EquityMultiple is a commercial real estate crowdfunding platform with a lot to offer accredited investors. The platform stands out in a crowded market by offering investment opportunities to accredited investors in all three capital structures: debt, preferred equity, and equity.
With a lower minimum investment than most other platforms, EquityMultiple makes it easy for investors to build a diversified portfolio with as little as $5000. To help you get started, we’ve assembled this comprehensive guide that outlines everything you need to know about investing in real estate, and how to use the EquityMultiple platform to maximize your returns.
EquityMultiple is a commercial real estate investment platform that provides accredited investors (allowed to buy and invest in unregistered securities) with access to professionally managed, private real estate transactions.
EquityMultiple is not the only crowdfunding real estate investment site to do this, but it is the only platform that offers accredited investors so many different ways to diversify the real estate within their portfolio, including:
- Multifamily, hotels, condos, offices, industrial, and mixed-use buildings) in thriving markets;
- Short-term loans and preferred equity investments, and
- Value-add projects with construction components and more aggressive business plans.
Though EquityMultiple boasts a wide range of different low-cost investment opportunities ($5,000 minimum investment), their actual offering seldom exceeds five opportunities, most of which include a minimum investment of $10,000 or more.
It’s also important to note that investments made using the EquityMultiple platform are liquid, meaning you won’t get your investment back immediately. Like most real estate investments, success using the EquityMultiple platform comes with a long-term strategy.
If you’re not prepared to wait it out, it’s best to consider more liquid assets. That said, EquityMultiple is still a good fit for accredited investors looking to add real estate to their portfolio.
How EquityMultiple Works
EquityMultiple supports a national network of real estate companies seeking opportunities across different property types. Those third-party sponsors evaluate each project and partially invest with their own funds, to align their interests with EquityMultiple investors. EquityMultiple then selects the best opportunities and makes them available on its site.
The initial screening is done by a team of national and regional lenders with significant experience and includes:
- a pro forma analysis
- sales and rental comp data
- local market fundamentals
- cap rate sensitivity
- deal dynamics
Assuming a deal passes the first screening, the team conducts further analysis on the terms and other criteria. EquityMultiple claims that only 5% of deals pass final screening to make it onto the platform as an offering.
To see the offerings available on the EquityMultiple platform, an investor must first qualify as an accredited investor by providing basic details regarding their financial situation and investing experience.
Who Can Invest With EquityMultiple
Real estate investing with the EquityMultiple platform is only available to accredited investors, defined as:
- an individual whose net worth (or joint net worth with a spouse) exceeds $1 million, excluding their primary residence, or
- an individual with income of more than $200,000 in each of the two most recent years, or a joint income with a spouse exceeding $300,000 in those years. Investors must also have a reasonable expectation of reaching the same income level in the current year, or
- those with certain professional certificates or credentials
Since EquityMultiple is reserved for sophisticated investors, they require all new investors to self-certify before they can access the platform. This entails answering questions about your assets and net worth to see if you are qualified.
They will also ask if you are investing as an individual or as a corporation. Trusts, organizations, or corporations need to declare a net worth of at least $5,000,000 before they are allowed to invest on the platform.
EquityMultiple Investment Offerings
EquityMultiple’s investment offerings span the full capital stack and include a wide range of different property types in multiple geographic concentrations across the country. They also offer Tax-Deferred investments (Opportunity Zone and 1031 Exchange) and private fund offerings.
Unfortunately, there are usually only a few investments available at any given time, so if a particular investment doesn’t meet your needs, you have to wait until a new deal comes along.
What Do You Get When You Invest with EquityMultiple
The targeted rates of return on investments made with EquityMultiple are fairly high and depend on the type of investment. Though, actual returns vary, and there is no guarantee that your investment will earn a return at all.
Typically debt and preferred equity investments give investors distributions either monthly or quarterly, though EquityMultiple stresses that each investment will differ. They also urge investors to refer to specific investment documents for a full understanding of each investment’s distribution timeline.
How Do Investors Earn A Return With EquityMultiple
Investors earn a return with EquityMultiple by purchasing an ownership interest in the deal-specific LLC, which in turn invests into the underlying project. As part-owner of the LLC, investors are entitled to their share of any income or losses generated by its investment in the underlying deal.
The financing structure (capital stack) offered by EquityMultiple is broken down into four components:
- Senior Debt – Senior debt is a company’s first tier of liabilities, typically secured by a lien against some type of collateral. Senior debt is secured by a business for a set interest rate and time period, which makes the debt less risky, but also commands a lower return for lenders. Senior debt is generally funded by banks.
- Mezzanine Debt – Mezzanine debt is when a hybrid debt issue is subordinate to another debt issue from the same issuer. Mezzanine debt bridges the gap between debt and equity financing and is one of the highest-risk forms of debt—being subordinate to pure debt but senior to pure equity.
- Preferred Equity – Preferred equity is a general term used to describe any class of securities (stock, limited liability units, limited partnership interests) that has higher priority for distributions of a company’s cash flow or profits than common equity.
- Common Equity – Common equity is the amount that all common shareholders have invested in a company. This includes the value of the common shares themselves, as well as retained earnings and additional paid-in capital.
How Do I Invest on the EquityMultiple Platform?
Accredited investors can start investing with EquityMultiple by creating and registering an account. You will have to self-certify that you are an accredited investor before you are permitted to view their investment offering. Signing up for an account doesn’t require making a deposit, but if you decide to invest, you will have to link a funding source.
The stated minimum investment on EquityMultiple is $5,000, though most offerings require $10,000 or more.
Pricing and Fees
EquityMultiple assesses a flat 1% fee on debt and preferred equity investments. For common equity investments, investors pay a recurring asset management fee for:
- ongoing monitoring of the investment,
- payment distributions,
- tax reporting, and
- other services.
Most investments on EquityMultiple charge an annual management fee between 0.5% and 1.5% with most landing at 1%. On common equity investments, EquityMultiple also receives 10% of profits at exit of the investment after investors have recovered their initial investment.
Each investment also has its own fee structure, which may include additional fees, but placement or origination fees are assessed to the sponsor, not the investor. Fortunately, EquityMultiple is transparent about their fees and makes it easy for you to account for them. Projected returns listed on projects already take the platform’s fees into account.
Potential returns on investments made with EquityMultiple can differ significantly, and vary by type of investment and associated risk. That said, target rates of return for EquityMultiple investments are high:
- Senior debt – 7% to 15% targeted annual rate of return.
- Preferred equity – 7% to 15% targeted annual rate of return.
- Common equity – 5% to 12% targeted near-term cash flow (annualized).
How Do I Get My Money Out
Like most real estate investments, EquityMultiple investors typically receive some form of regular cashflow, such as from interest payments or rental income. The amount and frequency of those payments will vary depending on the particular investment.
How Long Are Returns Tied Up?
Like all investors, real estate investors want to know when and how they can get their money back. Unlike liquid investments, however, real estate investments are tied to investment time frames that vary by asset. Typical hold periods for EquityMultiple investment structures are:
- Senior Debt – 9 to 24 months.
- Preferred Equity – 12 to 26 months.
- Common Equity – 3 to 7 years.
- Funds – varies.
- Opportunity Zones – 10 years or more (in order to reap maximum possible tax benefits).
As with any real estate investment, you should go into a deal on the EquityMultiple platform with the expectation that you won’t be able to exit that investment before the deal is expected to complete.
Fortunately, EquityMultipledoes feature more short-term deals, such as construction or bridge loans with durations of only a year. This could be a better way to invest short-term capital than counting on selling an investment early.
How Does EquityMultiple Make Money?
Real estate payment and fee structures, particularly for equity investments, are complex because they typically involve multiple parties, profit-sharing arrangements, and payment priorities.
Fortunately, EquityMultiple’s fees are charged over the course of the deal and are largely dependent on the success of the investment. EquityMultiple also deducts an Administrative Expense to cover tax document creation, annual filings, and entity formation.
This fee is split between all investors, and typically ranges from $30-$70 per investor annually. EquityMultiple also charges upfront origination fees, which vary from project to project, and are typically paid by the sponsor from the proceeds of the investment.
Pros and Cons: How EquityMultiple Compares To Competitors
Like any crowdfunding investment platform, there are pros and cons to investing with EquityMultiple. Here are explore the advantages and disadvantages of using the platform.
Most deals that rely on leverage (debt) require you to risk your credit and your assets. Not so with EquityMultiple investments. The most you can lose is the amount you invest. You’ll never be asked to add more capital, and you do not personally guarantee the investments.
Real estate investments are illiquid. You can’t sell the investment if you need to pull out your money.
Arguably, one of the biggest advantages to investing with the EquityMultiple platform is their start-to-finish asset management team, which manages investments and provides investor services throughout the lifetime of each investment. This is an incredibly valuable service considering the complexity of real estate investments.
Like many of its real estate crowdfunding competitors, EquityMultiple is a newer company (est. 2015) that has had little time to establish a track record. Fortunately, the company is careful to remind investors that every investment carries risk and that investors should read each specific investment’s documents carefully before making an investment.
If you’ve been following our blog you know we like to review crowdfunding real estate investment platforms. Check out the details on CrowdStreet, DiversyFund, Fundrise, PeerStreet or Fund That Flip for other ways to invest in this lucrative alternative asset class.
EquityMultiple claims to make it easy for investors to focus their efforts across all facets of commercial real estate, but that claim does not apply to all investors. Since the platform is only available to accredited investors, it’s not open to anyone without $1 million in their pocketbook.
However, if your net worth exceeds $1 million, the EquityMultiple platform will enable you to diversify your portfolio with various markets, asset classes, and project types. Unfortunately, for the average side hustle investor, EquityMultiple will likely remain out of reach.