RealtyShares is shutting down
Woah just heard the news that RealtyShares has ceased taking new investments. This is scary as someone who just learned about real estate crowd funding and put some money into the platform. I recently made two investments in RealtyShares, one active and one pending. I'll be watching closely to see what happens to my investments.
According to the letter to investors today:
From this point forward, RealtyShares’ focus will be servicing our existing investors and approximately $400 million of assets under management. This transition will have no impact on the underlying real estate investments. Investments will continue to be managed and distributions will continue to be made. Investors will continue to receive asset management updates and year-end tax information.
So they will do their best to keep servicing existing investors, though existing investors are still exposed to more risk
- It's unclear what would happen if one of my investments goes south. RealtyShares likely will not have the resources to pursue sponsors collateral to get whatever collateral there is returned, which means investors will be left to do that themselves. Investors don't generally meet or know about each other which will make working together difficult.
- Sponsors who are in trouble will need to find another source of funding instead of being able to make a secondary offering.
- My two investments are expected to mature in 3 and 5 years respectively. That's a long time to be tied in a barely alive company. I can only hope the remaining management team have the integrity to keep servicing these deals for existing investors.
Crowd funding investments have two sides of risk
The investment going sour, and the platform itself going sour. I didn't expect to see this happen this early in my crowd funding journey, but here we are.
Never put all your money in one platform
Two investments for me represents around 30% of the money I wanted to allocate to realestate crowd funding while I get comfortable with this asset class. I'm glad I didn't put all my money in one place, but at the same time I could have put just one investment in RealtyShares and put my money in CrowdStreet or RealCrowd which are two other platforms I've wanted to try but don't currently have the expendable cash to invest.
Don't believe the hype
Do your own due diligence. There are dozens of realestate crowdfunding sites. RealtyShares is one of the most promoted sites I saw by personal finance bloggers. It's probably because they have a referral program while most of the others don't seem to. As an early entrant, I fell for the hype. I didn't do my due diligence. When I invested, I hadn't even heard of CrowdStreet and RealCrowd which after some research appear to be more reputable platforms.
All is not lost
At the end of the day I put my money into investments that are ultimately backed by a real estate asset, so there's still a good chance I will get most if not all my money back. I'm not going to give up on this asset class just because of one bad apple.