Today we are interviewing Nav Athwal, the Co-Founder of RealtyShares. RealtyShares is a Crowdfunding investment platform for Real Estate. Hello Nav and thank you for taking the time to speak with us. Can you please tell us a little bit about yourself – your background, experience and type of real estate investing you have been involved with?
I started my career as an electrical engineer and then I transitioned into working as a Commercial Real Estate Broker. Prior to Founding RealtyShares, I worked as a Real Estate and Land Use Attorney at a law firm in San Francisco where I advised a broad range of real estate clients including real estate developers, property owners, investors, non-profit housing providers, REIT’s, governmental agencies and renewable energy companies on some of the largest mixed-use residential, commercial and alternative energy Projects in California. I have also been an active real estate investor for the last 5 years and have invested in single family, multi-family, retail and ag properties.
I’ve heard of crowdfunding sites for fundraising, such as Kickstarter and Indiegogo, but not for real estate. Can you please explain to us how RealtyShares works?
Yes, crowdfunding has actually been around for about half a decade mostly in the donation and rewards based realm. Sites like Kickstarter, Indiegogo and Kiva.org were the pioneers of that form of crowdfunding. However, over the last year and on the heels of the enactment of the JOBS Act, investment or equity based crowdfunding has begun to emerge as a new way for investors to access things like startups, alternative energy projects and now with RealtyShares, Real Estate. Unlike donation or rewards based crowdfunding, investment or equity based crowdfunding actually allows investors to participate in the growth of a company or asset.
For example, at RealtyShares we provide our investors with access to pre-vetted real estate investment properties or loans secured by real estate and the ability to invest as little as $5,000 directly into these investments. We focus on investments that offer immediate cash flow to our investors. With our loan investments, investor distributions are made monthly and with our equity investments, distributions are made quarterly. The investment process is completely paperless and streamlined. Investors can browse investments directly from their laptop or tablet, choose the investments that most suit their needs and execute all investment documents and transfer all funds via ACH directly from the platform.
All investments are passive so that investors don’t have to worry about the usual headaches that go into managing and operating real estate. Another advantage is that an investor can diversify among a wider range of investments than they could with a direct real estate purchase offline.
You mention that all investments are passive. Does this mean that your investments are mostly buy and hold opportunities?
When we say passive, what we really mean is that the Investor does not have to worry about any of the usual headaches that come with owning, operating and managing real estate (i.e. tenants, taxes, insurance, repairs, etc.). Rather, the investor is investing passively just like they would in a stock or bond and the Investment Manager handles managing and operating the investment. However, the type of investment can be anything from a stabilized apartment building in San Francisco, to a short term fix and flip investment in Florida. But, regardless of the type of investment, to the investor it is still a passive headache free real estate investment.
How does an investor monitor the performance of their investment?
They can monitor the performance through an easy to use “Investor Dashboard”. Through this dashboard, investors have the ability to monitor their real estate investments, cash distributions and returns. The dashboard also serves as a repository for all of their investment and tax documents, including K-1’s. Investors can also manage their investments in the dashboard, including their cash distributions, returns and all paperwork. We’re like a Scottrade or E-Trade but for real estate.
How did you come up with the idea for RealtyShares?
My co-founder and I met while in grad school at UC Berkeley – I was at the law school and he was at the Haas MBA School. Upon graduation in 2009, we immediately started looking for real estate investment opportunities in the Bay Area. However, we found that raising capital for these investments was extremely inefficient. In fact high quality Investment Managers spend more than 40% of their time trying to raise capital for great deals rather than focusing on what really matters – the real estate itself. At the same time, investors lack access to quality real estate deal flow and have very few ways to invest in real estate outside the publicly traded REIT market. With the rise of online investment platforms like E-Trade and Scottrade, we knew there had to be an easier way to connect investors interested in diversifying into real estate with Investment Managers looking to raise capital for great deals. That is why we created RealtyShares.
Who locates the investment opportunities?
The investment opportunity is brought to us by a third party that we call the “Investment Manager”. The process starts with the Investment Manager submitting a short application through the RealtyShares Platform that can be found here: http://realtyshares.com/raise-capital. We then review the application to determine whether the investment opportunity presented by the Manager makes sense for our Investor Community.
We’re looking for strong management teams, with a good investment strategy and an investment opportunity that makes sense for our investors. We pre-vet each Investment Manager through background and credit checks, personal reference checks and a review of their financials. We also carefully curate and underwrite the investment property. This underwriting process includes reviewing a BPO or Appraisal, reviewing sales and market data for the specific geography, reviewing historical trends, vacancy rates, cap rates, and the like. As a result of this vetting process, on average only 2% of Investment Managers that apply to raise capital through RealtyShares are actually given an opportunity to do so.
What is the background of individuals evaluating the real estate opportunities?
Our In-House Underwriting Team utilizes proprietary due diligence methods and handles all of the investment vetting and curating. We also have our Investment Committee review some of the investment opportunities and give the thumbs up or thumbs down. Our investment committee consists of experienced real estate professionals with decades of experience underwriting and investing in real estate.
Where in the United States are the investments located?
We aren’t limited to any one geography but rather have a national focus. We want to be the premiere real estate investment platform and to do so we need to have a variety of investment opportunities all over the country. The first two investments we funded were actually located in Jackson, Mississippi. They were first position trust deed investments secured by single family homes offering a 9% secured return and a 50% equity participation upon sale of the home. The latest investment we funded was located in Sacramento, CA and now we are focusing on bay area investments. When possible, we are also looking for socially impactful real estate investments. If we can earn market returns for our investors while simultaneously benefiting the community by providing much needed affordable housing, then it is a win-win situation.
Your website states that accredited investors can passively invest in commercial real estate alongside high quality Investment Managers. What is an accredited investor?
The definition of an “Accredited Investor” is set forth in the Securities Act of 1933 and is any individual earning at least $200,000 a year or more, or $300,000 or more jointly with that individual’s spouse, or having a net worth of $1 Million or more excluding their personal residence. Currently, our investment offerings are limited to accredited investors because securities laws make it difficult, if not impossible for non-accredited investors to participate. However, this could soon change. The JOBS Act for the first time will allow non-accredited investors to participate in these investments. However, the SEC has yet to publish rules implementing this Act. I think we’ll see proposed rules towards the end of Q2 or the beginning of Q3, 2013.
Another thing that the JOBS Act did was lift the ban on general solicitation and advertising for Regulation D, Rule 506 private placement offerings. However, that too was dependent on the SEC approving implementing rules. Two days ago the SEC finally voted to publish final rules to effectuate this change. What this means is that investment offerings on platforms like RealtyShares can finally be marketed publicly to accredited investors via social media, print materials, email and other means. It is a very exciting time and we’re excited to be a part of such a monumental change.
You mentioned earlier that the current minimum investment amount is $5,000 per property. What is the maximum investment amount?
We currently do not have a cap on the maximum investment amount. An investor could potentially invest the entire Fundraising Goal if they chose to do so. The fundraising goal is the total amount of capital that the Investment Manager has indicated they would like to raise through RealtyShares. An investment is only finalized if the funding goal is met. If the funding goal is not met, 100% of the investors’ money is returned to them.
What type of person would be interested in investing through RealtyShares?
Any intelligent investor that wants to diversify their investment portfolio by passively participating in direct real estate investments. In the current financial landscape with the volatility of the stock market and money market accounts yielding a paltry .5% and the 10 year treasury bond yielding only about 2.6% per year, real estate is one of the only ways investors can earn healthy returns. Even REIT’s, as of June of this year, are yielding only about a 3.5% annually.
Thus, Real Estate should be a part of every investor’s investment portfolio. However, most investors still struggle to access a reliable source of quality deal flow and to invest passively like they would in a stock or bond. That is why RealtyShares makes sense for so many investors. We only launched a few weeks ago and have already funded more than $250,000 worth of investments through our platform. This is really exciting because it shows there is a real demand among investors for a platform like RealtyShares.
If my circumstances change and I would like to sell my investment, how does this work?
Each RealtyShares investment opportunity has a specified hold period that is clearly listed on the Investment Page. For an equity investment this could be anywhere from 3-5 years and for a loan investment, the hold period is typically 6-12 months. During this hold period, Investors will not be able to sell or exit the investment. Eventually, we do envision partnering with or creating a secondary market platform where our investors could potentially sell or trade their real estate shares and thus could exit the investment prior to the expiration of the hold period in case their circumstances change. However, currently that is not available.
Is there anything else you’d like to share with us about RealtyShares before we go?
Our goal and focus is to continue to build RealtyShares as a disruptive marketplace for individual investors to invest in exclusive and pre-vetted real estate properties. We want to continue to expand the type of real estate investment properties on our platform as well as the ease with which individual investors can access and invest in these properties.
Nav Athwal is a Founder of . RealtyShares is Crowdfunding for Real Estate, a marketplace for accredited investors to access exclusive real estate properties or loans secured by real estate and invest as little as $5,000 into any specific investment. Prior to founding RealtyShares, Nav worked as a Real Estate Attorney where he led some of the largest mixed-use residential, commercial and renewable energy projects in California on behalf of national and international clients. Nav was named a 2013 Rising Star Lawyer, is a lecturer on real estate investing at UC Berkeley and graduated from UC Berkeley Law School in 2010 as the Class Valedictorian. Nav is also a California Licensed Real Estate Broker and active real estate investor.
Prior to Co-Founding , Trey Clark led Acquisitions for a real estate startup focused on acquiring and foreclosing upon debt collateralized by commercial real estate, and subsequently worked in the Investments group of a large real estate Private Equity management firm with over $4.0 billion in assets under management. In these capacities he has evaluated hundreds of real estate investments across a wide breadth of asset classes and markets. Trey earned an MBA from UC Berkeley’s Haas school of business, and is an active California real estate Broker and real estate investor.
Contact Info for RealtyShares:
Address: 505 Montgomery Street, 11th Floor, San Francisco, CA 94111