Investing with Alpha Investing: An Overview
Learn more about Alpha Investing, a crowdfunded real estate platform with a personal touch and focus on multi-family residential real estate with added value.
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In the summer of 2019 I made my first investment Alpha investing, a private real estate crowdfunding platform primarily focused on private investment opportunities for multi-family and senior real estate.
They have also offered investments in student housing, self-storage, and office, and have each made an investment in two real estate funds (as opposed to individual projects), one multi-family and one commercial real estate debt.
Multi-family investments with added value are the most common type of investment available through the platform. They focus on projects that involve buying large apartment complexes, doing renovations to improve the exterior and individual units, increasing rents appropriately, and then selling the property, presumably at a profit.
This perfectly describes the investment I made with the minimum of $ 10,000 in a growing Arizona city that I visited earlier this year. It is far too early to know how this investment will develop as the planned holding period is around five years. However, we can look at past investments, how investments are selected, and what relationship Alpha Investing likes to have with investors like me.
Investing with Alpha Investing: An Overview
My experience with real estate investments
I know many investors whose main source of income and wealth was real estate. This is not the case for me, but over the past few years I have diversified my investments by adding real estate investments to the mix of stocks and bonds in my portfolio.
For years I have had 7.5% to 10% of my portfolio in the Vanguard REIT index fund. The mutual fund owns numerous listed real estate investment trusts. It is a fiscally inefficient fund, due to both sales (24% in the last financial year) and the fund's return of around 4% per year. As such, I own it in my Roth IRA.
More recently, I've added individual lakefront properties that I bought and invested in crowdfunded properties. Overall, I invested almost the same amount of money in these crowdfunding opportunities that I spent on our last home purchase – $ 90,000 each.
As I get wetter in this area, I think it is a good idea to spread your risk by investing in multiple types of deals across multiple platforms.
EquityMultiple is more focused on commercial real estate. Acretrader focuses on farmland. With Peerstreet you can grant loans for individual residential properties. For each of these three points, you must identify yourself as an accredited investor. Must have an income of $ 200,000 as an individual or $ 300,000 as a couple, or meet the net worth of at least $ 1,000,000.
Fundrise, Diversyfund and RealtyMogul offer eREITs for non-accredited investors.
I've invested in each of them after spending some time learning more about what they do and how they do it. My last real estate investment was with Alpha Investing. I was introduced to them by my friend Peter Kim, who has a small stake in the company.
I will also disclose that referral fees will be refunded to this website if you register with any of the companies listed above for a closer look at their current investment opportunities. Searching will not cost you anything and every referral supports our non-profit mission. As I recently announced, that includes funding a full-time doctor's salary in Honduras.
Get to know Alpha Investing
After registering with Alpha Investing, I received a call from Adapia D & # 39; Errico, the Vice President of Strategy. The call had nothing to do with being a VIP. In fact, every potential investor must speak to one of Alpha Investing's principals before gaining access to the available offers.
They want to know which investors they will be working with, and they also want to make sure that the investor has an understanding of what they are investing in. This is a labor intensive step from an operational standpoint, but it does add a personal touch that I haven't seen from the other platforms. For this reason, Alpha Investing sees itself as a “private capital network” rather than a real crowdfunding platform.
The company began as a group of real estate investors who invited close friends and family members to invest with them. They continue their similar relationship-based approach while opening up opportunities for a wider group of people. <Img load = "lazy" class = "aligncenter wp-image-15293 size-full lazyloaded" title = "Investing with Alpha Investing: An overview 3" src = "https://www.physicianonfire.com/wp-content/ uploads / 2019/08 / Alpha-Investing-logo.png "alt =" Alpha Investing "width =" 350 "height =" 240 "data-pin-description =" Alpha Investing "data-pin-title =" Investing with Alpha Investing: An overview "data-pin-url =" https://www.physicianonfire.com/alpha-investing/ "data -ll-status =" loaded "/>
I chose from one of two investments available at the time of joining. In four and a half years they have made around three dozen investments. An impressive sponsor review and due diligence on each investment opportunity takes place before an opportunity is offered on the platform.
If everything goes according to plan with the investment I made in Arizona, I will more than double my money in five years, with a 2.13x stock multiplier, which equates to an IRR of 17.4%.
How Alpha Investing Selects Private Real Estate Investments
Rather than reviewing hundreds or thousands of potential deals like some volume-based platforms, they first focus on working with the right sponsor.
The sponsor is the unit that puts the individual private businesses together. The sponsor identifies the target property or properties, carefully examines the investment potential, creates a strategy and a plan for implementing the strategy, and executes it through to completion.
Part of the strategy is to raise funds, and this is where high net worth individuals and crowdfunding platforms come in.
As an individual, you may only have access to one of these syndicated property investments if you need to invest a six- or seven-digit amount. However, a crowdfunding platform can collect this money from a wide variety of investors, each investing a minimum, usually as low as the five-digit amount like $ 10,000.
Alpha Investing only works with institutional sponsors who meet certain criteria. This includes a track record of at least a few hundred million dollars in previous acquisitions. In most cases the number is in the billions.
Individual investments from these verified and trusted sponsors are subjected to additional due diligence by the Alpha Investing team to ensure that the sponsors' goals are in line with their goals.
Alpha investment fees
How Much Fees Are There When You Invest With Alpha Investing? First, understand that there are sponsorship fees. These vary depending on the sponsor, deal and position of Alpha in the respective deal.
You also pay an origination fee of 2% and an annual fee of 0.5%. Spread over five years, like the deal I invested in, the 2% could be viewed as 0.4% per year, making a total of 0.9% (0.5% annual fee + 0.4% origination fee) per year corresponds.
If a business does well with a return above 10%, the investor will keep 80% of the excess return above 10% and Alpha Investing will keep 20%.
To better understand what that looks like, I'll give an example that was given to me when I joined the network.
"Assume an investor makes a $ 100,000 investment that lasts five years. Assume then that the investor receives the following distributions over the five years, minus our origination and management fees:
– Year 1: $ 5,000 (5.0%)
– Year 2: $ 7,000 (7.0%)
– Year 3: $ 8,500 (8.5%)
– Year 4: $ 9,500 (9.5%)
– Year 5: $ 10,000 (10.0%)
In this example, the investor will receive dividends totaling $ 40,000 (40% total) over five years, an average of 8.0% per year.
Now let's assume that the project sells, 100% of the investor's capital is returned, and an additional 50% of the sales proceeds are incurred by the sponsor before our performance fee.
Since the investment has been active for five years, the investor must achieve an overall ROI of 50% (i.e. 10% average per year) before we collect performance fees. The investment was only paid out to a total of 40% before the sale, so that the investor owes a catch-up process of 10%, which is taken from the sales proceeds of 50%.
After the catch-up process has been paid for and the cumulative preferred return of 10% has been achieved, 40% of the sales proceeds remain for the division. This 40% is split 80/20 so that the investor receives 32% and Alpha Investing 8%.
When this 32% is added to the 50% ROI received before the performance fees, the investor's ROI increases to a total of 82%.
Finally, using the same example to think about investor returns in relation to Alpha’s total fees, you can start with an origination fee of 2% and an annual management fee of 0.5% (2.5% total over five years). and take the 8% performance fee for a total of 12.5% over five years, based on an 82% investor ROI.
Looking at the two as a whole, an investor would get 86.8% of the total pie, while Alpha Investing's fees are 13.2%. As a result, our fees are not unduly dilutive to total return, and the vast majority are only charged if the project is performing well. Here, too, our interests coincide with those of our investors. "
Platform fees can be avoided by investing directly with the sponsors as a limited partner.
However, be prepared to invest a significant amount of money. If you are a multimillionaire and enjoy investing a six-figure amount in a single deal, you can cut down on the middleman and associated fees.
You lose the opportunity to spread your risk across numerous deals and sponsorships unless you can potentially invest $ 500,000 or more. You also lose the benefit of additional sponsor and business care.
This may be the path I eventually go, but I'd love to see some of my smaller $ 500-50,000 investments work as expected before I take the next big step.
Getting started with Alpha Investing
Alpha Investing is one of several crowdfunded real estate platforms that give you, as an accredited investor, access to multi-family and other real estate investment opportunities with added value.
The personal relationships they love to build with their investors, as well as extensive sponsor review and due diligence on individual deals make them an excellent choice for taking your first foray into real estate investing when and when you're ready.