EquityMultiple, a New York-based real-estate crowdfunding company, wants to modernize real estate investing by allowing online investors access to more opportunities.
EquityMultiple’s partnership with the established real estate firm Mission Capital makes the company somewhat unique in the brand new—and yet unproven—crowdfunding space.
Mission Capital’s track record should provide potential investors some comfort in a potentially risky space. If you’re an accredited investor willing to stake the minimum $10,000, you can get in on some of EquityMultiple’s deals.
How EquityMultiple works
EquityMultiple is a real-estate crowdfunding company. Through its website, EquityMultiple offers the investing public the opportunity to lend money to “sponsors”—other investors looking to borrow money to purchase real estate. When enough investors sign-up for a deal, the sponsors get their loan and buy property. As the sponsors make payments on their loan, investors get returns.
EquityMultiple’s partnership with Mission Capital gives them access to a larger network of sponsors than many other crowdfunding sites. (As the industry is still in its infancy, many excited investors sign up for sites only to learn there are only a handful of investment opportunities available at any one time.)
Sponsors also come to EquityMultiple directly and provide initial information on their projects.
EquityMultiple performs background checks and due diligence on the sponsors’ previous projects and does a neighborhood evaluation of the investment property (which includes physically checking out the neighborhood).
Before the offer goes online, EquityMultiple takes the deal to their Broker Dealer Partner, Growth Capital Services.
What’s a broker dealer?
Broker dealers have a lot of complicated jobs, so I won’t bore you with all of them. Broker dealers do most of EquityMultiple’s underwriting, helping them decide how much risk is involved in obtaining a sponsor.
Finally, after a security process akin to going through airport security, investment opportunities are offered online to the masses.
To invest you must be an accredited investor (have a net worth of at least $1 million or make $200,000 annually). There is a minimum of $10,000 for each investment (though that minimum can change depending on the listing), allowing you to make multiple investments at once rather than investing a large amount into a single investment.
There are three types of investments that EquityMultiple offers
Syndicated debt is debt backed by a company with a long history in real estate investing. Many other online investing sites (such as Fundrise) are direct lenders in all of their deals. That means you’re taking risk alongside other entirely amateur investors. EquityMultiple, on the other hand, offers deals that are partially backed by experienced real estate investors, too.
This adds another layer of security. You may know what you want to invest in, but the lenders know what’s best to invest in.
These deals are much shorter than others offered by EquityMultiple, usually only lasting six months to two years.
Here’s an example, from EquityMultiple’s website:
GreeneWaters, a construction company in Hawaii wants to build six homes. If you wanted to invest in this deal, you’d partner with the Private Capital Group, a firm that gives out secured loans. You would earn an estimated 10.5 percent interest (depending on how much you invest) and be paid these returns monthly.
Preferred equity deals do not involve a big business partner, and are made up entirely of individual investors. But these deals tend to be more rewarding than syndicated debt deals. (EquityMultiple projects returns of 10-14 percent rather than 7-12 percent.)
There’s a set monthly or quarterly return and the deals are still short-term investments, usually between one and three years.
Here’s an example, involving some Seattle townhouses:
Build Urban, a local developer in Seattle wants to build an 11-home townhouse community over the course of two years that will offer investors the potential return of 20-24 percent after the sale of the homes (although this is projected, not guaranteed).
These investments are the riskiest (you’re the last party to get paid back your initial investment) and the longest, but offer the best rewards. Equity investments typically range from three to seven years and have a return rate of 14 percent or more.
Here’s an example: Texas A&M University currently has an 18-unit dorm. They are at 95 percent capacity as of right now, but the Alpha Residential Trust (the sponsor of the project) expects the property to go up not only in capacity, but in value as well. College Station, where Texas A&M is located, has an extremely low unemployment rate, which is expected to increase the city’s population.
The entire deal is projected to offer a total return of 7-19 percent over the five-year period.
What makes EquityMultiple unique?
All real estate investing involves risk. But EquityMultiple’s partnership with Mission Capital allows them access to real estate backed by reliable companies.
Debt syndication allows EquityMultiple to partner investors (like you) with major lenders (remember the Hawaii example) to fund projects, giving investors a sense of security unusual in the real-estate crowdfunding space.
EquityMultiple has no problem saying they are a middleman. They monitor relationships between investors, sponsors, and larger lenders, making sure everyone is secure and capable of handling their investments.
EquityMultiple strives to be as transparent as possible in their dealings with investors. While their fees for investors are high (although still on par with other investment companies), they are upfront about them. All the outcomes they show on their project listings are the totals after all the fees have been taken out, so the investor doesn’t have to worry about calculating them on their own.
Annually, the investors are charged about 0.5 percent of the amount they invest, which covers the ongoing management of the investment. After you’ve received all of your initial investment back, EquityMultiple takes 10 percent of the profit.
These fees vary depending on how the investment goes. If you don’t make money, neither does EquityMultiple—which is why their security model is so vitally important to them: they don’t want to lose money any more than you do.
If you’re an accredited investor interested in real estate crowdfunding, EquityMultiple is a good platform to consider. Their partnership with Mission Capital means they have a steady stream of deals to choose from. And the different kinds of debt they offer provide varying return timeframes and risk levels.
EquityMultiple provides a fast, secure (as secure as real estate investment can possibly get), upfront look at what exists for investment opportunities throughout the U.S. Their $10,000 minimum investment allows for low commitment with decent returns, or the potential to make high returns through multiple investments.
For more info, visit EquityMultiple.
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