EquityMultiple Review

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  EquityMultiple

  • Basics: EquityMultiple gives members access to real estate investments including private placements and funds that include multiple properties.
  • Pros: EquityMultiple has a broad selection of investments with many different types of properties located throughout the US. It’s also open to investments from self-directed IRAs (individual retirement accounts).
  • Cons: EquityMultiple is only available to accredited investors. You’ll have to pay about 1% in annual fees, and you will also lose a cut of any gains beyond the preferred return associated with your investment.

What Is EquityMultiple?

EquityMultiple is an investing platform that connects users to various real estate opportunities.

While it’s currently limited to accredited investors, you can still create an account and view some past offerings even if you aren’t accredited.

EquityMultiple has invested a total of $316 million to date, with a weighted average net IRR (internal rate of return) of 17.4%.

EquityMultiple At a Glance

How Does EquityMultiple Work?

EquityMultiple differentiates itself from many other platforms by giving users three different ways to invest.

First, EquityMultiple offers real estate funds that come with multiple assets and give investors easy access to diversification.

For example, the National Stabilized Multifamily Fund includes eleven multifamily properties that add up to a total appraised value of roughly $600 million.

Next, EquityMultiple offers stakes in individual investments provided by independent sponsors.

This enables investors to look into specific business plans and contribute to opportunities they find promising. In the case below, investors could help fund a real estate loan secured by a residential building in downtown Brooklyn.

Finally, EquityMultiple recently introduced a “Savings Alternative.” Investors can purchase “Alpine Notes” that make monthly interest payments and return the principal investment after a pre-set term of 90, 180, or 270 days.

EquityMultiple uses the money raised through these notes to pre-fund investments that will eventually be listed on the platform.

You can invest in Alpine Notes with as little as $5,000, which makes them more approachable than EquityMultiple’s other offerings, which typically include minimum investments of $10,000 to $30,000.

I found it a little deceptive for EquityMultiple to brand Alpine Notes as an alternative to conventional savings accounts.

Unlike most savings accounts and certificates of deposit (CDs), Alpine Notes are not FDIC insured. If EquityMultiple goes under, you could lose your entire investment.

EquityMultiple offers “first-loss prevention,” which means that the platform holds some of the notes that would be lost first in case EquityMultiple has any trouble making payments.

However, this still doesn’t give investors recourse if there are significant losses.

The EquityMultiple website didn’t give me much more confidence in the Alpine Note system:

There’s nothing wrong with Alpine Notes for what they are, but EquityMultiple shouldn’t be telling prospective investors to view them as a “savings alternative.” Alpine Notes are closer to a conventional debt investment than they are to an FDIC-insured product that comes with essentially zero risk.

Property Types

EquityMultiple offers a wide range of different assets including condos, office buildings, and multifamily properties.

While I didn’t see any other types of properties in the recent offerings, the “My Portfolio” page also references hotels and mixed-use properties.

Property Locations

As shown above, EquityMultiple lists properties throughout the United States.

I was only able to see a small selection of recent offerings, so you may see different locations compared to what I found.

With properties in locations like Manhattan, Brooklyn, and Los Angeles, EquityMultiple could give investors more opportunities in gateway markets.

On the other hand, there were also some rural properties as well as properties in secondary markets such as Pittsburgh, Columbus, and Indianapolis.

Project Types

EquityMultiple offers both debt and equity investment opportunities.

In a debt investment, you’ll act as a creditor for a real estate project, while the property itself is put up as collateral.

With equity, you’ll own a share of the project, giving you the chance to receive cash flow from tenants and profit from any gains generated through development or appreciation.

Unfortunately, I was unable to see the terms and business plans of specific offerings as a non-accredited investor, so I can’t say whether EquityMultiple is mostly focused on adding value through development or generating stable cash flow from properties that are already in good condition.

Target Returns

Unlike some other platforms, EquityMultiple doesn’t offer a single target return. Instead, the goal varies from one investment type to another and even between individual projects:

• Debt: 7%-12% annual rate of return
• Preferred equity: 6%-12% current preferred return, 10%-15% total preferred return
• Common equity: 10%-24%+ IRR
• Funds: varies

As usual, you should expect more upside from investments that carry more risk.

Debt investments come with contractually determined cash flow and are generally secured by the underlying property.

The drawback of this kind of investment is that it can’t offer the same potential for gains. Even if the project leads to an incredible return for its backers, none of the extra gains will flow to debt investors aside from the payments that were already agreed upon.

Minimum Investment

Each EquityMultiple property comes with a different minimum investment.

Since EquityMultiple’s current offerings are limited to accredited investors, I was only able to view a limited selection of two past investments.

One of the two came with a minimum of $10,000, while the other started at $30,000. That aligns with the $10,000-$30,000 range posted on the EquityMultiple website.

With that being said, EquityMultiple’s Alpine Notes come with a minimum investment of just $5,000. Given the low minimum investment and relatively short term of Alpine Notes, they could be a more approachable option for investors who are new to EquityMultiple.

Investment Duration and Lock-Up Period

In the same way, the duration of your investment will depend on the opportunities you’re interested in.

As mentioned earlier, Alpine Notes come with terms of between 90 and 270 days. This makes them somewhat similar to certificates of deposit, which also include a fixed investment term.

However, you should expect to hold your contribution for a longer period of time if you opt to invest in an individual property or one of EquityMultiple’s diversified funds.

According to the website, funds generally come with target durations of between 1.5 and ten years, while direct investments are expected to last from six months to five years or longer.

While every listing provides an estimated investment duration, it’s important to remember that those targets are flexible and could change dramatically over time due to any number of unpredictable factors.

The listed duration reflects the sponsor’s best estimates, but there is no guarantee that they will be able to liquidate the investment at or even near the end of the target hold period.

EquityMultiple investors receive restricted securities, which can only be resold if the seller meets certain criteria. In general, this means waiting for the end of a holding period of either six months or one year.

Even though you will be legally permitted to liquidate your securities after the holding period is over, it could still be difficult to sell your shares before EquityMultiple liquidates the entire investment.

There is no way to redeem shares through EquityMultiple, so you will only be able to sell them if you can find a buyer on your own.

Vetting and Review Process

EquityMultiple describes its approach to vetting potential investments on its website.

During the initial screening, the EquityMultiple team considers whether macroeconomic factors are conducive to the property’s appreciation. For example, EquityMultiple wreluctant to invest in hospitality and physical retail in the early days of the COVID-19 pandemic.

This first stage also includes an evaluation of the sponsor and their principals. According to the due diligence page, EquityMultiple generally excludes sponsors who don’t have experience with similar properties and projects within the same market.

From there, the EquityMultiple team looks at other risks that could impact the property. This includes an analysis of the specific market, plus consideration of the leverage and development associated with the investment.

Next, EquityMultiple uses return modeling to weigh the potential gains against the risk factors listed above. Naturally, an opportunity with more perceived risk needs to be justified with higher upside.

Return modeling accounts for both positive and negative outcomes with respect to the property’s cash flow and appreciation. Finally, a senior member of the EquityMultiple real estate team will visit the property in-person before it is opened up to investors.

Tax Implications

When you invest in one of EquityMultiple’s private real estate offerings, you are actually investing in an LLC set up to acquire the target property.

Returns from LLCs are generally allowed to pass through the entity itself, which means that gains and losses are taxed as the income of the LLC’s individual investors. That income will show up on the Schedule K-1 forms that EquityMultiple sends out to investors after the end of each tax year.

Furthermore, income from EquityMultiple offerings is usually taxed by the state in which the property is located rather than the home state of each investor. Even if you live in a state that doesn’t have an income tax, you could still be responsible for state income taxes on your EquityMultiple investments.

While EquityMultiple generally uses an LLC structure for its private offerings, your tax liabilities will be dependent on your specific investments. Both diversified funds and Alpine Notes will come with different tax obligations compared to individual properties.

Accreditation Required

EquityMultiple is currently limited to accredited investors.

As stated in the image above, investors typically qualify as accredited in one of two ways:

1. Having an annual income of $200,000 ($300,000 including spouse or spousal equivalent) in each of the last two years, with the expectation of the same for the current year
2. Having a net worth of $1 million, whether alone or including spouse or spousal equivalent, excluding the value of their primary residence

Even if you don’t meet either of those conditions, you can still qualify as an accredited investor if you hold a Series 7, 65, or 82 license in good standing.

IRA Investing

EquityMultiple is open to investments from self-directed IRA accounts. It works with four “preferred partner” custodians who offer easy access to EquityMultiple:

• Alto IRA
• Millennium Trust
• STRATA Trust Company
• PENSCO Trust Company

You should contact the EquityMultiple team directly if you need more information about investing through another custodian.

Customer Support

EquityMultiple offers help through customer service requests, which you can send through the website.

Unfortunately, there is no live chat option, and I wasn’t able to find any posted support hours or turnaround times.

I sent a message late on a Tuesday night and heard back early the next morning, so you should get a reasonably quick response if you contact them during business hours.

The other way to get in touch with the EquityMultiple team is to schedule a call through Calendly.

EquityMultiple Fees

With EquityMultiple, common equity investments come with an annual monitoring and reporting fee of between 0.5% and 1.5%. Similarly, debt and preferred equity investments come with a servicing fee (typically 1%).

All offerings also include a charge of about $30 to $70 per investor to cover administrative expenses.

On top of these fees, EquityMultiple will get a cut of any profits beyond the preferred return, which is distributed entirely to investors.

For example, a student housing acquisition project in College Station, Texas came with a preferred return of 8%.

With that in mind, profits would first be distributed to investors until they reached a cumulative return of 8% per year.

After that, distributions would be split at a ratio of 65% to investors and 35% to the sponsor.

The specific terms vary from one opportunity to another. Different investments could come with different preferred returns and/or different distributions beyond the preferred return.

Example EquityMultiple Investment

EquityMultiple is similar to platforms like CrowdStreet and AcreTrader that offer private real estate opportunities to an audience of accredited investors.

On the other hand, it also provides access to funds that include multiple assets. This element of EquityMultiple is more like what I’ve seen from non-public REITs such as Streitwise and DiversyFund.

While both of those investments are in line with what I’ve seen from other providers, EquityMultiple’s Alpine Notes are a little more unique.

The fixed term of Alpine Notes makes them appear like an alternative to certificates of deposit. However, investors should note that Alpine Notes do not come with guaranteed returns and are not covered by FDIC insurance.

Is EquityMultiple Legit?

EquityMultiple is a legit real estate offering exempt from SEC registration under Regulation 506(b).

This Regulation 506(b) exemption is the reason EquityMultiple is only open to accredited investors.

Regulation 506(b) also prevents EquityMultiple from advertising to the general public, which is why users have to be verified as accredited investors before viewing current offerings.

While EquityMultiple is not required to register with the SEC, it’s still subject to antifraud provisions that make it responsible for any false or misleading statements made to investors.

At the same time, just because EquityMultiple is a legit company doesn’t mean that its investments are guaranteed to perform well. Any particular offering could go downhill, so you should read through the details carefully and only invest money you can afford to lose.

EquityMultiple Pros and Cons

EquityMultiple is relatively responsive in customer service and can connect accredited investors with exclusive private placements.

Pros

Cons

Alternatives to EquityMultiple

	EquityMultiple	Roofstock	AcreTrader	RealtyMogul
	Pros and Cons Visit	Read Review Visit	Read Review Visit	Read Review Visit
Property Types	Broad selection	Single-family	Farmland	Broad selection
Property Locations	Throughout US	Throughout US	Mostly US	Throughout US
Target Returns	Varies	Varies	7%-9%	10%-25%
Minimum Investment	$5,000	Varies	Typically $15,000 to $25,000	$5,000
Minimum Duration	Varies	None	Typically five to ten years	One year (REITs)
Accredited Investors Only?	Yes	No	Yes	Yes (except REITs)

 

Is EquityMultiple Worth It?

If you’re unsure where to start with real estate as an accredited investor, EquityMultiple could be the right way to get started.

Who EquityMultiple Is Best For

EquityMultiple is best for accredited investors who are ready to invest in real estate, but not prepared to buy or manage their own properties.

EquityMultiple puts investors closer to their investments than something like a publicly traded REIT.

If you’re willing to evaluate offerings and contribute $5,000 or more to an opportunity you like, you should consider taking a look at EquityMultiple.

Who EquityMultiple Is Not For

First, EquityMultiple isn’t for anyone who isn’t either already an accredited investor or expecting to become one in the near future.

With a minimum of $5,000, it’s also not a great choice for those who want to start with a smaller investment.

On the other hand, if you have more experience and more money to invest, you may be interested in buying property of your own rather than crowdfunding a joint opportunity.

How to Use EquityMultiple (Step-by-Step)

1. Visit the EquityMultiple website and click the “Sign Up” button in the upper-right corner.

2. Enter some personal details and verify your email address.

3. Complete your qualification as an accredited investor. While you can skip this step during the sign-up process, you will have to come back to it later in order to fund any investments or even view current offerings.

4. Browse the current offerings and select an opportunity you’re interested in. You will only be able to view recently funded offerings until you verify your status as an accredited investor.

Final Thoughts

As with other sites that list real estate opportunities, your interest in EquityMultiple will depend on how you feel about its sponsors and offerings.

Investing through EquityMultiple comes with some downside, including fees and split distributions beyond the preferred return.

Even so, investors who are interested in crowdfunding real estate may be willing to put up with those costs.

Check out the EquityMultiple website for more information about their offerings.

Frequently Asked Questions

Here are some short answers to basic questions people often have about EquityMultiple

• Do I have to be an accredited investor to invest in EquityMultiple?

  Yes, EquityMultiple is currently limited to accredited investors as defined in Rule 501 of Regulation D. As a 506(b) offering, EquityMultiple is prohibited from selling to non-accredited investors, and you will not be able to view current offerings until

• How do I withdraw from EquityMultiple?

  With EquityMultiple’s Alpine Notes, you’ll be locked in for a term of 90, 180, or 270 days.

  If you invest in a fund or individual property, you should expect to hold for a longer period. While restricted securities can typically be sold after a one-year lockup, it will be difficult to liquidate your investment unless you can find an interested buyer.

• Who owns EquityMultiple?

  EquityMultiple was founded by Charles Clinton and Marious Sjulsen, who now serve as the platform’s CEO and CIO.

  Before starting EquityMultiple, Clinton worked as a real estate attorney for Simpson, Thatcher and Bartlett. Sjulsen was the Vice President of Brickman, an NYC real estate equity and debt owner, operator, and investor.