The idea of investing in real estate is appealing to many people. But "direct real estate investing" can be intimidating since it requires buying a property, finding tenants for it, and managing it.
An alternative real estate investment path is crowdfunding. With crowdfunding, the investor buys into a real estate fund. The investment is completely passive.
Traditionally, these passive investments were open only to accredited investors. DiversyFund is changing that by allowing non-accredited investors to invest as little as $500 in its fund. In this article, we’ll look at what DiversyFund has to offer and who it may be a good fit for.
Note: We have concerns around the product and team, and our current recommendation is to wait and see what happens. There are other choices for REITs that have a longer track record.
- Diversify your portfolio by investing in real estate
- Open an account with as little as $500
- Only have three properties currently, and no proven track record
Who Is DiversyFund?
DiversifyFund is a crowdfunding real estate investment platform. It was formed in August 2016. Its founders are Alan Lewis and Craig Cecilio. DiversyFund is based in San Diego, CA. The company has raised $13.8 million through a Series A.
“We’re a tech-enabled platform that not only provides financial literacy and awareness to the everyday investor, but we also allow them the opportunity to invest like the wealthy,” said Lewis to AOL.
However, the founder Craig Cecilio has a concerning track record with a previous real estate fund he ran. The California Department of Real Estate investigated him for the following:
"The company stands accused of secret profit or undisclosed compensation, use of false or Fictitious Business Names, failing to submit independent audit report, failing to file with the BRE the Quarterly Threshold Reports, failing to supervise the real estate activities of the company, inaccurate and incomplete trust fund records, inaccurate and incomplete recording of separate record for each beneficiary or transaction, and failing to maintain the monthly reconciliation of all the separate records or transactions to the balance of the record of all trust funds received and disbursed."
In the resulting settlement, Cecilio paid a fine and had his license suspended for 30 days. You can find the investigation on the California Department of Real Estate website, case H04876SD.
What Do They Offer?
DiversyFund markets itself as an alternative investment to stocks. It only has one product, which is a public REIT.
Although the REIT is public, it doesn’t trade on any exchanges. It is a non-traded REIT. But since it's public, it must do filings with the SEC like any publicly-traded company. These public filings are available for anyone to view.
Many crowdfunding real estate platforms require investors to be accredited and have high initial investment requirements. DiversyFund has neither. Investors don’t need to be accredited and the minimum to invest is only $500.
DiversyFund gives investors access to real estate. Or, said more accurately, it gives investors access to its private REIT, which invests in real estate.
DiversyFund’s investment product is called the Growth REIT. It's a fund that invests in cash-flowing apartment buildings. DiversyFund owns and manages the properties in their REIT. Apartment buildings are at least 100 units in size.
These properties are value-add investments. DiversyFund renovates each property then re-positions (i.e., re-markets) it, hoping to attract higher rents. Each project is expected to play out over five years. The Internal Rate of Return (IIR) of the REIT is expected to be between 10% and 20%.
Currently, there are only three properties listed on the DiversyFund website. DiversyFund invests in properties located in California, Texas, and North Carolina. All properties that DiversyFund invest in go into the same REIT. You’ll be able to keep tabs on each property's performance through the website.
Full-Service Investing Platform
There is no middleman with DiversyFund. That is one reason why they don’t charge a sales commission. All of the research on potential properties is done in-house.
In fact, DiversyFund handles the entire process from researching potential properties, raising capital from investors, managing the properties, and finally selling them. They’re an all-in-one real estate investment shop.
No Redemption Policy Or Secondary Market
DiversyFund’s REIT is highly illiquid as isn’t publicly traded and investors are expected to keep their money in the fund for about five years. Once you invest with DiversyFund, your money is locked up for several years and there is no share-redemption program.
Additionally, you won’t receive any cash flows or dividends since these are reinvested back into the fund. Once the project is over, investors’ principal plus any appreciation and cash flows are returned.
Unlike investing in a stock or publicly-traded REIT that you can buy and sell in the stock market, DiversyFund's REIT doesn't have any method of real-time price discovery. There is also no secondary market for selling your interest in the fund.
Given the lack of liquidity, DiversyFund is very similar to investing directly in real estate. Once you buy an investment property, you can’t just turn around and sell it without taking a large hit. Instead, you have to ride it out for a few years.
Are There Any Fees?
Unlike virtually all other crowdfunding real estate platforms, DiversyFund charges no management fees. That's a big benefit that could dramatically improve your net profit over your entire investment term.
1% to 1.25%
Open To Non-Accredited Investors?
How Do I Open An Account?
You can visit the DiversyFund website to open an account. You can fund your investment as an individual, entity, or trust. Once your account has been opened, you'll be able to connect your bank and select your initial investment amount. You'll also have the option to set up a monthly recurring investment.
Is My Money Safe?
Money invested with DiversyFund’s is not FDIC or SIPC-insured. And, as with investments in other assets, all of your capital can be lost. Of course, DiversyFund performs due diligence on each property in an effort to help reduce risk.
Furthermore, with a REIT, there is a sponsor risk - you're not just investing in a real estate asset directly, but you're investing in a fund managed by a sponsor. You want to do your own due diligence and validate that the sponsor has a track record of performance.
Is It Worth It?
For investors who want to diversify into passive real estate investing and are comfortable with locking their money up for several years, DiversyFund may be worth checking out. The lack of any AUM fees is a huge plus.
However, the company is fairly new, so there isn't a long track record to compare against. There are risks involved with investing on any crowdfunding platforms, but especially new ones. You want to make sure you do your own diligence on the management team and properties to see if the risk is worthwhile to you.
Investors who don't want to lock up their money for several years may simply consider investing in a REIT that trades on public exchanges. Or they may want to look for non-traded REIT platforms that offer more liquidity such as Fundrise or Realty Mogul.
10% to 20%
One real estate fund (the DiversyFund Growth REIT)
High -- fund financials are filed publicly with the SEC
Approximately 5 years
Share Redemption Program
Customer Service Options
Chat and email
Customer Service Email Address
Mobile App Availability
iOS and Android
- Pricing & Fees
- Ease of Use
- Customer Service
- Products and Services
DiversyFund is a crowdfunded real estate investing platform that is open to non-accredited investors and charges no management fees.
- No AUM fees
- Low minimum investment
- Open to non-accredited investors
- No liquidity for several years
- Limited property choices, concerns over the portfolio size
- No proven track record
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.