EquityMultiple Review - Access to Some of the Biggest Real Estate Deals
Investing in real estate is a smart way to diversify your portfolio. But it’s not always easy to go out and buy an investment property to rent out.
And what about commercial real estate? There are people investing huge amounts of money putting up condo buildings, hotels, and senior living complexes. And they’re making a ton.
EquityMultiple focuses on crowdfunding for massive real estate deals–and you can be a part of the action. In this article, I’ll review the platform in detail so you can decide if it’s the right option for you or not.
What is EquityMultiple?
EquityMultiple is a company focusing on real estate investing, only with a crowdfunding angle. The way it works is that real estate investors (called ‘sponsors’) can get funding from you, the individual investor, to secure a real estate deal.
Like other crowdfunding platforms, when the sponsor gets the full amount of the money requested, he or she will move forward with the real estate purchase. Meanwhile, you’ll begin to earn interest on the money you loan them as they make payments.
How It Works
While sponsors can certainly come directly to EquityMultiple to obtain funding for their project, the crowdfunding industry for major real estate deals is still pretty new. That’s primarily why EquityMultiple has a partnership with a company called Mission Capital. Mission Capital gives EquityMultiple even more access to deals that they can put up on their platform and open for crowdfunding.
As you’ll see in the section below, EquityMultiple does a pretty extensive background analysis on the sponsor and the deal before opening funding on their platform. Once they decide a deal is good enough to post, they’ll take an additional step in working with their broker-dealer, Growth Capital Services. In this partnership, Growth Capital Services serves as an underwriting partner and tells EquityMultiple how risky a deal is.
After an extremely intense vetting process, EquityMultiple will choose which deals make it to the platform to be eligible for crowdfunding. From there, you as the investor can begin putting your money toward deals (more on this below). Before we go any further, I want to go a little deeper into EquityMultiple’s selection process–just so you can see how critical they are about selecting investment options. Let’s look at why their model works.
Why It Works
Now that you understand a little more about how EquityMultiple works, let’s talk about why it works.
1. Strict guidelines on who gets in
EquityMultiple is pretty strict about who they allow to be sponsors and investors. This reduces risk, increases accountability, improves the odds of reaching full funding, and allows better deals to go through more frequently.
EquityMultiple works with all types of companies who deal with different types of real estate–and they focus on clients who have a low rate of default. EquityMultiple works with both national and regional lenders who carry a vast amount of knowledge, experience, and low rates of default; real estate firms that focus on thriving primary, secondary, and/or tertiary markets; and sponsors who have a proven record of meeting and/or exceeding return projections.
2. Deals are vetted through an advanced algorithm
Once EquityMultiple has identified a potential sponsor, they’ll evaluate the deal they’re looking to fund by using market research and critical metrics that help determine the value of the deal. They have people on the team who bring decades of experience who utilize this data, as well as a proprietary scoring matrix to determine if the deal is worth pursuing.
This is excellent. No investment deal is a lock, but EquityMultiple puts in a lot of effort to evaluate their opportunities to make them as low-risk and profitable as possible. Simply put–when you win, they win.
Some things they look for include commercial properties that are located in growing markets that have existing cash flow; short-term senior loans that carry a significant APR to investors as well as a strategic exit strategy; and/or value-add projects that have both construction components and a more aggressive business plan.
3. Less than 5% of their deals are approved (this is a good thing)
EquityMultiple is very strict on what deals they ultimately end up posting on their platform for investment. They do extreme due diligence on the proposals they receive from sponsors by stress-testing their underwriting assumptions and diligently reviewing the appropriate legal documents to ensure the structure of the deal is sound.
Their goal is to provide a broad selection of curated deals that are shown to you (the investor) in a complete and transparent manner. They’ll also work with sponsors to craft a deal that reduces as much risk as possible to make it a more viable investment.
4. It’s easy to manage your real estate investments
Unlike holding multiple physical properties and having to check in on them all the time or hire someone to do so, EquityMultiple allows you to manage all of your real estate investments from a slick online platform. It’s entirely online and through the platform, you can diversify your real estate holdings and manage your positions in different real estate types and locations. Regarding payment, you receive all payments via ACH deposit. You’ll also get quarterly investor updates on the performance of your assets.
Key Investment Types
By now you have an idea of how EquityMultiple works and what their excruciating vetting process looks like. So you’re in–right? Not so fast. There are some requirements you have to meet before becoming an investor:
- You have to have a net worth of at least $1 million or make $200,000 per year
- Your minimum investment on most offerings is $5,000–which is significantly higher than something like a mutual fund
If you meet those requirements, you’re on your way to being a part of some major real estate deals. Now let’s look at the different types of investments you can get with EquityMultiple:
1. Syndicated Debt
With the syndicated debt option, you invest in loans that are secured by real estate along with experienced lenders. EquityMultiple has a variety of partners that will originate and fund the loan while aligning their interests with yours. They try to target a ROI of between 7% and 12% and a typical term ranges anywhere from 6 to 24 months. There’s lower risk in this type of investment due to the downside protection of the loan being secured by the physical real estate. That said, there won’t be as large of an upside. Think of this option as targeting low-risk, low-reward.
2. Preferred Equity
A preferred equity deal from EquityMultiple gives you, the investor, a fixed monthly or quarterly return, in addition to a fixed portion of the project’s upside when it has been repaid. The target ROI for this deal is between 7% and 12%, but when you factor in the upside of the project upon repayment, they’re targeting between 10% and 14% ROI. The terms are usually between one and three years, and this investment type is medium-risk. You get paid before both the project sponsor and other equity holders and get to enjoy a piece of the upside, but also have the security of a fixed monthly or quarterly return.
As an equity investor, you’re the last to be paid on the deal, but your upside is the largest. With this type of deal, you’re really banking on the deal performing well as your upside is unlimited. The target ROI is between 6% and 12%, but once a deal is repaid EquityMultiple and their partners are looking for an IRR (internal rate of return) over 14+ percent on the deal. Terms typically range from three to seven years and this is definitely the riskiest option with the highest payoff potential.
Who EquityMultiple is For
EquityMultiple is not for everyone. It’s a great way to diversify your investments, but only for the right investor. Unlike other options (which I’ll mention below), EquityMultiple does not get you to invest in REITs (real estate investment trusts)–which are essentially an ETF for real estate. Instead, they want you to put your money right into an actual deal. This carries significant upside, but also a significant risk.
That being said, you really have to know what you’re doing with these types of investments. Not only should you have a strong understanding of investing, but you should have a very strong understanding of real estate investing. I would even go as far to say that you’ve invested in other real estate deals in the past–whether on your own or as part of a group.
You also need to be an accredited investor–meaning you meet the minimum requirements. This will weed out a lot of people. If you meet the requirements and you know the real estate investing game, this can be a tremendous opportunity for you. There are new residential and commercial projects going up all the time–just take a drive through any growing city. People need housing and businesses need space. You not only diversify your portfolio but also get a very nice rate of return when investing in these types of deals. Just know your stuff before throwing money into a deal.
- A new option for diversifying your investments
- You’re actually investing in a real estate deal – not a fund that holds real estate
- Large deals – these aren’t individual homes you’re investing in – they’re massive real estate projects
- Unlimited upside – if a project does well, your return is uncapped (but there is risk involved)
- Strong partnerships – EquityMultiple doesn’t go at this alone, they partner with some major players like Mission Capital to find the best deals
- Crazy amount of detail – before investing your hard-earned money you’ll find a ton of information on the deal so you can assess the risk first
- Great customer service – EquityMultiple has 24/7 customer service, so you can connect with them on anything at any time
- High barriers to entry – you have to make $200,000 per year or have a net worth of $1 million just to get in
- Requires strong knowledge – some may disagree, but I wouldn’t touch any of these investments unless I knew enough about real estate investing and that particular deal
- Not a lot of options – this is partially the newness of the crowdfunding game in real estate, but also their vetting process — you won’t find a lot of investment options out of the gate (this is growing though)
- Larger initial investment – $5,000 seems like nothing when you’re chipping into a $5 million commercial real estate project, but as an individual investor, it’s a pretty big initial investment
The two primary alternatives to EquityMultiple are Fundrise and RealtyMogul. Where EquityMultiple has you put your money directly into an investor’s pocket for a major real estate deal, Fundrise and RealtyMogul focus on REITs–real estate investment trusts. Think of these like an ETF for real estate. You invest a sum of money in a basket of real estate deals. REITs are a great investment option for people who are new to the real estate investing world or just want to add some diversity to their portfolio. They give you some of the upsides of real estate but also balance the risk based on the fact they have so many different deals in one fund.
EquityMultiple is an awesome platform. They’re incredibly selective of the deals they post, and as an investor, it gives you access to some of the biggest institutional real estate deals happening now. It’s also a new option for sponsors–so I can see the crowdfunding space growing for real estate deals.
As of this writing, EquityMultiple has funded over 30 offerings completely, equating to over $15 million in assets that they’re managing. So these are big deals–and I can understand why someone would want to be a part of that. There’s a huge amount of upside to take advantage of here.
With all that said, my advice is to only invest if you know real estate investing. If you’re brand new and are just looking to diversify, I’d recommend one of the alternatives I mentioned above. But, if you’re qualified and have the knowledge–give EquityMultiple a shot.