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Alternative investment options have ballooned in recent years.
Real estate, once restricted to the well-connected or wealthy, is now available to any investor for just $500.
The financial technology revolution has brought real estate investing to the masses with equity crowdfunded real estate.
Before 2015 the average investor couldn’t invest in real estate without taking out a hefty loan, paying high dollar to pool funds with a syndicate, or having a rich uncle.
That changed with recent online crowdfunding regulations, which enabled U.S. companies to democratize alternative asset investing.
The market has exploded in the past five years. Now you can purchase shares in everything from real estate to antique cars to fine art.
Today, we will review a leading real estate crowdfunding platform, DiversyFund.
DiversyFund is an SEC-regulated crowdfunding platform specializing in real estate.
The company operates a Real Estate Investment Trust (REIT), which pools investment dollars to buy, improve, and sell multifamily real estate and other real estate properties throughout the U.S.
Everything is done online through their proprietary platform. The company owns the properties and conducts all of the improvements and management.
The company offers three different investment types: one for the average investor and two for accredited investors.
Average returns range from 7% to 21%. Read on to learn more about this investment opportunity.
Min. Investment: $500 for REIT's
Fees: No platform fees (1% estimated other fees)
Promotion: Referral code from current investors
What is DiversyFund?
DiversyFund is an SEC-qualified real estate crowdfunding investment marketplace.
Investors pool money to purchase shares of real estate funds, which the company holds for approximately five years.
Importantly, the company also holds shares of the properties it owns, which makes them a co-investor alongside the pool of investors.
Ideally, property values appreciate and are later sold for a handsome return, which is distributed to investors. Investors can buy-in to a fund for as little as $500.
Funds are composed of different properties around the U.S. While DiversyFund claims to be zero-fee, this is not entirely accurate.
Depending on the real estate investment, you may experience a fee of around 1% or more.
At the time of writing, the company offers three investment opportunities for investors: a growth REIT fund, a debt-based income fund, and a Series A pre-IPO investment.
While DiversyFund was created to democratize investing, only the growth REIT is available to non-accredited investors.
What is an accredited investor you ask?
Per the SEC, an accredited investor is anyone who both has over $1,000,000 in net worth and $200,000 earned income in the past two years.
Unlike other crowdfunded real estate companies, DiversyFund buys, holds, manages, and sells the property themselves.
The company call this vertical integration, which they claim makes for a better investment.
What makes this company a financial technology (fintech) company is the online marketplace and crowdfunded nature of their investments.
Investors have access to an online portfolio, dashboard, and investment center detailing everything from investment returns to tax documents.
DiversyFund is a San Diego-based private equity firm specializing in crowdfunded real estate investments.
The company has a strong fintech component with its online marketplace.
Signed into law by President Barack Obama, this law, among other things, opened up the equity crowdfunding market to entrepreneurs.
The company is competing in a marketplace that has witnessed a great deal of competition since the JOBS Act opened crowdfunded real estate in 2015.
Like many recent real estate crowdfunding entrepreneurs, Craig and Alan realized an opportunity to democratize real estate investment.
Historically, real estate investing has been available to those with capital, expertise, or connections.
For those unable to purchase properties outright, real estate investment syndicates were a way to pool funds with other investors to purchase properties.
Crowdfunding essentially opens syndication up to more people via the internet.
DiversyFund cashed in on the initial boom in the crowdfunded real estate space, with a $3M Series A funding round raise in January of 2018.
At that time the company was offering shares for a minimum of $2,500. In 2019 the SEC qualified DiversyFund to open up investing to all investors with a minimum buy-in of $500.
The company has since expanded to additional offerings, including the income fund and the Series A pre-IPO fund.
DiversyFund maintains an A+ BBB with accreditation since 2019. Average 4-star rating with 22 customer reviews (at the time of writing).
For our leadership gurus, co-founder Craig Cecilio runs the Driven to Win podcast.
One-stop Investment Shop With No Intermediaries. The company purchases the real estate, develops it, manages it, collects cash flow, and divides up the dividends.
Fees Dependent On Offering. 1%+ fees for REITs, other fees depending on the offerings.
80% Focused on Multifamily Value-add Real Estate. But will opportunistically invest in all other real estate types.
US-wide Properties. Invest throughout the US (although many were in CA and TX).
Low Minimum Investment. $500 to get started investing in real estate.
Three Investor Types. Good for starter investors, investors on autopilot, and high growth investors.
Invest in Different Investment Categories. Put your money into growth REITs, Series A rounds, and income funds.
Options For Accredited Investors. Those with deep pockets can get access to exclusive offerings.
Digital Platform For Investments. Track investment progress and other important documents on the DiversyFund online platform.
How Does DiversyFund Work
DiversyFund is an equity crowdfunding platform designed to give the average investor access to real estate returns, without having to shell out big dollars in a real estate syndicate.
The company operates as a private equity firm that purchases real estate properties around the country and groups those properties into a REIT.
Investors purchase Class A investor shares, which entitles the investor to a portion of the proceeds of a property within the REIT basket.
Investors who buy into the REIT are purchasing shares similar to a mutual fund. This means that investors don’t have a say in the investment, and are passive investors along for the capital appreciation ride.
The company’s stated strategy is to identify and purchase multifamily real estate in good locations within specific target markets.
These properties are evaluated for the ability to be purchased at or below market-prices with potential for above-market returns.
The company then uses investor capital and cash flow from the property to make improvements with a limited capital outlay.
Stronger third-party management is used to increase rents and the overall value of the property. In the world of real estate, this is a value-add approach.
80% of the company’s profile is invested in value-add multifamily real estate, although they will opportunistically purchase real estate, such as office, industrial, self-storage, or residential properties.
The first 12 to 36 months of the property are important for determining the long-term course of the investment.
During this time, DiversyFund analyzes market conditions to determine if the property should be maintained, refinanced, restructured, or sold.
While DiversyFund started with just a REIT offering, the company has expanded and now has three investment options.
- DiversyFund Growth REIT
- DiversyFund Income Fund
- DiversyFund Series A: Pre-IPO Investment
Real Estate Investing for Your Future
3 DiversyFund Investment Options
Below is a more in-depth explanation of the investment options DiversyFund offers.
Importantly, the DiversyFund Income Fund and DiversyFund Series A: Pre-IPO Investment are open to accredited investors – individuals with over $1,000,000 in net worth and over $200,000 in yearly earnings over the past two or more years.
DiversyFund Growth REIT
DiversyFund’s flagship product is the DiversyFund Growth REIT. This REIT targets high-growth potential properties in various markets throughout the U.S.
The company takes a value-add approach. This approach targets properties that are cash-flow positive, but have the potential to increase in cash flow and value with added capital.
Capital is used to make property improvements.
Improvements include physical improvements such as a new exercise facility, interior remodeling, reducing property vacancy rates, improving property management, and increasing customer satisfaction rates.
After these improvements, the property is then sold and returns are paid to investors.
The company uses all cash flow from the property to make improvements, so investors only realize a return after a sale.
The DiversyFund Growth REIT was officially qualified by the SEC in 2018.
This is a stringent process requiring the company to meet specific requirements.
One such requirement is to provide investors with a comprehensive overview of the REIT: operations, strategy, costs, and risks, among other details.
This document is published by the SEC and is available here.
This fund is a good way to get exposure to the real estate market without the hassle of trash, toilets, and tenants.
However, this is an illiquid investment with no way to get cash out.
Investors won’t have access to cash distributions and investors aren’t paid unless the property sells.
Below are more details on the investment:
- Minimum investment - $500
- Price per share - $10
- Preferred annualized return - 7%
- Average annualized return - approximately 15% to 21% (depending on property success)
- Expected management fees - 1 – 3% annualized
- Payment - on property sale
DiversyFund Income Fund
DiversyFund’s founders have a long history in real estate and finance.
Prior to founding DiversyFund, Craig and Allen created a real estate debt fund.
This fund is now known as the DiversyFund Income Fund, which generates income by making secured loan investments into a range of real estate projects throughout the U.S.
Investors buy into the fund and are locked up for a minimum of one year.
See the factsheet here.
Below are more details on the investment:
- Minimum investment - $100,000
- Annualized return - 6.97% (average 10.5% since inception)
- Expected management fees - none
- Payment - quarterly
- Loan sizes - $100,000 to $1,000,000
- Loan terms - 60 days to 120 days
- Loan interest – 7% to 12%
DiversyFund Series A: Pre-IPO Investment
DiversyFund is now offering the opportunity to invest directly in the company and its platform.
Through the DiversyFund Series A: Pre-IPO Investment, investors can get a share of the company, similar to a venture capital backer.
This is a new and somewhat unexpected offering, as the company is essentially crowdfunding its own Series A round funding.
See the factsheet here.
Below are more details on the investment:
- Minimum investment - $25,000
- Targeted return - 5x – 10x investment
- Note - 2 year-term, 12% accrued interest
Pros & Cons
Getting Started with DiversyFund
For those ready to get started investing in real estate through an online, crowdfunded marketplace, you’ll be pleased to know the process is fairly straightforward.
Investors can register for an account in just a few minutes without paying a dime.
In order to get started investing, you’ll need to provide the following information:
- Contact information
- Social security number
- Form of ownership (individual, joint, trust, entity)
- Investment amount
- Funding source (ACH)
After this, you need to sign and review the agreement. After a few days, your account will be funded and you can start investing.
Investors looking for the income fund or Series A round will need to select the appropriate investment option on their dashboard.
After investing in your preferred fund, you’ll be able to track your investments through the DiversyFund online platform.
Here you can find your real estate portfolio, investment updates, account statements, tax documents, and other important documents.
Should You Invest With DiversyFund?
DiversyFund is a strong player in the real estate equity crowdfunding market.
The company offers straightforward investments in a variety of real estate opportunities throughout the U.S.
Their core product, the DiversyFund Growth REIT, is a great way for beginning investors to gain exposure to the real estate market without costing an arm and a leg.
This is an illiquid investment, which isn’t uncommon for real estate, so make sure you can afford to not touch the money for an average of five years.
Accredited investors have access to two other investment options, making this a company that has something for many types of investor.
We like the ease-of-use of the platform, the wealth of information and documentation, and the quarterly updates.
Sometime in 2020 the company plans to release an app for both iOS and Android, which will put the power of real estate crowdfunding into your pocket – another great idea.
Our only reservations are the illiquid nature of the investments and that the company only offers one REIT for non-accredited investors.
More choice, either through additional REITs or specific investment properties, would make this an all-star company.
Nonetheless, if you are looking to get involved in real estate (or to invest in a real estate fintech company), DiversyFund is worth checking out.