As of March 2020, right around COVID was become serious in the US, I had a portfolio of 11 real estate crowdfunding investments totally $260,000. All but one were had never missed a payment. 8 month later, it's November 2020, things aren't looking so good in real estate. Here's how my investments are doing:
|4||$10,000||exited (16% IRR)|
|5||$10,000||exited (22% IRR)|
As you can see, 5 of my 13 investments representing $120,000 in value is now behind schedule either having reduced distributions or in some cases no distribution at all. The ones that are behind are in the hospitality, retail, and multi-family industries. 3 of my investments were my earliest, and having learned a lot more about evaluating real estate deals since then, I would not have gone into two of them if they were offered today, so I partially attribute their poor performance to my lack of experience as an investor. COVID hit their cash flow enough for them to be behind on payments and the deals did not have favorable enough margins to keep their cash distribution going. The two that are struggling more recently are in the retail industry which of course is hit hardest by COVID.
I had two investments exit this year at 16% and 22% IRR, unfortunately they were only small investments of $10,000 each and doesn't do much to make up for the investments doing poorly. Both of these are industrial properties that saw an increase in demand during the pandemic.
Despite the pandemic has been terrible for my real estate investments, I still made 2 new investments in the last few month in industries that are unaffected or even helped by the pandemic. There's blood on the streets so being greedy while others are fearful means there are more good deals out there that aren't oversubscribed. That said, this experience tought me a lot about over exposure to risk, so I'm a lot pickier and taking less risk by only considering sponsors with longer track record, using lower LTV and in areas of population growth. I won't be making as many investments over the next 18 months as I have in the past 18 months.
Would I have made more money in the stock market? Sure, the tech heavy NASDAQ is up over 30% this year, while the S&P 500 is up around 8%, but I'm already heavily exposed to tech through my employment and company stocks, so I've benefited from the lock downs accelerating software use and fed stimulus driving up growth stocks, just not as much as I would have if I was fully invested there.
With the exception of real estate bubbles popping, real estate often has low correlation with the S&P 500 which today are largely driven by large cap growth stocks. A diversified portfolio requires having assets that trend up long term but don't go up and down at the same time. Despite some unrealized loses (conservatively assuming I lose half the investments that are currently behind on payments, which means my crowdfunding investments are down 20%), my overall portfolio including stocks, bonds and crypto currency is up 10% this year, which is not too bad for a pandemic. As we recover over the next couple years, I expect real estate to bounce back and money to move out of the over heated tech growth stocks back into parts of the physical economy.