoted as 26-40%. In this example, your net IRR ends up being 26%.
Just as with equity deal fees, project sponsors are responsible for the 2% placement fee. The investor does not pay this fee.
Preferred equity deal fees that are applicable to the investor are more straightforward than the equity deal fees. In fact, there is just one fee that you need to understand. These deals have a 1% spread off the total preferred return. This fee accrues monthly for all preferred equity deal investors.
This fee covers the cost of administration work as well as the cost to facilitate the deal. As with equity deal fees, the preferred return advertised on the project is generally net of all fees.
The final bucket of fees is for those investors who participate in debt deals. As with the other two buckets of fees, sponsors are responsible to cover the 2% placement fee.
The investor-specific debt deal fees mimic the preferred equity deal fees. Investors are responsible for a 1% spread off the interest rate. This fee will accrue monthly for these investors.
EquityMultiple provides great opportunities for investors to diversify portfolios by investing in commercial real estate. With zero fees to create an account, there is no reason not to check out the platform to see if any investment opportunities match your particular needs and goals.
Remember that although creating an account and browsing deals is fee free, there are pieces of EquityMultiple that do have fees. Typically, all advertised return projections are net of all fees.
Each investment opportunity offered on the EquityMultiple platform has a different fee schedule and process for determining fees.
Whether you decide to have an equity deal investment, preferred equity deal investment, or debt deal investment, there are fees. If you ever have any questions about how the fees impact a specific investment opportunity you can always contact EquityMultiple customer support.
If you feel that EquityMultiple is a good fit for your investment portfolio, create an account today!