Author: Kevin Mercadante / Source: fivecentnickel.com
Out-of-the-box investors, risk takers, and experienced real estate speculators will appreciate this crowdfunding platform. We’ll explain how EquityMultiple can provide the portfolio diversification you may be looking for.
Real estate crowdfunding offers investors an opportunity to invest in sophisticated real estate deals that were previously unavailable to the average investor.
You can now invest in commercial real estate deals, including office buildings, apartment buildings, retail shopping centers, and other types of non-residential properties. These deals are both higher return and higher risk than typical residential real estate investing, and therefore restrict the type of investors who can participate.EquityMultiple is a prominent commercial real estate crowdfunding platform, that gives you the opportunity to invest in commercial property with an investment of as little as $5,000. Their team of seasoned real estate professionals carefully evaluates potential deals, making sure you’re investing in only the highest quality properties available.
It’s an opportunity for you to diversify your portfolio beyond stocks, bonds, and real estate investment trusts. Commercial real estate is a high return investment, that can provide a greater level of diversification for more sophisticated investors.
What is EquityMultiple?
Founded in 2002, EquityMultiple is an online real estate investment crowdfunding platform, dedicated to raising investment capital. EquityMultiple is backed by Mission Capital, a technology-forward real estate capital markets firm. The two firms have combined their diligence and consulting services to allow their client base liquidity and an optimized portfolio strategy throughout the credit cycle.
EquityMultiple has closed more than $700 million in real estate transactions. They work with both new and experienced investors, and their goal is to simplify the investment process by combining it with technology.
How EquityMultiple Works
When you invest with EquityMultiple, you’re investing in commercial real estate. Unlike many real estate crowdfunding platforms, which may invest in small projects, like single family residential properties, such as fix-and-flips, EquityMultiple invest primarily in much larger deals. For example, a typical real estate project will be between $500,000 and $2 million. As an investor, you can buy incremental investments in these deals.
In order to participate, you must be an accredited investor. That means you must qualify based on income and assets. Naturally, an accredited investor is on the higher end of the wealth scale. This is because investing in commercial real estate tends to be a high risk venture. It’s best suited for those who are both familiar with such investments, and have the financial strength to weather losing money.
The minimum investment required is $5,000, but most deals will require a minimum of $10,000 to participate. EquityMultiple also offers IRA accounts, and they require a minimum of $20,000 to open.
You can participate no matter where you live. EquityMultiple operates in all 50 states.
EquityMultiple Features and Benefits
Deal Structures
As is typical with real estate crowdfunding platforms, when you make an investment it isn’t in the actual real estate. Instead, the platform creates an LLC for each deal. You will invest in a share of the LLC.
EquityMultiple offers the following 3 investment structures:
Syndicated debt. These are loans you help to fund on a particular real estate deal. The typical expected annual return is between 7% and 12%. Income payments can be paid out either monthly or quarterly throughout the term of the loan.
The typical long term will be between 6 months and 24 months. The loan-to-value (LTV) ratio will be 50% and 75% of the value of the underlying property. Each first lien loan is secured by a mortgage or deed of trust on the property.
Preferred equity. These deals usually offer a fixed rate of return throughout the term of the loan. But they may also provide an additional return when the investment is paid off. For example, preferred equity is expected to provide a return of between 7% and 12% annually. But with the additional return, the total return is more likely to be between 10% and 14% per year.
The typical term of preferred equity deals is between one and three years. The advantage of this structure is that you’ll be entitled to repayment of your investment before straight equity holders and project sponsors are paid.
Income payments are generally set up on either a fixed monthly or quarterly basis, throughout the term of the deal. The additional accrued return will be paid when the investment is paid off, and the principle is returned to investors.
Common equity. As the name implies, these deals do not offer a fixed rate of return. They do however expect an internal rate of return of at least 14%. Both the return on investment and the frequency of payment will be based on the performance of the underlying investment.
The typical term of a common equity deal is between three years and seven years. Though these deals have the potential for larger returns than preferred equity or syndicated debt, you are the last party to be paid in the deal. That gives you very limited downside protection.
Deal Selection Criteria and Vetting
As noted earlier, EquityMultiple restricts investments to larger projects, at a minimum of $500,000 each. With a minimum investment of $10,000 in each deal, you can spread a $100,000 investment across 10 different individual deals. Additional investment shares are typically offered in increments a $5,000 above the minimum initial investment.
Each deal ranges in term from 12 months to 10 years.
The company is highly selective in the deals they accept for funding. Though they may review hundreds of individual deals each year, they typically accept only about 10% for funding activity. This is to ensure that the deals accepted are the highest quality for their investors.
Projects are evaluated using stress test underwriting assumptions, as well as the review of key legal documents and third party reports. They also give close consideration to the structure of each…
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