How to buy high-end real estate for $1000
The American Dream is to own a home. The next step up is to be a real estate mogul. However, many budding real estate investors don’t have the vast amounts of capital required to buy a stake in large-scale properties such as multi-family projects, retail centers and high-end homes.
Now, crowdfunding is making those realty dreams a reality. Nav Athwal runs RealtyShares, a Kickstarter-type platform for accredited investors - those with a net worth of a $1 million, or an annual income of at least $200,000. His online platform allows individual investors to peruse various type of properties throughout the country, and choose to invest in a project starting with as little as $1000.
The entity that sets up the property is called the sponsor. Athwal says with crowdsourcing real estate, investors are getting exposure to a specific asset that they can hand pick. "You pick the zip code, the address, the type of property.”
Crowdfunding in real estate is gaining traction. According to Forbes.com, there is Realty Mogul, which raised $1.5 million for a 15 percent stake in the Hard Rock Hotel Palm Springs through a group of 85 people. Another one is Fundrise, backed by big names such as Silverstein Properties, the developer of One World Trade Center (also known as the Freedom Tower) in New York City. The Wall Street Journal reported in June that these and “dozens” of others had raised $135 million in debt and equity for various developers.
Athwal says his platform charges a listing fee of 2 to 2.5 percent on capital raised. He did about a hundred deals last year in various projects ranging from mixed-use properties to a doctor’s office. One deal was valued at as much as $50 million.
The main difference between real estate crowdfunding and REITS (Real Estate Investment Trusts) is that the REIT does the investing for you. They have a lot more liquidity, but the average REIT's common shares pay a dividend of about 4 percent. The risk is spread out over several properties. Athwal says the returns on his platform can range from anywhere from between 6 percent to 18 percent paid out on a monthly or quarterly basis, compared to the 6 and a half percent return on the S&P 500 (^GSPC). This may be in the form of debt servicing or rental income. Additionally, if the sponsor sells the property for a profit, the investor gets a share based on their equity stake.
Of course, this type of real estate investing is not without risks. The sponsor could default or the investment could lose value. Athwal also acknowledges there could be another downturn like in 2007; however, he is bullish especially on the high-end home market, where homes can cost $2 million and up.
He’s done deals in ritzy Los Angeles neighborhoods where celebrities James Cameron and Colin Farrell have lived. RealtyShare has also given investors access to a 680-unit, multi-family project located next to the Dallas Cowboys' training field. If you are an accredited investor and can afford to pay modest sums of money, you not only get to play in high-end real estate, but you also get bragging right.
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