Investing in Real Estate Through a DiversyFund Private REIT: A look at the platform and process.
DiversyFund's Private REIT
Unlike Fundrise’s eREITs, DiversyFund and their private REIT have been operating for only a short period of time. Launched in 2019, the company and their platform are a few years behind competitors. That’s not necessarily a bad thing for investors, but it’s worth noting.
As I mentioned in other posts, REITs are not a new concept. They’re one of the oldest investment vehicles out there. DiveryFund and others are opening private REITs to the general public by lowering investment limits and offering a wide variety of investment options to meet investor’s needs. That’s great for those interested in real estate investing and want to diversify their investments across multiple platforms.
Start Investing with DiversyFund
To start, let’s be clear that this is not flipping houses. Real estate investing should be seen as a long-term investment. REITs are legal companies established to use investor capital to buy and hold real estate properties. This means that you should be prepared to hold your position for years. In DiversyFund’s case, that’s at least 5 years. If that matches your investment time horizon and your looking for simplified real estate investing, then DiversyFund’s REITs might be a good option for you.
Because DiversyFund is so new, the investment options are limited. They are currently accepting investments into one REIT, the DiversyFund Growth REIT. This is a private REIT focused on acquiring, refurbishing and leasing multi-family apartment buildings.
Their website lists seven properties in their portfolio with a “potential” internal rate of return, or IRR, ranging from 13% up to 21%. Assuming those returns materialize, that is a healthy return on your investment.
Opening and Funding Your Account
Opening and funding an account with DiversyFund is pretty straight forward. Simply create your account, select your investment level and transfer funds via Plaid. Similar to Fundrise, you are not required to be an accredited investor to invest through DiversyFund, which allows more investors to take advantage of their offerings.
DiversyFund’s website lists 3 investment options, but, in reality, these are all going into the same fund and there is no real benefit to investing more capital.
Like a lot of alternative investment vehicles, you are not investing in the underlying asset. You are, in fact, investing in a fund – typically an LLC – that acts as the purchaser and manager of the assets. For real estate, this is the common REIT. With DiversyFund, there is only one option – the Growth REIT. That makes the investment and tax reporting easier, but also limits your options compared to other platforms.
Real Estate investing can be complex, but DiversyFund has made it easy and straightforward. Simply fund your account and they do the rest. Your account page provides a snapshot of your account and any dividends earned.
To invest, click the “Invest Now” button. That will take you to their accounting funding process. Enter your personal info, decide how much to invest and fund your account. You can use Plaid or manually enter your bank account info to start the transfer. To get started, I’ve invested the minimum of $500. We’ll see how it goes and I’ll decide later whether to invest more or not.
What is DiversyFund doing with my investment?
DiversyFund’s Growth REIT is focused on value-added investing. This means they target properties that are income producing, but are older and in need of refurbishment. The idea is that the capital invested in improving the building will lead to higher rental prices and lower vacancy rates. So, your capital is either going into the purchase of the property or the refurbishment of the building.
How does DiversyFund make money?
Obviously, DiversyFund is operating this REIT to make money. Unlike Fundrise, they do not charge management fees, so what gives? Well, they manage the project from start to finish. Where other platforms may contract out the acquisition, development and leasing, DiversyFund manages the process from start to finish. That means they are pocketing the developer fees of 2-8%.
Like a lot of startups, DiversyFund’s financials are private and that makes it difficult to get a feel for the financial stability of the company. There is not a lot of info on the SEC website, but the screenshots below provide a little peek behind the curtain.
DiversyFund 2020 Filing
This filing from March of 2020 shows a notification of DiversyFund’s intention to raise $7M through an equity offering. This is interesting because the previous filings (show below) were for the issuance of convertible notes. Convertible notes are often seen early in the life of a company. It’s a less risky option for early stage investors as they are loaning the startup money rather than investing capital. The convertible portion allows these investors to change their loan to stock in the company if they choose to do so. It allow them to benefit if the startup succeeds. It’s a lot of upside with a reduced downside risk. You typically see straight equity investing once the startup has obtained certain revenue or user growth levels that attract more investors and allows the company to be more selective in their offerings.
DiversyFund 2019 Filing
The screenshot above shows the convertible note offering in 2019. Highlights include a $9M raise with a minimum investment of $25,000 and 103 investors already invested. That averages to a little over $66,000 per investor – well above the minimum. That’s a decent signal of investor confidence in DiversyFund.
DiversyFund 2017 Filing
The 2020 and 2019 filings declined to disclose DiversyFund’s revenue range. But, the filing from 2017 listed it as between $1M and $5M. So, given the investor confidence and the companies ability to raise money through equity offerings, it’s safe to assume they are hitting this level of revenue or higher.
The bottom line, DiversyFund is an early stage startup and that comes with a lot of risks. There is a chance they cease to operate, but given the inferences from their filings they are performing well. Even if they do fold, the LLCs and properties they hold will continue to exist. Likely, those properties would be liquidated and the capital would be distributed to the REIT investors.
Withdrawing funds from DiversyFund
Simple, they don’t allow withdraws. Once you invest, your capital and any dividends earned remain in the REIT until it is liquidated.
Do Your Homework
My blog is a great place to start, but I encourage you to conduct thorough due diligence prior to investing through DiversyFund. Research REITs, real estate and DiversyFund itself. To help you get started, I provided the links below to connect you to the Delaware Division of Corporations website, the SEC and CFPB.
Join me on DiversyFund
Interested in joining me in investing through DiversyFund REITs? That’s great! The link here will get you started.
Real Estate can be an engaging and lucrative investment option. As discussed above, DiversyFund is a unique platform providing easy access to this industry and helping you navigate the complexities. I’m looking forward to investing along side you.
The statements in this post are my opinion and reflect my personal experience investing thru DivseryFund. I cannot, and do not, guarantee that your results will be similar. Please, invest carefully and understand that your investment may lose value.