EquityMultiple Review – Accredited Real Estate Investing
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As far as investment options go, I’ve never really considered real estate investing as a viable choice. Buying a house to live in, let alone another one to rent out is a lot of money to come up with.
Real estate deals are for the rich, I’ve thought.
That’s still partly true, but everyday investors can put their money into real estate investment trusts (REITs), invest through real estate crowdfunding platforms, and buy homes or fund home loans with other individual investors.
One of those options is EquityMultiple, a platform that gives investors a chance to buy professionally managed commercial real estate and other types of properties. According to the company, it has a 17.4% historical net rate of return.
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What is EquityMultiple?
EquityMultiple is a real estate investing platform founded in 2015, headquartered in New York City. It has more than $4 billion in projects and has returned $379 million to investors.
It only allows accredited investors to invest in its commercial real estate and other property offerings. That’s a high hurdle to jump for most people and should be your first consideration before joining EquityMultiple.
Accredited investors are defined by the Securities and Exchange Commission (SEC) as having a net worth of more than $1 million. Or, someone can qualify with a gross income of $200,000 in the past two years and the current year or $300,000 for couples.
Such wealth is assumed to protect these investors from losing their investment and allow them to take on the risks of these investment offerings.
Another requirement of EquityMultiple is that the minimum investment is $10,000. That allows them to invest in one property at a time. Investors seeking more diversification can invest in funds that hold multiple properties, though a minimum investment of $20,000 is required.
Real estate isn’t as liquid as equity investments, so joining EquityMultiple investments requires holding them for years: from 1.5 to 10 years for the funds and from six months to five years for direct investing in one property at a time.
If you have a high income or net worth, have at least $10,000 to invest, and can hold the investment portfolio for years, then EquityMultiple may be the real estate investment opportunity you’ve been looking for.
How does EquityMultiple work?
Before we go into the features and costs of EquityMultiple, we’ll go over the sign-up process required to become an investor through the real estate investing platform.
Start by clicking the green “Sign Up” button at the top right of the homepage, or it can also be found on other pages.
It first asks for your email address. You then create a password. You then provide your name. You then must verify your email address by clicking on a verification link it has sent you. After verification, you can either qualify as an investor or start looking through the EquityMultiple website to view past investment opportunities. To see live investment opportunities, you’ll need to provide more information to qualify, starting with clicking the green “Get Qualified” button. I clicked on that button.
The first question is if I’m an accredited investor. It lists the four most common ways to qualify as an accredited investor:
- Annual income of $200,000 or more, or $300,000 with a spouse, in the prior two years and again this year.
- Net worth of $1 million or more, either alone or with a spouse, excluding the value of your home.
- Entity accreditation by investing on behalf of an entity with at least $5 million in assets in which the owners are accredited investors.
- Holding a professional financial license.
I don’t qualify, but I say I do for reporting purposes.
It then asks to verify my identity to comply with the SEC and determine if I’m accredited and legally able to invest in the platform. I’m not, so I stopped here. I don’t want a call from the SEC or some other federal agency accusing me of providing false information.
This call may never come because EquityMultiple keeps personal financial information private. It asks users to self-certify that they’re accredited investors; no one has to tell it how they qualify. This question is asked every time you invest; otherwise, it typically doesn’t require any documentation proving your financial status.
How much does EquityMultiple cost?
Knowing how much you’ll pay in fees to EquityMultiple is important, but so are the investment minimums. While they’re not exactly costs, they’re the minimum amount of money you’ll need for an initial investment, and you won’t be able to join if you don’t have enough money to invest.
The minimum investment is $5,000, which can be placed in a short-term, diversified account with zero fees. Its target duration is three to nine months.
The minimum investment in real estate deals is $10,000 for one property or at least $20,000 for multiple assets. The investment minimum typically ranges between $10,000 to $30,000. Additional shares are typically offered in increments of $5,000 above the minimum.
Fees vary by investment type. The EquityMultiple fees range from 0.5% to 1.5% of invested capital for common equity. The servicing fee is typically 1% for debt investments and preferred equity.
An origination fee is charged upfront for fund investing, though the site doesn’t say how much it typically is. Each offering specifies the origination fee, which I could not view because I'm not an accredited investor.
Crowdfunding sites typically charge a management fee. EquityMultiple charges an annual fee and an Administrative Expense of $30 to $70 to cover tax document creation, annual filings, and entity formation.
EquityMultiple receives 10% of investor profits after investors have received all of their initial investment back. This gives it plenty of motivation to find and fund profitable projects.
EquityMultiple features
If you’re an accredited investor, can comfortably afford the high investment minimums, and can stay invested in real estate projects for years. The other features of this site for real estate investors are worth checking out. Here are some of its main features:
Many types of investments
EquityMultiple offers a mix of direct, fund, and tax-deferred commercial real estate from different property types and locations. It also invests in apartments, condominiums, and industrial property, but its main focus is on mid-market, commercial real estate.
It offers at least five ways to invest, which the company says is one of the few real estate crowdfunding platforms to offer so many of. They include senior debt, preferred equity, common equity, funds, opportunity zones, and mezzanine debt.
Most of those are in the “capital stack” for commercial real estate financing, which can be much more complex than getting a loan for your home mortgage. Part of the capital stack determines payment priority order, with the lowest level of risk being paid out first.
Senior debt is paid out first, followed by a mezzanine, preferred, and common equity. The further you are paid out, the higher the potential returns are.
An opportunity zone is land the state or federal government selects as historically underinvested neighborhoods designated for economic development. Equity Multiple offers investing in an opportunity zone through its Opportunity Fund. It offers tax advantages such as deferring paying capital gains tax until the end of 2026, reducing that tax payment by 10%, and paying no taxes on the investment if held for more than 10 years.
High rate of return
Real estate is often a form of passive income, and EquityMultiple offers that by paying monthly or quarterly dividend distributions.
The company says that the forecasted returns must fall within target ranges when considering investments. They vary by the type of investment and are:
- Debt: 7-12% annual rate of return.
- Preferred equity: 6-12% current preferred return, 10-18% total preferred return.
- Common equity: 10-24% internal rate of return.
- Funds: Depends on the fund strategy, but it typically seeks fund investments that offer predictable, near-term cash flow.
And always remember that past performance isn’t indicative of future results.
Data-driven diligence
Every investor should do their due diligence and research the investment offerings. EquityMultiple says it applies proprietary algorithms and underwriting methodologies in its vetting process and selects only 5% of the investments evaluated. This helps it better maintain a strong track record of success.
Who is EquityMultiple best for?
High-income investors
EquityMultiple is only open to accredited investors, people with a net worth of more than $1 million (excluding the value of their primary home), or $200,000 in annual income for the past two years and the current year, or $300,000 for couples.
Long-term investors
Investors with a long time horizon of 10 years or longer are most likely to see the highest rate of return. Shorter terms are possible, but the company recommends its real estate deals be held for years.
Seeking diversification
Accredited investors seeking a diversified portfolio can invest in commercial real estate and other real estate types to diversify their overall investment portfolios.
Who shouldn’t use EquityMultiple?
Non-accredited investors
If you don’t earn at least $200,000 per year (or $300,000 with a spouse), or have a net worth of more than $1 million, then you can’t join EquityMultiple as an investor.
Those without $10,000 to invest
The minimum investment at EquityMultiple is $5,000, but that’s for a note that can be withdrawn in three to nine months. Real estate investment requires at least $10,000; a minimum can go as high as $30,000 for specific projects.
Those risk-averse
Real estate investing is risky, as all investments are. But real estate can be especially risky in the short term, so EquityMultiple suggests staying invested for 10 years or longer. The site models return conservatively and do extensive underwriting on each platform before putting it on the platform, but it’s important to note that all investments carry risk.
Pros and cons
Pros
- Possible high rates of return.
- Chance to invest in commercial real estate.
- Portfolio diversification.
Cons
- Only accredited investors with high incomes or net worth can join.
- High investment minimum of $10,000.
- Low liquidity.
EquityMultiple vs. Fundrise vs. CrowdStreet
Platform | Account minimum | Fees | Target audience |
Equity Multiple | $10,000 | .5%-1.5% | Accredited investors |
Fundrise | $10 ($1,000 to invest) | 1% | Beginners |
CrowdStreet | $500 | 2% | Accredited investors |
Fundrise
Fundrise makes it easy for real estate investing beginners to get started. It handles asset allocation based on your risk tolerance. Its $10 minimum investment is the lowest among such crowdfunding sites, though that’s just to open an account. A $1,000 deposit is needed as a minimum investment. The holding period is five years, and a 3% penalty is charged for withdrawing funds sooner.
CrowdStreet
Like EquityMultiple, CrowdStreet is only open to accredited investors. It has private REITs and funds built around themes that users can customize. CrowdStreet has three to five years holding periods, with some as long as 10 years. Its average hold period is 2.7 years.
While the account minimum is $500, CrowdStreet says most of its offerings have a minimum of $25,000, though some may range up to a minimum investment of $100,000.
FAQs
Why shouldn't I invest in a public REIT?
A public real estate investment trust (REIT) is publicly traded and easily bought through a brokerage. Buyers don’t have to be accredited investors. The downside of such REITs, according to EquityMultiple, is that being exposed to the public markets makes the valuation of such REITs less associated with the underlying real estate because it’s subject to market sentiment fluctuations. EquityMultiple works with real estate management companies to offer non-traded REITs, which can still give investors fast liquidity.
Can you lie about being an accredited investor?
EquityMultiple is only open to accredited investors, meaning someone with a high income or net worth. Users are asked to self-certify that they’re an accredited investors, which opens the door to lying. You don’t have to explain how your qualifications or provide documents proving your income or assets, so you could say you qualify, and no one would know the difference except you. Self-certification is required every time you invest, and lying may eventually affect your conscience. One worst-case scenario is that your investment will fall to zero, and you won’t be able to afford the loss.
Is the website easy to use?
Yes. While I only went so far in the sign-up process, I found the ease of use to be high on the website, with only basic questions I was asked to answer. Providing your name and email address will be enough information to get a verification link so you can start looking at past investment opportunities on the website. Once I got this access, a chat box popped up to answer any questions I might have. When I did ask a question, it was answered in about one hour. There’s also a customer phone number to call with questions. Go further and self-certify that you’re an accredited investor and can look at current investment opportunities. You don’t have to provide documentation to prove your income or net worth, and the company has a policy of keeping customers’ information private. You don’t have to make a deposit when signing up for an account. If you decide to invest, you can link the funding source online.
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The bottom line
Accredited investors may find EquityMultiple a good real estate investing platform in building a diversified portfolio through commercial real estate. The site vets real estate investments through proprietary algorithms and underwriting methodologies and only puts out 5% of the investments it evaluates.
EquityMultiple fees vary by the type of investment chosen, though most are 1% of capital invested. The company also takes 10% of investor profits after investors have received all of their initial investment back. That sounds like enough motivation for it to find profitable projects.
If you can afford to invest at least $10,000, then the passive income of real estate can be yours through EquityMultiple. It sounds a lot easier than buying a house and being a landlord.
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Writer
Aaron Crowe is a freelance journalist who specializes in personal finance writing and editing. He has worked at newspapers, where he won a Pulitzer Prize, and has written for numerous online publications. These include AOL, US News & World Report, WiseBread, Bankrate, AARP, and many websites focusing on housing, credit and insurance. He lives in California with his wife and daughter.
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