Thanks to changes in legislation, there are now countless crowdfunded real estate platforms out there to choose from. Gone are the days of actively managing properties and dealing with the headaches of owning physical real estate.
While many investors will choose to continue owning their own physical real estate, crowdfunding provides an attractive alternative for more passive investors.
Now, you can pool your money with investors from all over to invest in private real estate deals. In this review, we will be going over the pros and cons of the EquityMultiple crowdfunded real estate investing platform.
EquityMultiple is a unique platform for crowdfunded real estate investing. You have the ability to gain access to institutional level real estate deals. When compared to traditional REITs, EquityMultiple gives you more flexibility to choose the individual real estate projects within your real estate portfolio. You are no longer subject to an investment manager who chooses the properties in a traditional REIT. If you have the accredited status then EquityMultiple may be a great option for real estate investments.
EquityMultiple is a crowdfunded real estate investing platform that provides the savvy investor with a way to invest in private placement real estate projects. They provide investments in debt, equity and preferred equity. EquityMultiple is a platform for investors who are willing to commit a sizable amount of capital to an investment, as the minimum is $5,000.
Right off the bat, it is important to understand that EquityMultiple is available to accredited investors only.
EquityMultiple was created by two real estate professionals after long careers in the institutional real estate space. Between the team, they have over $75 billion in combined transactions experience.
They founded EquityMultiple on the premise that individuals should be able to gain access to institutional level real estate deals.
EquityMultiple is backed by the real estate investment company Mission Capital Advisors. This relationship gives EquityMultiple exclusive access to institutional-level deals. With strict investment guidelines, many of the deals EquityMultiple creates are of institutional quality.
The name EquityMultiple stems from the real estate term multiple, which is your return on investment. For example, an equity multiple of 1.2 would translate to a 20% return on your initial investment.
First, EquityMultiple begins by finding sponsors and lenders with strong track records. Using a national network of real estate companies, EquityMultiple has a consistent stream of potential properties and deals.
EquityMultiple works with national and regional experienced lenders, real estate companies operating in thriving markets, and sponsors with a proven track record of meeting and exceeding return projections.
For projects that survive initial due diligence, we stress test underwriting assumptions, review key legal documents, and third-party reports and consider transaction structure. A select few are on our platform. - EquityMultiple Website
EquityMultiple allows you to invest directly in individual real estate projects. Investors can build their own real estate portfolios from scratch. They follow a four-step process when assessing potential investments:
This crowdfunded real estate investing platform is for active accredited investors. All the projects on the platform are private placements under Regulation D of the Securities Act. This means the securities are non-registered and only available to accredited investors.
EquityMultiple offers screening tools and has a growing list of live offerings you can invest in. The minimum to invest in each project is $5,000 but can be up to $30,000 depending on the project. You can build your own portfolio of real estate investments on EquityMultiple by investing in multiple deals on the platform. Potential investments fall into one of three categories; fund investing, direct investing, or tax-deferred investing.
For investors in search of immediate diversification, fund investing could be a good option. EQUITYMULTIPLE creates funds that typically focus on a certain style of investment within a geographical area.
These funds will hold multiple properties and investors in the fund will own a slice of each property held within it. By investing in a fund, you'll be able to reduce the volatility of your investment and take advantage of the multitude of other benefits of diversification.
Some funds will invest in debt deals, some will focus on equity, and some hybrid funds will contain a mix of both.
The typical time horizon on EQUITYMULTIPLE funds can range anywhere from 1.5 years - 10+ years depending on the strategy the fund is following. Investors should be prepared to hold the fund as long as the stated time horizon on the fund.
The minimum investment for funds on the platform starts off at $20,000. However, some funds may require a higher minimum to get started.
When you invest in an EQUITYMULTIPLE direct investment, you are purchasing a share of an LLC that owns the underlying real estate project. In general, direct deals will involve greater risk and provide investors with a higher IRR.
This type of investment will typically be better for individuals who want a greater sense of control over their investments. By selecting a property that aligns with your investment philosophies, you can build a portfolio that matches your needs. Plus you'll know that every property you come across has already been thoroughly screened.
Individual deals will either be structured as debt deals, common equity, or preferred equity. This means you can select the deals that fit exactly what you're looking to invest in.
The typical time horizon for direct investing can be as short as 6 months for short-term loans or fix and flips, or as long as 5+ years for more involved investments. You'll want to make sure you can hold the investment through to maturity in all cases.
Investors are able to get started with direct investing with as little as $5,000, the lowest of any type of investing on EQUITYMULTIPLE.
The last option investors have on the EQUITYMULTIPLE platform is tax-deferred investing. These investments will all be in equity deals and will allow investors to take advantage of a number of tax benefits specific to real estate.
For investors with significant capital gains, taking advantage of these investments can be an effective way to offset those in the current year.
The primary strategies that EQUITYMULTIPLE applies with these investments are 1031 exchanges and opportunity zones. Both of these strategies allow for the deferral, and potential elimination, of capital gains on your investments.
In order to access these deals, you'll need to meet a $40,000 minimum investment, as well as hold on to your investment for a time horizon of 5-10+ years in order to take full advantage of the tax benefits.
Once you invest in EquityMultiple, you will have the ability to track your investments, receive distributions through ACH transfer, and receive investment updates directly on the platform. After you select the properties to invest in, it is a relatively passive investment. You just sit back and let EQUITYMULTIPLE take care of things.
You may have seen Equity Growth Partners mentioned on their site. Equity Growth Partners is the broker-dealer for EquityMultiple. Equity Growth Partners is a member of FINRA and regulated by the SEC. They provide regulatory oversight and compliance for EquityMultiple investments. They offer all investments through Equity Growth Partners.
The EquityMultiple platform has recently released new funds called Opportunity Funds. These investments are in tax-advantaged areas in recognized opportunity zones throughout the United States. In 2017, Congress passed the Investing in Opportunity Act which designated certain cities and zones throughout the US that need economic aid. EquityMultiple has created funds specifically for these tax-advantaged opportunity zones.
Since you pick and choose your investments on EquityMultiple, the investment strategy you follow is ultimately up to you! These are the general strategies EquityMultiple follows when analyzing potential deals.
Debt and preferred equity offerings on EquityMultiple will always have senior positions to the entire project equity. This means that in the case of default, EquityMultiple investors will be one of the first to receive payment. They structure equity investments as an EquityMultiple LLC. Investors will purchase a share of the LLC which in turn owns the underlying property.
According to the site, EquityMultiple aims for a net APR of 7 to 12% for debt deals. For equity deals, they aim for a cash on cash return of 6 to 12% for investors. In certain major real estate markets, they will accept equity deals with lower projected cash on cash returns.
To date, EquityMultiple has maintained a historical return of 16.8% for investors. This is amidst the turbulent 2020 market and the CEO has stated that they are poised for significant growth going forward with the increasingly relevant value proposition that real estate investing brings in uncertain markets.
Since its inception, investors on EquityMultiple have invested over $3.06 billion into real estate deals on the platform and have received over $108.8 million in distributions. $32 million of these distributions were paid out in 2020, showing a 2.5x year-over-year growth rate in both the investments and the platform.
The fee structure for EquityMultiple differs based on the structure of the deal. All deals include a 2% placement fee, paid by the sponsor. Investors do not pay this fee.
For preferred equity and debt deals, EquityMultiple will receive a 1% servicing fee from the deal sponsor. This covers the administrative costs of the platform and facilitating the deal. The preferred return displayed on the deal information is generally net of this fee.
Equity deals carry a 0.5% to 1.5% monitoring and reporting fee paid by the investors. EquityMultiple also typically collects a 10% carry on the profit of the deal. However, this carry does not kick in until investors receive their initial capital and a pre-determined IRR.
EquityMultiple funds also typically include an origination fee that is paid upfront by investors and will be specified on each deal.
EquityMultiple is a platform for accredited investors who are willing to commit a sizable initial investment (a minimum of $5,000). These more advanced investors have an accredited status because of their level of income and/or net worth. For this reason, the SEC gives them the advantage of investing in a wider variety of investments that may or may not be riskier than traditional registered securities. EquityMultiple gives these investors the opportunity to invest in individual real estate projects, rather than a portfolio of projects. This more personalized approach allows more flexibility to investors.
Investors who are not considered accredited will not be able to invest in the EquityMultiple platform, as well as those who do not meet the $5,000 minimum investment. For these investors, there are many other alternative crowdfunded real estate investing platforms. Fundrise and Realty Mogul offer eREITs and you do not have to meet the accredited investor status. Beginner or novice real estate investors should steer clear of EquityMultiple, as it is for investors with prior real estate investing experience.
EquityMultiple is a unique platform for crowdfunded real estate investing. You have the ability to gain access to institutional level real estate deals. When compared to traditional REITs, EquityMultiple gives you more flexibility to choose the individual real estate projects within your real estate portfolio. You are no longer subject to an investment manager who chooses the properties in a traditional REIT. If you have the accredited investor status then EquityMultiple is an option available to you.
We believe EquityMultiple has a very competitive platform for accredited investors. However, other platforms such as Fundrise have a lower minimum investment and is not limited to accredited investors. Check out Fundrise here.
If you are looking for other crowdfunded real estate investing platforms check out our article here on the Top Real Estate Crowdfunding Platforms For Non-Accredited Investors.