EquityMultiple Review: Modern Real Estate Crowdfunding
EquityMultiple is a US-based online crowdfunding platform specializing in real estate investments. Read our full review with pros and cons
Not too long ago, only financial institutions with extensive resources could invest in private real estate. However, this has changed thanks to the exponential growth of crowdfunding in recent years. Americans can now invest in various real estate deals from the comfort of their own homes.
EquityMultiple is a platform that allows investors to invest in real estate deals starting from just $5,000, with target returns averaging 7-17% annually. The platform covers lending opportunities in the form of equity or debt, and all investments yield regular income. However, only investors with an accredited status are eligible to join the platform.
If you are interested in exploring whether EquityMultiple is the right real estate crowdfunding platform for you, our comprehensive review can help. We will explain how the platform works, who is eligible to join, what fees you need to consider, expected returns, risks, and more.
What is EquityMultiple?
EquityMultiple is an online crowdfunding platform based in the United States that specializes in real estate investments. The platform pools together funds from investors and lends them out to highly-vetted “sponsors” who then invest in commercial real estate deals.
These deals could range from a multi-family complex in downtown Brooklyn to a residential loan for a property developer in Los Angeles. All opportunities listed on EquityMultiple generate cash flow, meaning investors receive regular interest payments on their funds, providing a source of passive income.
EquityMultiple offers a range of real estate investment opportunities that come in different structures such as preferred equity, common equity, and syndicated debt. The investment minimum per deal is $5,000, with returns ranging from 7% to 17% annually.
However, investors should be aware that the risks associated with these opportunities are higher than traditional marketplaces. EquityMultiple has executed over $1 billion in real estate transactions to date. In the following section, we will look at the eligibility requirements for joining the platform.
Am I Eligible to Invest With EquityMultiple?
To invest in EquityMultiple, you must have an accredited investor status, which requires a combined net worth of at least $1 million (excluding your primary property) or an annual income of $200,000 or more for the past two years.
You will need to provide documentation to prove your accreditation. Although the platform is based in the US, it can also serve non-Americans with a US tax identification number and US bank account.
Types of Investments at EquityMultiple?
When you visit the EquityMultiple website, you’ll see a lot of information and investment opportunities. It’s important to take your time to understand the various types of real estate deals available on the platform. These can include a range of investments in commercial and residential real estate projects.
It’s also important to note that investments can be structured as debt or equity. Understanding the differences between these structures is important to determine the potential risks and rewards of each investment opportunity.
- Multi-Family Complexes
- Industrial Buildings
- Office Units
- Data Centers
EquityMultiple offers real estate investment opportunities in the form of syndicated debt, which involves multiple parties funding a debt agreement. In such cases, the platform pools investors’ funds with third-party originators to finance larger loans required by end-borrowers.
For instance, the platform recently raised $3 million to fund a $16 million data center project in Chicago, with external investors covering the remaining balance. The fact that experienced originators are involved is a good thing, as the EquityMultiple team vets them, and only a small percentage is accepted.
At EquityMultiple, syndicated debt opportunities usually offer annual returns ranging from 7% to 12%. Borrowers who require financing offer the underlying real estate asset as collateral, with a loan-to-value ratio of between 50% to 75% of the asset’s market value. The investment duration for syndicated loans ranges from 6 months to a maximum of 2 years.
Syndicate Loans – What you need to know
Investing in syndicate loans at EquityMultiple can help fund new real estate development projects, such as a new condo complex, but you will not benefit from any appreciation gains during the loan term. Instead, you will earn interest on your investment.
The risk for syndicate debt holders is that they are first in line to receive payment if the end-borrower defaults. This means that if an asset recovery process involves selling the security at auction, you will be paid before equity holders. However, syndicated debt investments typically yield a lower rate of return, with an average of 7%-12%.
Equity-based investments are the second option available at EquityMultiple, and the investment process is similar to syndicated debt. However, the risks and rewards are different. EquityMultiple offers two types of equity structures – common equity and preferred equity. It is important to note that investing in equity is generally considered to be riskier than investing in syndicated debt.
Choosing equity-based investments at EquityMultiple is riskier compared to syndicated debt investments since if the borrower defaults on the loan and the underlying asset is seized and sold at auction, debt holders would be paid before equity holders. This means there is a lower chance of recovering the principal investment or any interest owed.
However, equity investments can yield more lucrative returns since investors have a legal right to a share of the appreciation gains realized on their investment. For instance, if the investment opportunity funds a new office block in New York and the developer successfully sells the property upon completion, investors would make money from the interest paid on the loan and also get a share of the capital gains.
Common Equity vs Preferred Equity
Understanding the difference between “common equity” and “preferred equity” is important when considering equity-based investments at EquityMultiple.
In common equity deals, investors have the lowest priority in the event of a borrower default. However, they have access to uncapped appreciation gains if the investment is successful, often resulting in an annual return of 14% or more. The loan terms for common equity deals typically range from 2 to 5 years.
To make a decision between syndicated debt, common equity, or preferred equity at EquityMultiple, you need to consider the balance between risk and reward. Choosing common equity deals will offer uncapped access to appreciation gains but comes with a higher level of risk, while preferred equity will offer a lower level of risk but with a capped rate of return.
Syndicated debt is the least risky of the three, with a lower rate of return. To diversify your investments, you might consider allocating your funds across all three structures.
Fees at EquityMultiple
EquityMultiple, like other real estate crowdfunding platforms, charges fees to investors. However, before investing, you can browse opportunities on the platform for free. If you decide to invest, you will be charged an annual maintenance fee of 0.5% based on your total investment.
The largest fee you will be charged is a 10% profit share on any profits made after the principal has been repaid. This fee is considered reasonable considering the amount of due diligence EquityMultiple puts into vetting opportunities. Only 5% of loan applicants are approved, so a significant amount of groundwork is done.
Deposits and Minimum Investment
To invest in an opportunity, you will need to submit your funds before the deal closes. Once the deal has been finalized, you will receive confirmation via email. At this point, you can then monitor the investment via your online account. You will also receive updates on a regular basis, such as progress reports and notifications of any important events.
When it comes to withdrawing your funds, you can do this via your online account. The withdrawal process typically takes around 7-10 business days to complete, although this can vary depending on the specific circumstances.
In terms of customer support, EquityMultiple offers an online chat facility, as well as email support. You can also call the team during standard business hours. Finally, it is important to note that the platform offers an extensive FAQ section.
When do I get Paid?
At EquityMultiple, the investment process is similar to other crowdfunding platforms. Once a financing agreement is fully funded, the platform sends the money to the originator behind the deal. The end-borrower then enters into a legal agreement to make fixed repayments until the loan is fully repaid.
The frequency of payments depends on the investment structure, which could be either monthly or quarterly for a fixed amount. With common equity or preferred equity, any appreciation gains will only be realized when the project is sold.
EquityMultiple transfers the repayments directly into your bank account. However, this option prevents automatic reinvestment and the benefits of compound interest. To automatically reinvest your gains, you can join the EquityMultiple fund, where the platform invests on your behalf in a diversified portfolio of real estate holdings.
Can I Sell my Investments Early?
When evaluating crowdfunding platforms, one important factor is the ability to sell your investments and get your money back. While some platforms have introduced secondary marketplaces where members can buy and sell investments, EquityMultiple does not offer this feature.
It also does not allow early exits from investments. Although the platform mentions that you might be able to sell your investments privately, finding a buyer can be difficult, and the legal process can be complex.
This means that you should plan to hold onto your EquityMultiple investments until they reach maturity, which can range from 1 to 5 years depending on the investment structure. It’s important to keep in mind that you won’t be able to liquidate your holdings before they mature. Therefore, it’s best to avoid investing in a deal if you think you might need to sell your investment before it reaches maturity.
What are the Risks of Investing at EquityMultiple?
It is important to be aware of the risks involved when investing in a crowdfunding platform like EquityMultiple, as the potential for double-digit gains comes with the possibility of losing your investment. The main risk is the borrower defaulting on the loan, which means that you will have to rely on the security attached to the agreement to recoup your investment. This security could be in the form of real estate or land plots, but it may not be worth as much as the loan itself, and the costs of recovering and selling the asset need to be taken into account.
The type of investment structure you choose also affects your chances of recouping your investment in the event of default. Syndicate debt holders have priority, followed by preferred equity holders, and then equity holders. It is important to note that all of the yields on EquityMultiple are based on expected returns, and there is no guarantee that you will receive the full yield. This is especially relevant for equity investments, as their success is not guaranteed, whereas syndicate debt holdings will pay the stated amount as long as the borrower meets their repayments in full.
EquityMultiple provides multiple ways to contact their customer service team, whether you are already a member or seeking more information about joining. You can reach out to their support agents through the live chat facility, which is the easiest way to get in touch. Additionally, you can call EquityMultiple at +1 (646) 844-9918 or send an email to email@example.com.
Their customer service team is available seven days a week, from 9:00 am to 6:00 pm Eastern Standard Time.
How to get Started at EquityMultiple – Quickfire Guide
Step 1: Open an Account To get started with EquityMultiple, you need to create an account on their website. This requires providing personal information such as your full name, home address, date of birth, social security number, and tax status.
Step 2: Submit Accreditation Documents EquityMultiple only accepts accredited investors. To prove you meet the criteria, you must upload documents showing a net worth of at least $1 million or an annual income of $200,000 or more for the past two years.
Step 3: Browse Investment Opportunities Before investing, browse through the funding opportunities available on the platform. Each deal includes a comprehensive report on risks and rewards, allowing you to assess whether the investment aligns with your goals.
Step 4: Deposit Funds If you find an opportunity that fits your investment goals, you can proceed to deposit funds. Be aware of the minimum investment amount, which may be as high as $10,000. Before transferring funds, you must link your U.S bank account and verify it by confirming two micro-deposits made by EquityMultiple. Once verified, you can deposit funds via ACH or wire transfer.
Step 5: Complete Investment After your funds have been credited to your EquityMultiple account, you can complete your investment. Once the deal has met its funding target, the borrower will enter into a legally binding financing agreement.
The borrower will then be required to make monthly or quarterly repayments until the loan is repaid in full. These repayments will be sent directly to your linked bank account via EquityMultiple.
EquityMultiple Review – The Bottom Line?
To summarize, EquityMultiple seems like a noteworthy option if you want to invest in the real estate market, which is worth trillions of dollars. However, you must qualify as an accredited investor and be willing to invest a minimum of $5,000. The platform claims to provide an average return of 7%-12%, and it can be even higher for equity deals, reaching up to 17% or more.
One of the standout features of EquityMultiple is its highly rigorous due diligence team, which only approves 5% of loan applicants, with the rest being rejected.
Another advantage of EquityMultiple is that investors get to select the specific investment structure they want, such as syndicated debt, preferred equity, or common equity. This allows investors to have control over the risks and rewards associated with their investment.
Although investing in a crowdfunding platform like EquityMultiple comes with certain risks, the potential returns on offer seem to justify the risks involved.