In my quest to understand all the top real estate crowdfunding platforms, I've put together this comprehensive EquityMultiple review.
EquityMultiple actually contacted me back in 2017, a couple months before my first child was born. At the time, I was too focused on ensuring everything went smoothly with my family to pay attention to anything else.
Now, I have all the time in the world as an early retiree, largely thanks to real estate, it's time to revisit the company in 4Q 2024. With roughly $500,000 in real estate crowdfunding capital returning to me over the next three years, now is the time to do more research.
Here is my EquityMultiple review with answers from Soren Godbersen, Head Of Growth. EquityMultiple is one of the key Fundrise alternatives. I've personally invested $270,000 in Fundrise so far to diversify my real estate investments into the Sunbelt region.
Equity Multiple Review
1) How did EquityMultiple start, and how has the company progressed since inception?
EquityMultiple was created with the goal of making real estate investing simple, accessible, and transparent for the self-directed investor. We set out to make investing in high-quality, commercial real estate assets as easy as buying a stock. With each investment, we provide robust diligence on each investment offering and thorough reporting.
Our platform allows accredited investors to passively invest as little as $5,000 in professionally managed real estate across the U.S. So, not only can individual investors access private assets that may offer critical diversification and non-correlated returns versus a traditional portfolio of stocks and bonds, our investors can also create diversified portfolios of real estate across markets and property types.
Since inception in 2015, our investors have participated in over $2.7 billion in real estate transactions. We seek to continually offer opportunities for diversification while adhering to strict underwriting standards. Our platform has accepted only around 5% of the investments that we evaluate.
EquityMultiple offers senior debt, preferred equity, and equity investments for an array of risk/return profiles; and deal flow that spans property types and markets all across the country.
2) How are you different from some of the other real estate crowdfunding platforms out there?
We really pride ourselves on focusing on the investor instead of just being a marketplace.
Our rigorous underwriting, dedicated Investor Relations Team, and in-house Asset Management services mean that we’re guiding our investors and our investments through the entire lifecycle. We're focusing on strong returns, preservation of capital, and providing transparent reporting the whole way.
As I mentioned we also offer diversification across a number of dimensions. Our senior debt and mezzanine debt investments entitle our investors to a flat rate of return, with payment priority, over a relatively short hold period (typically 8 to 24 months).
Our short-term note investment option — the Alpine Note — is fairly unique in the market and offers terms as short as 3 months, and a return (APY) of up to 8%*. We view Alpine Notes as a flexible cash management option; note positions can be rolled over into a next series of Note for compounding, or reallocated to one of our real estate investments any time after 30 days of the initial note investment.
Our common equity investments enable investors to tap into upside of high-performing investments. Finally, our preferred equity investments offer a bit of a hybrid – payment priority over common equity, a flat-rate preferred return, and entitlement to some upside if the investment performs well.
We offer investments into core CRE asset classes (multifamily, office, and industrial) as well as more niche asset classes like self-storage, assisted living facilities, or car washes, that may offer a recession-resistant investment thesis.
Most other platforms don’t offer this breadth of investment offerings. We have also recently been focused on Private Fund products. This brings our investors even greater options for diversification.
One timely option for income-focused investors is the Ascent Income Fund, which invests in private CRE debt — generally senior loans at conservative leverage. Ascent features redemption options, a minimum of just $5K for first-time investors, and targets 11-13% annual yield.
3) You mentioned a breakdown of debt versus preferred equity versus equity investments. What percentage of the deals are equity versus debt? What is the range of returns for each?
Our goal is always to offer a diversity of deals across the capital stack i.e. senior debt, mezzanine debt, preferred equity, common equity. We do this for a few reasons.
For one, so that our investors can diversify across hold periods and risk/return profiles and “ladder” maturities across our deals. Just like you might diversify across treasuries, bonds, and income-producing stocks according to your return objectives and risk tolerance, our diversity of deals across the capital stack allows our investors to tailor their real estate portfolio to fit their appetite for payment priority and shorter hold periods versus upside potential and appreciation.
We also maintain a balanced approach so that investors with a particular risk/return profile in mind can find something that works for them.
Flexibility with our investments
Our mix of investments will also vary based on larger market dynamics. In 2022 when the consensus was that we were at or near the top of the market, we prioritized preferred equity and debt investments where our investors were better protected from a fluctuation in property values.
The market is obviously changing right now and our focus is changing with it. We continue to see near-term opportunities in preferred equity and debt, as well as diversified real estate funds.
With the Fed now embarking on a multi-year rate cut cycle, we can expect an opportunity for cap rate compression, so we’re focused on sourcing a diversity of JV equity options across markets and sectors. Still, with rates remaining elevated and a record number of CRE mortgages coming due, we feel that our Ascent Income Fund (predicated on private real estate debt) is positioned to deliver attractive risk-adjusted returns for the foreseeable future.
That said, we’ll always look to offer that diversification of position across the capital stack.
To answer your first question, here’s the makeup of our portfolio today. With the Fed embarking on a multi-year interest rate cut cycle starting on September 18, 2024, we feel bullish about commercial real estate going forward. We believe investors will be able to maximize real estate returns by buying early in the interest rate cut cycle.
However, we can’t predict what the future trajectory of rate cuts and cap rate movements will be, so we encourage investors to diversify across transactions temporally. With our robust deal flow and low minimums, we facilitate this strategy.
EquityMultiple Review Portfolio Makeup
- Common/JV Equity: 56%
- Preferred Equity: 27%
- Mezzanine Debt: 49%
- Senior Debt: 13%
As for ranges of target return, the basic breakdown is as follows:
- Senior Debt: 6-11% net return to investors.
- Preferred Equity: 6-12% net current preferred return and 11-17% total net preferred return, including an accrued return portion.
- Common Equity: 14%+ net IRR (target IRRs can vary substantially based on risk factors).
- Alpine Notes: APYs of 6.1% to 8% with terms of 3, 6, or 9 months
Our investments are organized into three ‘pillars’ — Keep, Earn, Grow — largely corresponding to position in the capital stack.
4) What does EquityMultiple charge in fees?
Equity investments are assessed an annual asset management fee of 0.5% – 1.5%. In most cases, this ‘AM fee’ is 1%. In some cases EquityMultiple keeps 10% of profits on realized equity investments once investors have received all principal. This helps further align interests as we seek to maximize returns on behalf of investors.
All fees are presented in full transparency within the Investor Documents of each deal. Further, all return targets and forecasts are presented net of fees.
5) What is the quality-control process EquityMultiple performs before approving a deal?
We really hang our hat on our in-house underwriting practices. Each investment must pass a rigorous, multi-phase diligence process. These are the main steps our team goes through as we look to deliver a highly compelling investing experience:
- Sponsor Vetting. We only work with sponsors and lenders who possess an extensive track record of delivering solid returns. These sponsors must have specific experience within the same asset class, market, and strategy as the investment presented to us.
- Investment-Level Diligence. We analyze hundreds of attributes, stress test the sponsor’s assumptions, and conduct our own return modeling and risk assessment based on a deep dive of market comps and other data sets.
- Investment Structuring. We bring to the table decades of real estate law and finance experience. We work closely with our sponsor partners to structure investments such that they offer our investors compelling potential risk-adjusted returns. In most cases this also entails a preferred return and near-term or immediate cash flow.
- Ongoing Asset Management. We monitor ongoing progress of our investments through exit. This means frequent, transparent performance reporting for our investors. We are constantly working with sponsor partners to find solutions to any unforeseen challenges. The paramount goal of maximizing returns for our investors.
Ultimately, all investments must pass a unanimous vote from our Investment Committee. We have accepted fewer than 5% of the investments presented to us.
6) Is the investor investing directly with the sponsor or through an LLC created by EquityMultiple? As for tax documents, do investors receive a K-1 or 1099?
Great questions.
All of our equity and preferred equity investments entail establishment of a special purpose vehicle – in our case, an LLC. This entity invests into each deal, typically as an LP (limited partner). We do this so as to ensure bankruptcy remoteness; if EquityMultiple were ever to cease operations (which of course we do not anticipate) those investment entities would be taken over by a third-party manager. This also means that investors are aggregated into a larger equity position, which improves the representation of each of our individual investors in the deal even though they may be contributing relatively small amounts.
In each preferred equity or equity investment, we structure the maximum degree of protections possible for our investors. We often also hold some recourse in the unlikely event of any bad faith actions on the part of the sponsor. We believe this is a big benefit of our model versus investing directly with sponsors.
Generally, our investors will receive a K-1 for equity investments and either a 1099 or K-1 for debt or preferred equity investments.
7) What have the results been to date? How has the performance looked in aggregate across EquityMultiple deals?
Generally speaking, the majority of our investments perform in line with expectations, with a smaller number overperforming and just a handful of cases where any principal has been lost. Per SEC guidance we cannot publicly share our track record, though anyone can access our full, deal-by-deal track record after creating an account (which is free).
Over the past 4 years we have offered well over 100 investments across the country. We have had 22 go full cycle so far, with most performing in-line with expectations.
We realize that many investors are relatively new to private-market real estate investing, and we really encourage everyone to get comfortable with us and our individual offerings before investing. This is part of the reason we offer debt investments and short-term notes: investors can participate in shorter-term offerings with contractually obligated rates of return.
8) What percentage of an investor’s portfolio would you recommend allocating to these types of investments?
We classify the types of investments on EquityMultiple as private, illiquid real estate investments. This is markedly different from investing in a public REIT (real estate investment trust) in that the investments are less liquid. However, partly as a result of that illiquidity, private real estate investments historically have shown less correlation with the stock market.
This is a big reason why institutional investors like the Yale Endowment have been allocated substantially to “alternative assets” like private real estate for a long time.
Studies have shown that allocating a meaningful portion of a portfolio to private-market alternatives can increase risk-adjusted returns over time. We offer individual investors the opportunity to mirror the asset allocation of large institutional investors. Further, thanks to low minimums and ease-of-use, to create a diversified portfolio of private real estate assets.
Asset allocation is important for diversification and returns
Though asset allocation strategy should be a function of your risk tolerance and objectives, our position is that individual investors should allocate more in the range of 15-25% to alternatives like private real estate, versus the 0-5% range that is still typical of individual investors. EquityMultiple can help self-directed individual investors close that allocation gap.
For investors just getting started with an investing platform like ours, I would really say ask questions and get comfortable before investing. We present the investment thesis and underwriting of each offering in full detail and offer a streamlined investing process.
For further questions, our Investor Relations Team is always available to answer questions. We want our investors to be fully comfortable with us and with each investment they consider before committing.
I welcome you to explore the EquityMultiple platform today.
EquityMultiple Review Conclusion
Thanks to Soren for providing such in-depth answers to my EquityMultiple review questions. It's good that EquityMultiple provides a variety of investment offerings for accredited investors. It is also clear they are very focused on due diligence.
The key is to work with experienced sponsors who have successfully invested in distressed asset opportunities before. We should pay attention to these opportunities that arise on EquityMultiple and elsewhere. I'm most interested in their private real estate funds due to the diversification and management oversight aspects.
Readers, I'd love to hear your experience investing with EquityMultiple. What opportunities are you seeing in the real estate crowdfunding space?
Thanks for the Equity Multiple interview.
With CrowdStreet you invest directly with the sponsor.
Equity Multiple says: All of our equity and preferred equity investments entail establishment of a special purpose vehicle – in our case, an LLC.
This seems to be a major difference between these platforms.
What is the comparative risk between these two models? You seem to prefer the CrowdStreet model but I’m not clear why.
Have you addressed this in a past article? If so, what is the link.
Would you be able to ask future questions around requiring accredited investors. From my research and personal experience, companies want to accept non-accredited investors but don’t want to deal with the legal headache and hoops to jump through.
Doing so significantly reduces the cost of capital (and increases availability), so, from my experience, most company’s tend to view this as a ‘when it makes sense financially for us to accept non-accredited investors’. As such, it would be great to hear if these platforms have plans to accept non-accredited investors anytime soon.
On a different note, for someone just beginning their financial journey, what do you view as the best path to becoming accredited?
Keep in mind, You don’t need to prove you are an accredited investor to invest with these platforms, they just go by stated information.
I would never have gotten into Fundrise if I had to prove all that.
Fundrise is actually open to non-accredited investors.
But you make a point. I’ve actually never had to send bank statements or investments statements to prove I’m an accredited investor. I’ve just had to check a box and say I am.
I was i think 27 years old when I made my first angel investment of $75,000 in a gin company. I wasn’t yet an accredited investor but I strongly believed I would be one.
Could you (or have you done it already) compare the Crowdfunding services that you have reviewed separately in the past – RealtyMogul, Crowdstreet, FundRise, EquityMultiple. Things like size, years in business, record, safety, policy regarding liquidity, etc. Anything your readers should know when selecting a Crowdfunding platform.
Thanks
This will be useful. I think many folks are sitting on the fence with regards to real estate crowdfunding. Any pointers to resources that compare the many different platforms would help folk like me gain more confidence in these platforms.
Fascinating. I didn’t realize there were so many choices for investors in the REC space. More choices the better imo. Thanks for sharing this information on EquityMultiple. The Q&A is really helpful feedback. Interesting on the fixed-rate debt and preferred equity offerings that you don’t see with most other real estate crowdfunding platforms. I also like the fact that they offer niche coverage of assisted living facilities and self-storage. There’s always gonna be demand for that!
Always good to hear that the model is compelling. If you have any questions, you can always engage our Investor Relations Team from our site. Thanks!
Is this 1.5% asset management fee off of total deal size or NOI? They are two very different things. Assuming it is total deal size, a 1.5% asset management fee is steep. A 5% cap rate deal for $100M property will have an NOI of $5M. $1.5M of that will be paid directly to Equity Multiple. This leaves $3.5M left over to service debt. Assuming a conservative 65% LTV @3.25% interest and 30 year am, the annual payment will be $3,394,609.32. So there will be roughly $100k left over. This leaves only the exit of the property to get the majority of your return.
These kinds of fees are what have allowed many of these start ups to gain massive size and immense profitability in this cycle. Before, most of them had to rely on private equity aka “Smart Money” that knew better.
I’ve never come across asset management fee based on deal size. It’s usually NOI.
Hi David,
Happy to clarify: asset management fees are assessed on invested capital. E.g. if you were to invest $10,000 in a deal with a 0.5% asset management fee, this would be $50 annually. An important thing to keep in mind is that all target and realized returns are presented net of fees.
How do you compare these more passive investments compared to direct real estate ownership where your returns are 20%-100%+
I have also been looking for syndications for the past two years. I cant get past the 8% preferred return. It seems low for the risk that you are taking as well as comparing them to direct ownership.
Can you share some direct real estate ownership where returns are 20% – 100% a year? I’d love to do more research on them and invest.
An 8% preferred return is sold when the 10-year bond yield is at <0.7% and the S&P 500 is flattish. I like investing passively the older I get.
Sure, I currently have a portfolio on 30 houses in the KC area that meet that criteria.
With mortgages they are all 20%+ cash on cash. IRR is probably much higher but I dont think that’s a good metric to use vs COC.
The 100%+ ROI Occurs when they are bought under value and you can get a mortgage for the amount that you bought it for. (example: I bought house for 62k, was worth 85k. Immediately got a mortgage on it for 63k after I put a tenant in it) Also a cash out refi after improvements gets ALL your money invested back out of the property.
To be fair, finding those deals AT SCALE with a large amount of money needing invested is very tough. But I figure why take sub par returns for the sake of “doing someone with the money”?
Like you, I also prefer more passive deals and will probably turn the houses over to property management later on down the line.
Gotcha, so with leverage. 30 is an impressive number of houses.
I think my cap is 5. Or maybe 3. More than 5 and I feel like there’s sometime going wrong or needs attending once a week. I don’t want to deal with that anymore.
Not at my age with two little ones.
Related: https://www.financialsamurai.com/being-a-landlord-tests-my-faith-in-humanity/
I think investing a private real estate fund is the best strategy as well. There are a lot of interesting deals that are sold out within days. If you so happen to be focused on other things, you’ll miss it. I presume a real estate fund by EquityMultiple will have first dibs on the vetted deals.
Can EM share how many private real estate funds they plan to launch, the investment minimum of these funds, the number of deals within each fund, and over what time period the funds will be deployed?
Thanks
Hi Andy,
I apologize for the delay. We have launched three Fund products so far, each alongside a national operator/sponsor, each with dozens to hundreds of assets within the fund. We have several more that are being closely evaluated right now, with the hope that they will be launched over the coming months on a rolling basis. We are also targeting several that would be evergreen and available on an ongoing basis (rather than becoming oversubscribed in fairly short order). The target hold period will vary, but we are generally targeting 5-10 year time horizons with capital being deployed/called at a regular cadence.
Minimums also vary, but will typically be between $10k and $50k.
Feel free to reach out with any further questions!