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[crowdability-blog]

3 Ways to Earn "Private Income" Every Month

When we hear about “startup investing,” we generally think of the big paydays that occur when an early-stage company is acquired or goes public – like Google, Facebook or Tumblr.

And historically, it’s true: profits from early-stage investing have come from “exits” like an IPO or a big acquisition. But thanks to technology innovation and the new laws around crowdfunding, now you can generate income through private investment opportunities. Today we’ll show you 3 ways to access these “private income” streams each and every month... 1. This One is For Real You’re probably familiar with real estate as an asset class – perhaps you even own some already. But the real estate investments available on crowdfunding portals are a bit different than your current options. Let me explain... Generally speaking, individual investors looking for real estate have a few options:

Buy actual real estate – This is difficult to do: it’s expensive to put down payments on multiple properties, and real estate is time consuming to manage. That said, historically, it’s been a good investment. Real estate has outpaced inflation, and because it’s not highly correlated to the stock market (i.e., when the market zigs, the housing market can zag), it can provide protection for your overall portfolio.

Publicly Traded REITs – Publicly-traded REITs (or Real Estate Investment Trusts) allow you to buy and sell shares of real estate portfolios through a stock exchange like the NYSE or NASDAQ. This allows you to own multiple properties with a small amount of capital. The biggest downside here is that publicly-traded REITs are highly correlated to the stock market – meaning, if the market drops, so might the value of your REIT.

Non-Traded REITs – This option offers the best of both worlds. You can own a portfolio of real estate properties without committing a large amount of capital,and the investment doesn’t trade with the market. However, the fees to get involved are far higher than tradable REITs.

In our opinion, equity crowdfunding presents a better option. On websites like RealtyMogul.com and RealCrowd.com (at the moment, you can actually invest in the RealCrowd platform itself – see Matt’s article from last month here) you can buy small shares of individual properties that aren’t traded on any stock exchange – and there are no high upfront fees to get involved. Target yields are generally between 5% to 10%, and there’s the potential for capital appreciation as well. This is a strong alternative to non-traded REITs and a great way to diversify your income investments in a cost-efficient way. 2. Energy One of the most interesting aspects to equity crowdfunding is that it can offer you exposure to new asset classes – the sorts of investments that are far less known to the majority of retail investors. For example, most folks are aware that they can invest in sectors like clean energy via publicly-traded stocks or ETFs. But did you know that you could earn income by loaning money directly to clean energy and solar projects? Basically, developers set up what’s called a “Special Project Entity” (or “SPE”) in order to build, for example, a new solar project. Their ultimate goal is to sell the power the project generates to the local utility. But first the SPE needs seed capital for construction and build-out purposes. Although these investments offer attractive returns (4% to 7% yields), historically they were generally difficult to find and fund as an individual investor. But on crowdfunding platforms like Mosaic, you can easily find and evaluate solar projects. Mosaic users have already funded millions of dollars worth of solar projects without a single default or late interest payment. Mosaic should be posting new opportunities soon... 3. Peer-to-Peer Loans One of the biggest crowdfunding markets to date is focused on personal loans – and these can pay substantial yields to lenders. There are many sites catering to this market, but the biggest is LendingClub. Since its founding in 2007, LendingClub has facilitated over $3 billion in loans on its platform, and is currently issuing $250 million in new loans per month. Borrowers come to the site when they want to pay down high-interest credit cards, or to make a sizable purchase like a new car. A typical loan might be $25,000 or $30,000 (LendingClub limits loans to $35,000). Then “the crowd” (many individuals like us) contributes small amounts – maybe $10, $20, $100 – towards the $30,000 loan. The borrower pays us back over time, plus interest.  Everything is managed by LendingClub. Gross yields before fees and defaults have typically ranged from 9% to 14% depending on the credit worthiness of the borrower. The 36-month average is 12.48% -- try finding that in your local bank! Although the average FICO score of a LendingClub borrower is high – currently it’s 703 – there is still the risk of late payments and defaults. Because of these risks, many professionals (including LendingClub) recommend creating a diversified loan portfolio of 200 to 300 loans. For those willing to invest larger amounts, LendingClub also provides a managed service, as well as a fund. You can learn more on their website » More to Come... As crowdfunding continues to mature, we believe more opportunities will emerge to earn attractive financial returns – from investing in high-growth startups for capital appreciation, to investing in real estate or loans to generate current income. We’ll keep you abreast of these opportunities, as we believe crowdfunding has the power to change the face of finance in this country. Let us know if you have questions about any of the opportunities and assets we discussed today. You can email us directly at [email protected].

[crowdability-blog]

A "Goldmine" for Real Estate

Sometimes there’s more than one way to buy into an investment.

  Take gold, for example. Sure, you could buy physical gold bars or a gold mutual fund. But you could also invest in a gold mine!

  It’s the same thing with equity crowdfunding. You could:

Invest in the companies featured on crowdfunding platforms (i.e., buy individual bars of start-up “gold”); or

Invest in the crowdfunding platform itself -- i.e., invest in a “gold mine.”

It’s rare -- as in, once in a blue moon -- that you’ll see an opportunity to invest in a crowdfunding “gold mine.” But here’s the thing:

  One of them is raising money right now.

  A Platform for Crowdfunded Real Estate

  RealCrowd is similar to other crowdfunding platforms we’ve written about -- likeAngelList, CircleUp, or OurCrowd -- but instead of featuring early-stage companies that build things like medical devices or food products, they feature investment opportunities in Commercial Real Estate (“CRE”).

  Historically, only the wealthy and well-connected could invest in commercial buildings in major markets like San Francisco and New York. But with the emergence of Real Estate Investment Trusts (REITs) in the 1960s, the doors to CRE were opened to all.

  RealCrowd offers a new way to profit from this sector. Like REITs, their goal is to make it easy for individuals to invest in real estate. But unlike REITs, they risk no capital. If they can attract real estate deals and enough investors, they’ll make money.

  Here’s how it works:

  1. They leverage their relationships to source attractive real estate opportunities.

  2. They perform due diligence, which they share with the RealCrowd community.

  3. If an investor likes a deal, he or she can invest as little as $5,000. RealCrowd makes money by charging transaction fees and ongoing management fees.

  Market 

  Every year, $250 billion of CRE changes hands. RealCrowd is specifically focusing on real estate in the $2 million to $15 million range. This deal size is generally too small for institutional investors like publicly-traded REITs, but too big for most individual investors. That means less competition for good deals -- and an opportunity for crowdfunding.

  By creating an online platform and bringing together deals and individual investors,RealCrowd allows real estate operators to raise money efficiently from a new source -- and allows individuals to participate in CRE.

  Does CRE Even Make Sense For Individual Investors?

  RealCrowd makes it easier for people like us to write a check for CRE. But is that a good thing? Should this type of investment even be accessible to crowdfund investors?

  CRE has a long history as an investment for institutions such as pension plans or endowments. Yale University’s endowment, for example, keeps more than 20% of its assets in CRE. But recently we learned that Yale’s Chief Investment Officer recommends that every investor, individuals included, do the same; that provides some comfort.

  While CRE is unlikely to earn its investors Google-like returns (the search engine giant’s earliest investors made more than 3,000%), the fact that real estate is a tangible asset, and creates forecastable revenues and profits, means that it’s far less risky.

  Buying Into a “Gold Mine”

  Several brand-name investors have already written checks to buy shares in RealCrowd, including top-tier venture capitalists Andreesson Horowitz and General Catalyst, and successful entrepreneurs and angel investors Alex Ohanian and Paul Buchheit.

  So despite the risks -- including competition from similar platforms like RealtyMogul andFundRise; the expense of attracting good deals and good investors; and the fact that this is a start-up, with all the risks that come along with it -- our perspective is clear:

  If you’re interested in real estate -- and believe in the future of crowdfunding -- you should take a closer look at the RealCrowd “gold mine”! 

  (Please note: Crowdability has no relationship and zero financial interest in RealCrowd.)