Direct investing in real estate can be very time-consuming. That’s why investors who want something more passive and liquid turn to REITs. 

But REITs aren’t all that different from investing in stocks. Is there a better option for those who want to stay closer to real estate investing?

One option is crowdfunded real estate investing platforms. Sharestates is a great example. They allow individual to investors to invest alongside institutional investors in quality mortgage loans. In this article, we’ll check out what Sharestates has to offer.

Sharestates logo
  • Invest as little as $5,000 in real estate loans 
  • Must be an accredited investor to participate
  • Early redemption possible, but only at a discount

Accredited Investors Only

Who Is Sharestates?

Sharestates is a real estate crowdfunding platform. It was created in February 2015. Its founders are Radni Davoodi & Raymond Y. Davoodi. Sharestates is located in Great Neck, NY.  It operates under the Reg D, Rule 506c legislative rules.

Since launching, the company has funded $2.52 Billion in U.S. private real estate loans in 35 states. There are only eight states where it doesn’t currently conduct business. Those states are: Minnesota, Nevada, North Dakota, Oregon, South Dakota, Utah, Vermont and Washington.

What Do They Offer?

Sharestates provides both real estate investing and lending opportunities. For real estate investors who need to borrow money for projects, their funding comes from Sharestates’ investors.

Sharestates sits between direct real estate investing and purely passive investing. Investors don’t have to be involved in their investments’ day-to-day operations, as is the case with direct real estate investing. But unlike investing in REITs, they’ll still need to perform due diligence about which investments to choose.

Investors don’t have to worry about their investments’ daily operations since the investment’s sponsor handles that. A sponsor is someone who sees deals through from start to finish. They find deals, put together financing, find investors for the deals, manage the properties, and finally sell them. The sponsor is compensated for this work.

Sharestates investors don’t hold title to any properties and, thus, can’t take out loans against them. There’s also no secondary market for reselling your shares at a profit. Instead, profits are earned as the loans are paid back with interest.

Vetting Process

Sharestates vets all investments that make it onto its marketplace. The team goes through a 34-point underwriting and risk assessment system. They say that only 2% of deal applicants actually make it into the marketplace.

Vetting is done by seasoned real estate investors who have experience analyzing commercial deals. This is certainly a plus for investors. Analyzing deals is a large part of real estate investing. Knowing that an experienced team has already done much of the heavy lifting could save investors a lot of time.

Some of the factors that Sharestates will analyze include:

  • Loan-to-Value Ratio
  • Lien Position
  • Location
  • Occupancy
  • Development Phase
  • Borrower Track Record
  • Borrow Experience
  • Borrower Credit Score
  • Personal Guaranty

Investing Process

To get in on an available loan deal, you’ll need to invest at least $5,000. Typically, monthly interest payments begin immediately and a balloon interest payment is sent to investors at maturity. Sharestates says that investors should expect net annualized returns of 8-12% per year.

All investors on the Sharestates platform are required to be accredited. An accredited investor is someone who has a $1 million net worth, excluding their home, or a $200,000 income for the last two years.

Sharestates properties are commercial. Commercial real estate investing is often only accessible to large institutional investors. But Sharestates gives smaller investors the opportunity to invest in commercial deals right alongside the big players.

Moderate Liquidity

Crowdfunded real estate investing deals tends to be very illiquid and have long holding periods. But Sharestates stands out from the pack in two key ways. First, the typical maturity period on its loans is only 12 months (the maximum is 36 months).

Second, Sharestates offers a redemption program that allows you to access your investment principal during an emergency. While the redemption program provides additional liquidity, know that you won’t be able to access 100% of your initial investment.

Depending on how early you redeem your shares, Sharestates will pay 94% – 96% of your purchase price (minus any prepayments you may have already received). Here is the full redemption schedule:

Percentage of Purchase Price

Note that there is no early redemption option after your investment has passed the 270-day mark. At that point, you’ll need to wait for you investment to reach its maturity date (typically at 365 days) to access your capital.

Are There Any Fees?

There are no ongoing management fees. But investors may be charged an account setup fee of up to 2% of their investment amount.

How Do I Open An Account?

You can visit the Sharestates website to join. Sharestates has a three-step process:

  • Browse available investments in the marketplace
  • Invest at least $5,000
  • Cash flow begins immediately

Is My Money Safe?

Investors should understand that there is no FDIC or SIPC protection on crowdfunded investing deals. Although Sharestates does carefully vet deals, you could still lose 100% of your principal.

Is It Worth It?

For accredited investors who want more direct exposure and diversification into real estate, Sharestates is worth checking out. It offers immediate cash flow, solid annualized returns, and more liquidity than other real estate crowdfunding sites.

However, if you’re not an accredited investor, you’ll need to look at other real estate crowdfunding options. The good news is that several alternative platforms are open to both accredited and non-accredited investors, including DiversyFund, Streitwise, Realty Mogul, and Fundrise.

Sharestates Features

  • Payment dependent notes (Notes) and
  • LLC Membership Units
  • Individual
  • Institutional
  • NPL

Target Annualized Net Return

Accredited investors only

Investment offerings are compliant with Reg D, Rule 506c

SEC filing not required

6, 12, 18, 24, 30, or 36 months

Customer Service Phone Number

Customer Service Email Address

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