Real estate investing is a powerful way to build wealth because it enables owners to generate rental income, reach their investment goals, and benefit from capital appreciation as property values increase.
Traditional real estate investment can be tricky for prospective investors because it takes a lot of capital, either debt or equity, to purchase a building, renovate it, and manage depending on your goals. Most large real estate investment options are limited to accredited investors who have a higher net worth.
Real estate investment trusts (REITs) are popular vehicles for investors who want a more liquid method to invest in real estate and a tool for generating income and are a great introduction to alternative investments. If a REIT is publicly traded on an exchange, anyone with a brokerage account can buy and sell shares while enjoying any dividend payouts.
But what if you want a bigger stake in commercial property but don’t know where to start investing in real estate?
Diversyfund is attacking this issue head-on with their public non-traded REIT, which requires a low minimum investment for everyday investors who are comfortable locking away their cash for at least three to five years.
In this Diversyfund review, we’ll discuss what this platform offers, how it compares to its peers, and ultimately decide if Diversyfund is right for your portfolio. Ready? Let’s get started!
About DiversyFund
DiversyFund was founded in 2016 by Craig Cecilio and Alan Lewis, both of whom have a background in investing in commercial real estate and managing real estate projects. The company launched its real estate investment trust (REIT) in 2019 and is currently developing five multifamily and student housing projects in California, Texas, and North Carolina.
How DiversyFund Works
DiversyFund is essentially an REIT with a twist. The company both offers an REIT for public investors and develops and manages the properties contained within the REIT. That means that DiversyFund controls everything from choosing which projects to develop, how to develop them, and how to manage all of the money flowing through its REIT. DiversyFund is one of the only real estate investing platforms available to non-accredited investors that is vertically integrated in this way.
The upside of this structure is that DiversyFund doesn’t take a management fee out of your investment. The only fees you are charged are for project development, which are standard in any REIT. Importantly, much of DiversyFund’s anticipated profits come from the sale of its investment properties at the end of the development period. So, the company has just as much at stake in the success of its investments as individual investors do.
So, what’s inside the DiversyFund REIT? As of summer 2020, the company is developing five projects – four multifamily apartment complexes and one student housing facility, spread across California, Texas, and North Carolina. The company plans to improve these properties and sell each of them in a period of about five years.
Notably, DiversyFund funnels all income from these properties during this five-year period back into the properties or into new real estate projects. That means that investors won’t see any distributions until a property is sold several years from now.
Diversyfund Services and Features
Diversyfund investments sets itself apart by offering access to a public, non-traded REIT to everyone, not just accredited investors. The fund operates similarly to closed-end private-equity funds, where the investors commit to investing their capital for a three-year minimum so the fund can purchase, renovate, manage, and ultimately sell the properties.
The Diversyfund Growth REIT is currently comprised of multi-family properties (apartment complexes) with a minimum of 100 units spread out across North Carolina, Texas, and California. Each portfolio property held by the Diversyfund REIT is a value-add real estate development opportunity. This means Diversyfund is responsible for renovating and managing all investment properties so their value grows and they can achieve the benchmark returns when they sell them.
Investing in real estate through Diversyfund is simple and automated. Once you create an online account, they will manage your funds and allocate them to the different properties depending on how much capital you contributed.
DiversyFund Platform And Tools
DiversyFund’s platform is relatively minimal, as there is little to see until properties are sold and profits are distributed. The platform revolves around a graph of projected returns, but you should take these graphs with a grain of salt. You can also access tax documents and quarterly investment reports through the DiversyFund platform.
Diversyfund Performance
Real estate funds generally measure returns by using a metric called Internal Rate of Return (IRR) because it details how the fund is growing if you were to sell the portfolio at any given moment.
Diversyfund’s Growth REIT seeks to generate an IRR between 10%-20% for each property in their portfolio over a 5-year horizon.
Importantly, your return will depend on the actual rate of return when a property is sold. Investors receive their principle and a profit of up to 7% (if a 7% or greater profit was made) before DiversyFund receives any profits. After the first 7% profit, investors receive 65% of additional profits up to a 12% annual return and 50% of additional profits beyond that level.
Preferred Return
Real estate investors sometimes receive a preferred return, which means that they receive a guaranteed payment after a property is sold before the fund can take any remaining profits.
Diversyfund offers a 7% preferred return before they can receive any remaining profits (if there are any.)
If there are profits, there is a 65% split that the investors receive and a 35% split that Diversyfund gets.
If the average annual return is above 12%, then the profit splits shift to 50/50.
It’s important to remember that investors will be paid only after a property is sold, and they do not expect to sell any of their portfolio buildings before 2023.
DiversyFund Account Requirements
One of the things that makes DiversyFund different is that it has an extremely low bar to entry. Any US resident can invest in the company’s REIT. The minimum investment is just $500, down from $2,500 when the company first launched in 2019.
Diversyfund Pricing and Fees
There are no asset management fees for Diversyfund Growth REIT investors since they manage and develop their own properties. However, there may be developer fees ranging from 2% to 8%, depending on the multifamily real estate properties in the portfolio.
How Does Diversyfund Compare to Other Services?
Diversyfund is unique among other online real estate investment platforms because it does not charge an asset management fee and has an affordable initial investment.
Biggest Competition
Fundrise investments is one of the biggest names in online real estate investment because they offer low investment minimums and access to a wide variety of investments. While the Diversyfund Growth REIT only has multifamily properties, the Fundrise portfolio also provides residential real estate investments. They offer highly illiquid non-traded REITs like Diversyfund, but they also provide more liquid investments such as their Interval Fund, in case you may need access to your cash.
Another top competitor is CrowdStreet. CrowdStreet is a real estate crowdfunding platform that allows accredited investors to invest in various commercial real estate opportunities. CrowdStreet offers three ways of investing including funds and vehicles, individual deals, and through private managed accounts. One of the biggest differences right away is that CrowdStreet does only accept accredited investors, whereas Diversyfund is available to non-accredited investors as well. Additionally, where Diversyfund only offers multifamily properties, CrowdStreet only offers commercial real estate investments. So, depending on your investment goals, one platform may better suit your needs over the other.
Diversyfund also sets itself apart in the real estate crowdfunding industry because it is the property manager and developer, which cuts investor costs significantly.
Comparison to Other Investment Opportunities
Investing in real estate is unique because it requires patience and longer time horizons before investors see a return.
If you are interested in shorter-term investments, then you could look to the stock market, equity crowdfunding opportunities, or other alternative investments.
Regardless of your choice, it’s best to have a diversified investment portfolio so that potential investment returns in another offset your potential losses in one asset class that can include stocks, real estate, and alternative investments.
DiversyFund Key Differentiators
DiversyFund offers a low-cost way to invest in commercial real estate, and specifically multifamily apartment complexes. The minimum initial investment is just $500 and the company doesn’t take the same 1% or greater management fees that most REITs and real estate investing platforms do.
The other important difference that sets DiversyFund apart is that the company is designed to make most of its money from its property investments. That’s an encouraging sign for investors, since it means that DiversyFund is just as invested in the success of its properties.
Is Diversyfund Trustworthy?
Diversyfund has an A+ rating and many positive reviews from investors and clients, which is a positive reflection of their trustworthiness as a real estate investing platform.
They are a relatively new company, though, and real estate investment and management is complex. So, it’s worth approaching the company’s REIT with some caution. On the bright side, the company has as much skin in the game as its individual REIT investors and its founders have spent several decades working on commercial real estate investments.
Importantly, DiversyFund is SEC-qualified. This means that the company is required to disclose financial and management information and undergo annual audits. Additionally, to maintain an honest and transparent business model, Diversyfund also contracts an independent 3rd party auditor to audit their financial statements annually.
What Are the Risks Associated With Diversyfund?
Illiquid investments like the Diversyfund REIT carry the investment risk of accessing your cash very difficult if you need it in a pinch. Other risks include loss of capital, real-estate market risk, and other risks associated with a real estate investment.
Make sure you are able to live without your investment capital if you choose to invest in the Diversyfund Growth REIT.
Who is Diversyfund Best For?
New investors who want to learn more about vertically integrated real estate funds with low minimum investments threshold will enjoy an inside look at the market provided by Diversyfund. Since Diversyfund is the developer and property manager, their annual reports provide a wealth of information on how the fund is performing and how they are managing your capital.
There are other options for investors who want to invest in real estate but would prefer a more liquid investment, such as publicly traded REITs and REIT mutual funds and ETFs.
Final Verdict: Diversyfund
Overall, Diversyfund is part of a new breed of crowdfunded real estate platforms that brings a new investment opportunity to nonaccredited investors. Most funds structured like Diversyfund require a much higher initial investment, and they usually require institutional and accredited investors to be involved with their capital raise.
If you want to invest money in a diversified portfolio and are curious about real estate investing, Diversyfund may be an excellent opportunity if you already have an investment portfolio and access to cash if you need it outside of your Diversyfund investment.
Pros
- Unique access to non-traded REIT for real estate investing
- Low fees and minimum investment
- Nonaccredited investors can invest in alternative assets
- Access for the average investor to earn dividend income
Cons
- New fund means limited investment options
- Hard to access cash if you need it for other investments
- More liquid real estate deals are available elsewhere
