In my investing career, I have made many real estate investments of varying sizes, types, and with a wide range of returns. I’ve touched on them here and there, but have not written a comprehensive post covering all of them until now. Note that I won’t be talking about the properties we’ve purchased to live in or land we purchased to possibly build on. Some of those became rental properties and flips, but were not necessarily intended to be investments. I’ll be detailing my various passive real estate investments, ones that don’t require any effort from me other than a bit of due diligence on the front end and a bit of extra paperwork to pass along to my CPA. My first investment in passive real estate was made in July of 2013 when I bought shares of Vanguard’s Real Estate Index Fund (VGSLX), a collection of publicly traded REITs (Real Estate Investment Trusts). The volatile nature of REITs, combined with the availability of numerous additional ways to invest passively in real estate as a result of the JOBS Act passing, and me becoming an accredited investor, led me to seek out other real estate investments. I started small with a few investments in January of 2018. Wanting to diversify across deal types (debt, equity, eREIT), and across different investment platforms, I made about a half-dozen investments in the first part of 2018. As I continued to become more familiar with my investment options and the platforms offering them, I broadened my scope to include larger investments in crowdfunded syndications and real estate funds. As of June, 2021, these various passive real estate investments that I’ll be detailing represent about 10% of our investment portfolio. Our total investment in alternatives (including these real estate deals plus ownership in privately held companies) is somewhere in the range of 15% to 25% of our portfolio. Valuation of privately held companies is challenging, and we don’t necessarily know the true market value of some of these real estate investments, either, until the deals have been completed (i.e. properties sold or loans paid back). I also didn’t include VGSLX in that calculation, which behaves more like a stock fund, or the 3% of VTSAX that is invested in REITs. You can understand how determination of asset allocation can be rather challenging. Why so many real estate investments I’ve asked myself the same question at times. First, I wanted to dip my toes in the water with small sums of money. There’s no better way to learn how these investments work than by becoming an investor yourself with a tiny sliver of your portfolio. Also, with some of these platforms, I’ve had advertising or referral relationships in place, and I figure if I’m researching them and presenting them as potentially viable options for your investment dollars, I should be comfortable investing with them myself, which I’ve done in most cases. With any asset class, diversification is a good idea, and in the case of crowdfunded real estate in particular, there is no Vanguard with 40+ years of experience. The JOBS Act that allowed for these platforms has only been around since 2012, and I think it’s a good idea to diversify across different platforms. I’m now at the point where I’m comfortable making a six-figure investment in a real estate fund with a single operator, but I don’t know that I would have gotten there without slowly wading into these waters. I don’t think jumping into the deep end of the real estate pool to either sink or swim is a good approach for most people, and it certainly was not for me. Disclaimer Most of the platforms and operators have offered dozens, if not hundreds, of real estate investments to potential investors. Some deals over-perform their projections, some underperform, and my one or two investments on a platform should NOT be taken as a representative sample. For example, Crowdstreet’s deal flow is very steady, with several offerings weekly. AcreTrader presents a new farm weekly while declining to offer 99% of the farms they consider to investors. My one deal with Alpha Investing gave an outstanding return. My returns on my single investment with EquityMultiple were only slightly positive. That doesn’t mean one company is better than the other. These are individual deals among dozens offered by both platforms. I may have simply been lucky with one and not so much with the other when it came to the individual project, both of which were value-add multifamily equity deals in this case. Some companies offer only a few funds or eREITs, each of which is invested in a variety of underlying deals. Some of them regularly update the Net Asset Value (NAV) of the deals they’re invested in. Others do not, and you won’t know the value of your investment until it goes full circle. This is technically true even of those that do estimate the NAV on an ongoing basis — it’s their best estimate, but you don’t know the true fair market value of a thing until it sells on the open market. All of this to say that it’s tough to compare apples to apples when investing in different deal types with various companies that might report asset values differently. I do calculate my IRR with an Excel sheet, but when you don’t know the current estimated value of the investment, you’ve got incomplete information. I’ll report what I can for each investment I’ve made. Completed deals Alpha Investing In July of 2019, I made my first investment on the Alpha Investing platform, a low five-figure investment. It was an apartment complex in Arizona to be purchased, improved, and resold. I received small quarterly distributions from September 2019 to September 2020. In December 2020, the property was sold for a handsome profit, and I was paid out with payments in December 2020 and January 2021. My Results with Alpha Investing IRR: 50.45% Days Invested: 512 Total Return on Investment: 76.5% Explanation of Terms IRR: Internal Rate of Return (IRR) is the compound annual growth rate, accounting for inflows (investments made) and outflows (distributions from the investment). It is annualized and probably the best way to measure performance of investments like these. Total Return on Investment: The total cash returned / total cash invested. Not annualized. Change this from a percentage to a decimal and put a 1 in front of it, and you’ve got the equity multiple. Days Invested: How many days it took to earn that total return. EquityMultiple This was one of my first investments in passive real estate, made in January of 2018, and it was a low five-figure investment via EquityMultiple. It was also a value-add apartment complex project in Connecticut in an area suitable for commuting to New York City. The investment was all set to be completed in the spring of 2020, but COVID threw a wrench in those plans. I received distributions from rental income from May 2018 to November 2019, and then the distribution stopped while lawyers sorted out the details of the stalled closing. Eventually, a new buyer was identified, and after the sale closed, I was paid out in April of 2021. I made money, but not much. Source
