Real estate is one of the most reliable markets in terms of investment. After all, brick-and-mortar doesn’t vanish out of the blue. The advantages of this sort of investment are hard to overestimate — income from the real estate grows in case of inflation, allowing an investor to maintain its real returns, the value of property can be increased by improving the property itself, returns have relatively low correlations with other asset classes, such as stocks and bonds which adds to the portfolio diversification, etc.
However, there are issues in this type of investment that might cause headaches to an investor. To list a few, the real estate investment is rather costly, property requires management, some investment opportunities are hard to access and so on.
RealtyShares is a crowdfunding for real estate platform that decided to eliminate the difficulties existing in the sector of the real estate investment. The platform gives an opportunity to raise capital for the property investments through Crowdfunding. What is more, RealtyShares allows Accredited Investors to have access to a variety of investment properties, create and manage their property portfolio online and invest as little as $5,000 into each property.
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I got to talk to Nav Athwal, the co-founder and CEO of RealtyShares.
Me: Tell me a little bit about your background and the reason why you came up with the idea for RealtyShares.
Nav: Prior to founding RealtyShares I was actively involved in the real estate sector. I was a real estate and land use attorney in San Francisco representing large institutional clients (including public REIT’s and Fund Managers) on some of the largest real estate projects around the country. Also, I was a real estate broker for close to half a decade before that. In these capacities, I saw this gap in the market between real estate investments requiring efficient debt and equity capital and an individual investors’ ability to participate in these investments.
There was not an easy way for these individual investors to purchase shares in real estate like they can in publicly traded securities, such as stocks and bonds. We created RealtyShares to bridge this gap.
Me: Crowdfunding is not new, we have Kickstarter, Ingiegogo and other crowdfunding sites for the startups. But in what way is the real estate crowdfunding and RealtyShares different?
Nav: Kickstarter is a great model and we are applying a similar model to real estate with RealtyShares. However, Kickstarter and other platforms like it are reward and donation-based crowdfunding platforms. This means you pool capital with others in exchange for goods or services or for a social cause. With RealtyShares you invest and thereby actually own a tangible asset, participate in the growth of that asset and earn monthly or quarterly cash distributions along the way. So rather than «donation or rewards» based crowdfunding we’re «investment» crowdfunding.
Me: What are the main benefits of investing into the real estate crowdfunding on RealtyShares platform?
Nav: There are a number of benefits. One of the advantages is that crowdfunding lets you access and invest in real estate without worrying about the operation and management of the property. You are a passive investor entitled to distributions from rental or interest income and sales profit, but you do not have to operate the asset or manage it. Instead, you rely on a dedicated and qualified real estate company with a strong track record to do so.
Next, RealtyShares provides you with a way to access and invest in real estate with a much lower minimum investment than it is typical today for a private real estate investment opportunity. You can invest as little as $5,000 (as opposed to $100,000) into a single property and distribute your capital across many assets, thereby achieving greater diversification than is possible with the traditional real estate syndication model.
Also, our platform provides access to quality, pre-vetted real estate opportunities to investors across the country. Every opportunity that comes to RealtyShares is curated. We do a thorough check of every asset and the real estate company offering the asset to make sure both the asset and the company meet our strict proprietary underwriting standards. And only this vetting do we list an investment opportunity on our platform.
What is more, the investment process on RealtyShares is completely paperless and streamlined. As an investor, you can complete an investment in minutes rather than weeks. You can browse a variety of investments through our secure platform, view details on any investment via an easy to use deal page and when ready to invest, execute documents electronically and transfer funds online through ACH. Accordingly, with RealtyShares you can invest in real estate from the convenience of your laptop or a tablet. Something that has never been possible before.
Me: What is the difference between the Real Estate Investment Trust (REIT) and Real Estate Crowdfunding?
Nav: A REIT doesn’t give you the same level of transparency that real estate crowdfunding does. With RealtyShares you invest in a specific asset (or pool of assets) that you select and that matches your own personal investment strategy. You know exactly where your money is going.
With a REIT on the other hand, you invest into a company that invests your money into various real estate assets. In addition, direct investments in real estate are a great way to diversify an investor’s portfolio thereby reducing risk and increasing return. With REIT’s on the other hand, you have a greater correlation with the stock market and thus the opportunity for diversification from stocks isn’t as great.
Me: You offer two kinds of investments through the platform — debt and equity. What is the essential difference between them?
Nav: An Accredited Investor can access both debt and equity real estate investments on the RealtyShares investment platform. When investing in Debt, the investor becomes a lender rather than an owner of the property. This means the investor has the benefit of having their investment secured by the asset, but the investor’s return is capped. In other words, you earn monthly interest income but do not receive profits from the sale of the property. Our debt offerings typically yield a fixed interest rate of 8-9% annually.
With equity investments, on the other hand, you are an owner or shareholder of the property, rather than a lender and, therefore, are not secured by the property. However, unlike with debt, your return is not capped.
You receive periodic payments of cash flow during a hold period (usually from rents) as well as your share of profits when the property is sold. Hold periods for investments made through RealtyShares range from as little as 6 months and up to 5 years.
The projected hold period for each investment is clearly set forth on the deal page, so you know how long your capital is tied up for before you invest.
Me: You are accepting Bitcoin-based investments. That’s pretty innovative! What has prompted you to do it?
Nav: We had a number of investors approach us to ask if they could use Bitcoin to invest in real estate through RealtyShares. In response to these requests, we integrated the bitcoin option through the Coinbase API. Investors looking to use bitcoin to invest in our crowdfunded real estate investments can link their Coinbase account or use their bitcoin address and complete the investment instantaneously. We immediately convert that bitcoin into dollars using Coinbase, thereby avoiding any pricing volatility. We’ve had over $100,000 transactions in bitcoin to date.
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Me: Speaking of the legislation. Who is allowed to participate in private investments offered through RealtyShares?
Nav: Due to current securities regulation, we are limited to Accredited Investors only. An Accredited Investor is someone, who makes a least $200,000 a year in income or has a net worth of a million (excluding your personal residence). However, Title III of the Jobs Act termed the crowdfunding exemption could change that by allowing nonaccredited investors to participate. It was passed by Congress and signed by Barack Obama in April 2012. It will become operable once the SEC passes final implementing rules, which we hope will be in early 2015.
Me: What is the future for RealtyShares?
Nav: We hope to become the premiere real estate investment platform for investors located across the world looking to access quality real estate assets. As of today, all properties listed on our platform and all investors using our platform are located in the US. International expansion in terms of both investors and properties is something we’d like to do once we’ve built a solid platform and foundation in the US.
Me: Nav thank you for this great interview. We wish you all the best with your crowdfunding platform!