Real estate investors need to save up large chunks of cash to invest. But while you’re saving or hunting for deals, where do you hold your cash?
Deni and Brian break down four short-term investents that actually pay a decent return, where you can hold your money for a year or less.
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We compare several buy-and-rehab lenders and several long-term landlord loans on LTV, interest rates, closing costs, income requirements and more.
Deni: Hi everyone and welcome to Spark Rental Facebook Live. It’s a great Tuesday and…
Brian: What makes it a great Tuesday?
Deni: Because it’s not deathly hot outside for a change, or at least on my end. I don’t know how it is over your neck of the woods, but it’s been very nice lately. Last week we talked and had a webinar about self storage, which was really cool. I mean, I don’t know about y’all, but I thought it was very, very interesting.
Brian: It’s great. Stacey clearly knows her stuff.
Deni: Yes. Yes. And she’s very interesting. And it just piqued my interest.
Brian: About now family live in an RV. They travel, they live nomadic in an RV and just travel the country. I love it.
Deni: Oh, that’s what my husband and I want to do. We got the camper and everything. We just got to get him to stop working. But yeah, he likes to work, so that makes it hard.
Brian: Well, so do you.
Deni: That is true, but I’m blaming it on him right now. Okay. Today we are talking about four short term real estate investments that you can invest in for under a year. And Bryan’s going to pretty much show us the ropes here. So, Bryan, go ahead and let us know a little bit of what it is and some of the different venues.
Brian: Sure. So, you know, real estate is considered a long term investment because it’s so illiquid, right? I mean, it takes months in many cases to buy or sell a property and it costs thousands and thousands of dollars in closing costs to buy or sell a property. So, yeah, very illiquid investment. That’s why people hold real estate for a long time in most cases, unless you’re flipping houses or something like that. But in an environment like today’s, we’ve got interest rates in the nine or eight 9% range. You can’t just leave a bunch of money, tens of thousands of dollars sitting around in a savings account while you save up money for a down payment on a deal. As a real estate investor, because you’re losing effectively 8 to 9% on your money, that’s sitting there in the savings account. So that’s a that’s a huge problem for real estate investors who are trying to save large chunks of cash for investing in properties. You know, if the median home price in America is 400 grand and you’re putting down 20%, 80,000, most of us don’t have $80,000, just, you know, ready to go in a moment’s notice. So it takes time to save it up. So that raises the question, where do you invest your money short term to earn a decent return so you’re not losing so much money to inflation? And I, as a real estate investor myself, I like to put money into some of these short term real estate investments where I think you can earn some pretty decent returns, especially compared to like a savings account.
Brian: And you don’t have the same volatility that you do in the stock market. Where the stock makes these investments aren’t going to crash by 20% on you the way that the stock market sometimes does and did earlier this year. Right. So without further ado, let’s jump in to four short term real estate crowdfunding investments that I like. And full disclosure, I do have my own money in some of these. Danny has her own money in some of these, but not all of them. So we are going to start with a relative newcomer in the market called Lex Markets is the name of the crowdfunding platform. So they partner with some large commercial operators and they buy they own buildings in various cities around the US and part of the ownership of the buildings they open up to crowdfunding investors like you and me and you can buy shares in these. Typical share price for these is around $250 per share that buys you fractional ownership in the commercial property. When I say commercial property, these are a mix. Some of these are multifamily properties. Some of them are parking garages, some of them are mixed use buildings.
Deni: Now, Brian, can you pick and choose?
Brian: Yeah. So you buy shares and individual properties.
Deni: Okay.
Brian: So for example, they have one in New York City. That’s a mixed use property. I think it’s retail or maybe it’s office space on the first floor and then apartments on the floors above that. And then in Portland, Maine, I think they have it’s a mixed use parking garage, so it’s mostly a garage. But then I think there’s also some retail space along the first floor. So you can pick and choose these different investments all over the country and buy shares. Now, to date, they only have a handful of buildings on there. You can buy shares in. It’s something like four or five, six buildings, but they’re big commercial buildings. They’re in different markets around the country. And what is awesome about Lex Markets [is] unlike most real estate crowdfunding platforms, they have a secondary market built into the platform, so you can buy and sell shares directly to other investors.
Deni: Oh, wow!
Brian: Yeah! So that’s what makes it so cool as opposed to only being able to buy shares from the company themselves or even more importantly, being able to sell your shares. The only people that you can typically sell real estate crowdfunding shares back to is the original company, and often they put time limits on those and they’re stiff time limits, like fundraise, for example, and streetwise five year commitment. And if you try to sell early, they hit you with a penalty. So that’s what’s great about Lex Markets is you can you can buy and sell shares to other fractional owners and you can set…
Brian: Yeah. You can set like limit prices just like on a stock brokerage account.
Deni: Stock market. Yeah.
Brian: Yeah. So you set limit prices and say, well I am willing to pay $245 a share instead of 250. So if anyone’s willing to sell me a share for 245, you know, I’ve got this limit order sitting out there where likewise as a seller you can say, Well, I’m willing to part with my shares for 2.55 a share, whatever. Or you can just make a market order and just buy whatever the going rate is at that moment. So check out Lex Market’s very cool platform doing things differently than your typical real estate crowdfunding platform.
Brian: Moving on Concreit. And I say it goofy like that because “REIT” spelled like a Real Estate Investment Trust – R.E.I.T. I know it’s so clever, right? So Concreit is cool. It’s entirely liquid. At least they claim that it’s entirely liquid. You and I were talking before the show that so we have some money. Some of our own money is tied up in Concreit. We haven’t actually tried to sell any shares yet, so we haven’t tested that liquidity yet. But they do claim that it’s completely liquid that you can sell your shares back to Concreit at any time. There’s no penalty on your principal investment. They do ding your dividend returns if you sell within one year of buying. So here’s what they do. They pay a 5.5% annual dividend yield and they pay it out every week, which is which is great. It’s everybody.
Deni: I have to just… I like the dumb little things. So they have a really cool app. And when you go in to either put more money in or check on it or whatever, they have this like ribbons and everything else because you earned another dividend. But it’s a cool little app and I like their premise.
Brian: Oh, it’s great, it’s great. Yeah. You get an email every week alerting you to how much dividend income you made that week, which is, you know, sort of reassuring. And you can obviously like any platform you can sign up to reinvest the dividends, but the underlying investment with Concreit is a pool of hard money loans mostly. They have a few other types of debt instruments in there as well, and they just recently added some equity investments. They actually ended up buying some properties in addition to the loans. But the main underlying investment, it’s a pooled fund that owns short term fixed and flip loans, hard money loans to real estate investors. So because these loans turn over so much, because they’re short term loans, that gives them plenty of liquidity with this pooled fund. And when you buy in to Concreit, there’s only one investment. You can only invest in one thing. And that’s this pooled fund paying five and a half percent interest each year in the form of dividends. You can earn up to an extra one percentage point in dividend yield, so up to 6.5% interest on that. If you do things like refer friends and family to Concreit, you get a dividend bonus. So things like that. But Concreit is great because you can buy in instantly and can sell instantly. And they say…
Deni: Better than a savings account.
Brian: Exactly. So if you’re listening to this and being like five and a half percent returns, that’s okay. But that’s still way less than inflation right now. I hear you. But this is really an alternative to savings accounts as opposed to an alternative to like rental properties or stocks or longer term investments like that because of the liquidity. Right. So you’re accepting a lower interest return in exchange for good liquidity and a stable portfolio. There’s not volatility in value. Right. And one nice thing about Concreit is you can invest with as little as $1. So anyone can invest. Anyone who can scrape some pennies together can invest in real estate through Concreit.
Brian: All right. Moving along to number three, Ground Floor. This is one of my favorite real estate crowdfunding platforms. They are a hard money lender. So kind of like concrete. The underlying investment is short term fix and flip loans to flip flippers, real estate investors. So purchase rehab loans. Short term, these loans are typically four terms between three and 12 months. So you typically get your money back in under a year. But here’s the thing. It’s not liquid the way that concrete is. So yeah. So once you commit money to a loan, your money is committed to that loan until the borrower repays the loan. Now, you can see up front how what the term is, what the remaining term on that loan is. And by the way, I should have specified – you’re investing in individual loans.
Deni: And you can pick and choose. So you can do like a little screener thing and then pick out risk and…
Brian: Exactly! And they price these loans based on risk and they grade them. So grade a loans that are the lowest risk, they pay the least interest right now. I think they’re paying somewhere around 7% interest on the Grade A loans and then that goes all the way down to like grade. E or F that they pay like 15% or even more sometimes interest on those. Those are the much higher risk loans. So I personally invest in BC and D loans, sort of the mid-range. And on those you’re looking at returns in between like eight and 12% for the interest that you get on those loansgot it. But yeah, like they said, you pick and choose individual loans. You can fund each loan with as little as $10. So you can spread your money across a whole bunch of different loans, which is what I do. I just spread the money $10 here or $20 there, just spread across all these different loans. So you are going to occasionally have loans that default, but it’s not going to totally sink you if you only have ten or 20 bucks invested in each loan.
Deni: And even if they default, aren’t there somewhere you don’t necessarily lose everything?
Brian: Oh, well, sure. I mean, these loans are secured by real estate, right? Because they’re a hard money lender. They’re only lending up to a pretty low LTV on these loans. Like most these loans are between 60 and 75% LTV. So if the borrower defaults, they just foreclose and get your money back or do a deed in lieu of foreclosure or something like that. And because the borrowers are investors rather than homeowners, they don’t have the same regulation and the same rights that homeowners do. To foreclose on a homeowner takes many, many, many months! And it’s a bureaucratic and regulatory nightmare.
Deni: It can take a year.
Brian: Yeah, it can take it can easily take a year. It can sometimes take longer with with investors, real estate investors, they don’t have all those rights. So the foreclosure process is much faster. It’s much more streamlined when you’re foreclosing on an investor instead of a homeowner. So that makes that puts you as the lender in this position way, way better way better position. So the worst thing that’s happened to me on Ground Floor is they foreclosed on a property that I had invested in or that loan foreclosed. And I got my principal back, but I didn’t get any interest on it. But I got 100% of my principal investment back. And that’s my worst experience so far with Ground Floor. Now, that being said, there are plenty of loans I’ve invested in that have gone overdue. The term was expired like six months ago and the loan has not repaid yet. So that is a risk with these. When we’re talking about short term investments, yes, you can pick and choose loans with a term, a remaining term of only three months, six months, whatever. That does not mean that the borrower will actually repay it on time. Right. Sometimes these borrowers, as you guys know, is real estate investors. Sometimes shit happens, right? And they don’t get the flip done as quickly as they were planning on. So that is a risk with Ground Floor. You don’t have the same liquidity, but you earn way higher returns. You know.
Deni: Ground Floor is also doing something similar to Concreit, right?
Brian: Yes! And that so that’s a perfect segue. That brings us to number four of the four short term real estate crowdfunding investments. It’s called Stairs by Ground Floor. And that’s stairs like the things you walk up, not stairs like staring someone down in a parking lot.
Deni: So you know Ground Floor’s stairs.
Brian: Yeah, yeah, yeah. There you go. So this is a pilot program that Ground Floor recently launched. And it works just like Concreit where they pool a bunch of these loans together and you invest in the pooled fund and it’s completely liquid, just like Concreit. So it’s basically a knock off of Concreit pooled funds based on short term fix and flip loans, lower interest. So Stairs pays between four and 6%. Annual interest on these and exact amount depends on things like have you signed up for dividend reinvestment and stuff like that. They try to incentivize you with higher interest to do stuff like that, but like Concreit, completely liquid, you can pull your money out at any time with no penalty to your principal.
Deni: So the link for Ground Floor is in the chat and it’s the same link for both.
Brian: Yeah, you can use the same link to sign up for both. So I’ll be honest, I tried to sign up for Stairs. I actually I wanted to put some money in them, but because it’s a pilot program that they just launched recently, they’re restricting how many people they’re letting in at a time. So there’s a waitlist right now to get in there and invest money and create an account. So just to be aware of. But it is out there. It exists. You can sign up on the waitlist and who knows, maybe they’re taking more people out. I haven’t checked on it in a month or two.
Deni: And please, if any of you have any experience with any of these, throw your experiences in the chat. Let us know.
Brian: Please. Yeah. But yeah, so that’s it. I really like the premise behind all four of these platforms because they’re so different from your average real estate crowdfunding platform. Short term, more liquid money needed, less money needed. Yeah. So the minimum investment with concrete and with Stairs is $1. The minimum investment with Ground Floor is $10. The minimum investment with LEX markets is whatever the cost of a single share is typically around $250, but that’s still way less than, say, a down payment on a rental property, or even for that matter, the minimum investment with a lot of crowdfunding platforms like Street Wise has a minimum investment of $5,000. So…
Deni: So these have definitely a smaller barrier to entry.
Brian: Exactly. Exactly. All right, then. Anything else you want to cover on this topic before we call this episode complete?
Deni: Well, I am also putting a link on an article that we have all about crowdfunding investments.
Brian: So that’s a great point. A good one. Yeah. And we have we have a chart on there like a quick glance chart comparing all the different or not all but most of the different real estate crowdfunding platforms that are available to non accredited investors. So it’s a great way to analyze and compare some of these crowdfunding platforms at a glance. And we also we also have a longer article about other short term investments as well that you can check out and.
Deni: Beyond.
Brian: Just real estate crowdfunding investments. So we’ll add a link to that as well.
Deni: Yes, that’s in there. And Brian, you might want to explain just real quick what an accredited investors for those that may not know that.
Brian: Yeah. So an accredited investor is a wealthy investor who meets one of a couple of different criteria, a net worth of at least $1,000,000, not including equity in your home. Or you can also qualify as an accredited investor by having a high income $200,000 a year for individuals, $300,000 a year for married couples. And the reason why it’s relevant is that a lot of advanced investments, some real estate, crowdfunding platforms, most real estate syndications only allow accredited investors to participate. But there are some out there. There are some real estate crowdfunding platforms, like all the ones that we talked about today who allow everyone to invest, middle class people, not just wealthy accredited investors.
Deni: Right. Awesome.
Brian: All right. On that note, we will see you guys next week and stay in touch. Let us know what you want to hear about and send us your best recipes and all that good stuff. [We are] always on the lookout for good new recipes to try. All right. We’ll see you guys soon.
Deni: Have a great day, guys. Bye.
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