The bottom line: With a $500 minimum investment and no management fees, DiversyFund is a low-cost entree into the often high-roller world of real estate investing. But investors should take a long-term view, as all distributions are reinvested into properties until they are sold.
Pros & Cons
- Access to commercial real estate deals.
- No management fees.
- Accepts nonaccredited investors.
- $500 minimum to begin investing.
- Highly illiquid investments.
- Unable to choose among commercial projects.
- Limited investment choices.
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In the field of crowdfunded commercial real estate investments, DiversyFund is unusual: The company owns and manages properties directly, rather than acting as a broker that pairs investors with specific projects. As a result, the DiversyFund charges no management fees on its investments.
A big plus for less well-heeled investors, the minimum investment in DiversyFund is only $500 and is open to nonaccredited investors. One downside: All dividends are reinvested, so investors won't be able to realize income from the investment until the properties are sold — which isn’t expected until the end of 2023 or beyond.
Investors buy shares in DiversyFund’s DF Growth REIT, a public nonlisted real estate investment trust. These types of REITs are required to register and submit an annual audit with the Securities and Exchange Commission, which gives an added level of transparency investors may not find with a private REIT or other real estate investments. However, because the REIT isn’t sold on a public exchange, shares are highly illiquid and their value can be difficult to assess until the properties are sold. (Confused? .)
Low minimum investment: In May 2019, the SEC approved DiversyFund’s bid to drop its minimum investment to $500 from $2,500, a move that small-dollar real estate investors will appreciate.
No management fees: While other crowdfunding real estate sites may charge a 1% management fee or more to cover the cost of the platform and play matchmaker between investor and project, San Diego-based DiversyFund owns and operates all its real estate projects and charges no annual fees. Each project, however, may carry developer fees of between 2% and 8% for finding, acquiring and managing each holding.
Available to nonaccredited investors: Some online real estate platforms are available only to — which the SEC defines as having a net worth of more than $1 million (not including the value of a primary residence) or annual income in each of the last two years of at least $200,000 for individuals or $300,000 for a couple. DiversyFund is open to all U.S. resident investors.
Owns and runs investment properties: As noted above, DiversyFund is unique in that it owns and runs all its investment properties. The DF Growth REIT includes apartment complexes and luxury homes in southern California, Texas and North Carolina. The company buys the properties with an eye toward improvements and resale within five years. Investors may appreciate that DiversyFund managers have real skin in the game. However, unlike some other commercial real estate investing sites, users can’t pick and choose among projects to fund.
How the returns work: According to DiversyFund, after properties are sold (at purchase price or for a profit) investors get their principal back and a 7% preferred return before the company receives any profits. If assets are liquidated at a profit above 7%, subsequent profits are shared — 65% to investors, 35% to the company — until investors make a return that averages 12% per year. Any remaining profits are split 50/50 between investors and the company.
The company pays out once the properties are sold, which isn’t expected until the end of 2023 (although the management may extend that date by two years at their discretion). So don’t plan on seeing a return on your investment — assuming there is one — until at least that time. You can read the to understand more about the investment and potential risks.
» Compare before investing:
DiversyFund sets itself apart from other real estate investment sites in some important ways: It accepts nonaccredited investors, has a low initial investment requirement and charges no management fees. The company also directly manages properties under the DF Growth REIT.
Still, the illiquidity of the investments and lack of dividend income until the properties are sold may not be advisable to investors who need the cash back in the next three to five years. Also, the limited investment choices — and the lack of the ability to pick and choose among real estate deals — may be a turnoff to some investors.
» Read other ways to
If you’re looking for a less risky way to expand your portfolio into real estate investing, you can always turn toward publicly traded REITs. As they are traded on an exchange, these REITs are a liquid investment that can be valued, bought and sold more easily than nontraded REITs. Alternatively, purchasing shares in a REIT mutual fund can be a one-stop shop for a diversified real estate investment.
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