Are these investments risky?
All equity investments are risky, which includes investing in the stock market or in real estate. The real estate market is cyclical and real estate investing has its own set of risks which you can read about here.
How do I know the business plan will be followed?
If there are any major deviations in the business plan, the property owners, which includes yourself, can vote to either change the property manager, change the business plan, or to sell the property.
How do I make money?
You can make money in two ways from a CrowdTranche opportunity: 1) monthly net cash flow from a property paid on a quarterly basis and 2) capital gains when the property is sold. You may also receive certain tax benefits associated with property depreciation depending on your specific tax situation.
How does an investment get listed on CrowdTranche?
Real estate companies, managers, and investors can submit their investment opportunities here. We then review the submissions, ask for supporting documentation, and do some background research to determine if the property is suitable for the CrowdTranche platform.
How does CrowdTranche work?
CrowdTranche is a complete real estate investing platform that allows you to find properties, perform due diligence, and monitor investments. Each investor will be able to read significant property management notifications and vote on important property issues through their personalized dashboards. You can learn more about the investment process here and see a sample investor dashboard here.
How does the investment process work?
After you complete your due diligence and decide how much you would like to invest, you need to sign (online) all of the associated legal documents and fund your investment. The funds are deposited in an escrow account of a U.S. bank, which CrowdTranche does not control. If the investment target is met, your funds are transferred directly from the escrow account to the investment. You will then receive documentation attesting to your ownership. If the investment target is not, 100% of the deposited funds will be returned to you.
How does the JOBS act affect who can invest on the CrowdTranche platform?
The JOBS Act was signed into law on April 5, 2012 by President Obama and is currently under an SEC rulemaking period. The JOBS Act was meant to enable crowdfunding for all investors, both accredited and non-accredited. CrowdTranche is closely following related events and is hoping that the final rulings from the SEC will enable average investors to invest in CrowdTranche opportunities.
How is CrowdTranche different from investing in a Real Estate Investment Trust (REIT)?
REITs are similar to mutual funds in that they are managed by professional investment managers who have broad authority to buy, sell, or restructure properties within the fund without your consent. You are a purely passive investor.
In contrast, CrowdTranche enables you to choose specific investment properties and actively participate in the management process. There is also significantly more transparency regarding property and other investment expenses.
How long is the investment for?
This depends on the property’s business plan and the votes of the property’s LLC members, including yourself. We select properties for the CrowdTranche platform that have good long-term cash flow and property value indications. We expect the average hold period will be five years but could be significantly more or less depending on the votes of the investors.
How will I be updated about my investment?
CrowdTranche will work with the property manager to ensure timely notifications and reporting are shared with all investors. We expect that some items will be updated on a monthly basis while others will be updated quarterly or annually. Reporting expectations specific to each property will be detailed during the due diligence phase. Updates will be provided via email and via your investor dashboard.
In addition, CrowdTranche will provide you tax documents every year that you have a distribution from a CrowdTranche real estate investment.
If I invest with CrowdTranche and something happens to CrowdTranche, what will happen to my investment?
Each CrowdTranche property has a separate LLC that could be managed by separate managers. CrowdTranche would appoint an agent, such as a national bank or a trust company, to manage the LLCs in the event CrowdTranche is unable to manage them. Of course, the LLC members could also vote to appoint their own agent.
If something happens to the property, is it possible for me to owe more than I invested?
No, not as a law abiding member of the LLC. The purpose of holding each investment offered on CrowdTranche through a single-asset LLC is to limit your liability with respect to any particular investment to only the amount you invested. Therefore, if there is a lawsuit involving the property or property’s owner (the LLC), any legal and financial liability accruing to the LLC cannot pass through to you or your personal assets. You can only lose the amount you invested.
Is there a minimum investment?
Yes. The minimum investment is different for each investment, but can be as low as $5,000.
What are the investor fees?
While joining CrowdTranche, browsing opportunities, performing due diligence, and choosing an investment property is free, there are fees that begin to accrue if the property becomes funded. These fees help us maintain the platform and the regular reporting that is available on the investor dashboard. All such fees will be detailed to you during the due diligence process.
What are the tax implications of investing in a CrowdTranche opportunity?
Investments listed on CrowdTranche will likely be structured as LLCs, which act as “pass-through” entities for tax purposes. (This is done to avoid double taxation.) Since the LLC pays no corporate income tax, profits, losses and depreciation can be passed through to the investors, as applicable. You should speak to your own accountant, attorney, or tax advisor to understand how a CrowdTranche investment will impact your specific tax situation.
What criteria does CrowdTranche look for in an investment opportunity?
CrowdTranche is focused on properties that have a history of positive cash flow performance with strong indications that such positive performance will continue for at least the next five years. We believe that prudent, properly-managed commercial and multifamily real estate investments should produce monthly cash flow to investors and maintain stable property values over time.
What does CrowdTranche do to screen investment opportunities?
We review every opportunity in-house. We try to independently verify the supporting documentation provided to us and check the track record, reputation and quality of the opportunity’s principal investor and manager. This process includes background, criminal and credit checks to mitigate the risk of fraud. While CrowdTranche cannot provide an assurance to investors that the investment objectives of any given investment will be reached, we do want every investment to be successful and try to provide a wide array of due diligence materials so that investors can make an educated decision.
What does Tranche mean?
A piece, portion or slice of a deal or structured financing. This portion is one of several related securities that are offered at the same time but have different risks, rewards and/or maturities. “Tranche” is the French word for “slice”.
Tranche is a term often used to describe a specific class of bonds within an offering wherein each tranche offers varying degrees of risk to the investor. For example, a CMO offering a partitioned MBS portfolio might have mortgages (tranches) that have one-year, two- year, five-year and 20-year maturities. It can also refer to segments that are offered domestically and internationally.
What happens if an investment’s funding target is not met?
If an investment target is not met, you will receive 100% of your deposit back.
What if more money is needed for the property?
CrowdTranche investments do not have capital calls, meaning investors are not required to commit more money to the property beyond their initial investments. Rather than requiring an additional investment, it is possible that investors will be diluted if more money needs to be raised. It is also possible that the property may be sold. CrowdTranche investors will first be notified and asked to vote for their preferred outcome before such actions are taken.
What is a typical return I can expect?
In real estate investing, as with most investments, there is a strong correlation between risk and reward. In other words, properties that have high projected returns usually come with a substantial amount of risk and vice versa. For instance, a multifamily property in San Francisco or New York City will likely have a low projected return but they are also traditionally strong rental markets with low vacancy rates. Properties in other areas will likely have higher projected returns but the rental market may be more cyclical and the employment base may not be as steady. The properties you choose should have the characteristics that fit your risk and return targets.
What is backing up my investment?
When you invest in a CrowdTranche property, you own a share of a physical property that you can visit, has a title, and can be appraised. While all equity investments have significant risks, some people feel more comfortable owning physical property rather than shares in a large company. You can read more about the risks associated with real estate investing here.
What types of investments does CrowdTranche plan to offer?
We are focused on medium-sized commercial and multifamily real estate opportunities where a professional, well-regarded property manager will be in place. CrowdTranche investors will have an equity position in the property, which will entitle them to a share of the property’s available cash flow as well as a share of the proceeds when the property is sold. The average hold period is expected to be five years but could be significantly more or less depending on the votes of the investors.
What types of properties does CrowdTranche plan to offer?
We are focused on medium-sized office buildings, apartment buildings, and retail centers. We may offer other property types if attractive opportunities arise.
When I invest in a CrowdTranche opportunity, what do I actually own?
When you invest in an opportunity with CrowdTranche, you are purchasing shares of an LLC which in turn owns a share of a specific investment property. An LLC not only gives you liability protection, shielding your personal assets from the investment, but also acts as a “pass-through” entity for tax purposes, thus reducing your investment’s overall tax burden.
When will I get my investment back?
CrowdTranche investments are private transactions in physical properties around the United States. The investments are not traded on public stock exchanges and cannot be easily sold or traded to other investors. It is also unlikely that such a market will become available during the term of your investment. In some cases, property LLCs may establish a fund to buy back member’s shares, but the existence of such a fund and the associated repurchase price will be determined by the LLC’s operating agreement.
You will receive a return on your investment when the company distributes money, such as with cash flow distributions or when the property is sold.
Who can currently invest?
Current federal securities law requires that securities issued by private companies to their investors must be registered with the Securities and Exchange Commission (SEC) unless the offering qualifies for an exemption from registration. Because such registration is relatively expensive, CrowdTranche offerings are structured to be exempt from registration but still follow the SEC’s anti-fraud provisions.
One exemption from registration is available if the company offers securities only to accredited investors in a private offering. Accredited Investors are defined by the SEC as having $200,000 of annual income per individual ($300,000 per couple) with the expectation of that continuing, or a net worth of more than $1 million, excluding the value of the primary residence.
CrowdTranche opportunities are currently only open to Accredited Investors. This could change depending on the SEC’s implementation of the 2012 JOBS act.
Who makes decisions in an LLC?
Decisions in an LLC are governed by a document called an “operating agreement.” While every operating agreement is slightly different, they usually include guidelines as to which matters can be handled by the property manager or lead investor without a vote from all of the members. The operating agreement also has instructions for determining how much cash to distribute to LLC members versus how much to hold in reserve. The terms of the operating agreement may also be amended from time to time based on the votes of the LLC members.
Why would a property owner be interested in listing their property on CrowdTranche?
Many medium-sized commercial real estate owners love owning and managing their properties but have far too much of their personal net worth tied up in them, which leads to liquidity and risk issues. By partnering with CrowdTranche investors, they can reduce their exposure to a property while still continuing to do what they love.
Will the properties have mortgages on them?
It is common for real estate investments to be mostly funded by debt in the form of one or two mortgages because of the relatively low cost of such financing relative to other financing alternatives. Funding an investment with debt is called leverage, which tends to increase returns on equity but also adds the risk of foreclosure. We expect that most properties on CrowdTranche will have some form of leverage, which will be clearly detailed in the due diligence materials. The borrower for purposes of the mortgage will be the LLC that owns the property. Principal and interest payments due under the mortgage will be paid through rental income generated from the property.