Business of Fintech
Building a more diversified online real estate investment platform
- Most real estate crowdfunding platforms deal with only a single asset class
- Some platforms, like RealtyShares, are beginning to offer a suite of real estate asset classes.
The real estate crowdfunding marketplaces have done a good job of starting to connect the fragmented real estate market to investors. But the system isn’t perfect yet. Most platforms deal with a single asset class, so investors trying to build a diverse real estate portfolio may find themselves investing on multiple crowdfunding sites. The pain of keeping track of investments across multiple platforms can be a confusing, time-wasting process. But some platforms are taking on the task of offering a suite of real estate asset classes investors. “It came down to offering investors diversification potential,” said Nav Athwal, CEO of RealtyShares. “Many investors, especially individuals, can’t invest in real estate outside of a REIT or don’t have access to diversify real estate investments. Our ultimate goal is to be able to provide a diverse set of opportunities in terms of products, asset types, and capital stacked positions.” Diversification on the RealtyShares marketplace comes both in property type and ownership status. Most of the platform's debt investments are centered on fix and flip, single family, short-term loans. A vast majority of equity investments are occupied commercial properties with a 3 to 5 year hold period, but the site occasionally has a development project available for investment. Some projects have a preferred return with little upside, while others have common equity with lower annual returns but higher upside potential. The San Francisco-based marketplace has surpassed $200 million in financing through the platform and recent completed a $33 million debt financing and venture round. CEO Nav Athwal, who also happens to be a finalist for the Tradestreaming best first name in fintech award, said “more than a few scotch and tequila bottles had to be cleaned from the office after the round was finished.” Athwal attributes some of the success of his platform to the the familiarity of real estate to the retail investor. As opposed to investing money into businesses through VC or online lending platforms, most people have a basic understanding of real estate “A retail investor with little sophistication still understands real estate investment because it’s such a part of our daily lives. Big funds and pensions have made money through real estate, and outperformed the S&P. We’re bringing real estate, which is a great way to build wealth, to the retail market,” he said. Currently, RealtyShares only works accredited investors. With new regulations that have opened up crowdfunding to non-accredited investors, Athwal hopes the platform will one day be made available to the general public, but doesn’t see it happening in the near future. Instead, his firm is going after the white wale of crowdfunding platforms: family offices and institutional investors. “The level of crowdfunding adoption from the mainstream real estate industry has skyrocketed,” he remarked. “In 2013, online fundraising for real estate was very foreign, but in the last 2 years, the level of interest from institutions has been surprisingly good. Crowdfunding for real estate isn’t mainstream yet, but it’s going to continue to make inroads in the real estate industry,” he concluded.