Instalend Review: Invest In Real Estate Senior Debt

There are a lot of real estate crowdfunding platforms available nowadays. Picking one can be difficult and time-consuming. However, no one said you have to invest in just one.

In this article, we’re bringing you yet another real estate crowdfunding platform. This one is only available to accredited investors. Instead of investing in equity, you’ll invest in senior debt, which can provide more protection than equity if things go wrong. Let’s dig into the details and see what Instalend is all about.

Note: Investors should be aware of the founder’s past involvement with another crowdfunding platform which had SEC lawsuits brought against it and eventually went bankrupt. Our current recommendation is to wait and see and consider alternative real estate crowdfunding platforms.

Who Is Instalend?

Instalend is a real estate crowdfunding platform that offers senior debt investments. It was founded in 2016 by Sohnin Shah and is located in New York, New York. It has raised $750k in seed funding.

What Do They Offer?

Instalend provides accredited investors with the opportunity to invest in senior debt offerings through its real estate crowdfunding platform. Investments pay regular interest. If everything goes as planned, the investor receives all of their principal back at the end of the holding period.

Senior Debt Structure

Because these are senior debt deals, Instaland places a first lien on the property in each deal. This provides investors with some protection should the borrower default. The arrangement is similar to hard money lending.

Since Instaland is not focused on equity deals, there is no appreciation involved. Just like a bond, the investor receives only their principal once the investment is sold. Instaland secures funding for each deal after there are enough investors. This is different from many other platforms that secure funding first and then seek investors.

Instaland investments are short-term. Rather than waiting years for the investment to play out, investments are concluded in 12 to 24 months. Because of the short-term nature of these loans, they carry a high-interest rate. Instalend says investors can expect an interest rate of 9-12% on most deals.

When you invest in an Instalend deal, you aren’t directly investing in real estate. Instead, you're taking an interest in the company behind the deal (i.e., the LLC). This is done through a BPDN or borrower payment dependent note, which is a promissory note. It’s an agreement between you and Instalend that you’ll receive regular payments and a return of principal, assuming the borrower makes payments and eventually pays off the loan.

To invest in Instalend deals, you must be an accredited investor. That means you'll need a net worth of $1 million (excluding your primary residence) or $200,000 in income for the last two years (if single). The minimum investment is $5,000.

Technology And Institutional-Level Analysis

Instaland’s crowdfunding platform is technology-focused. Investors can log onto the platform and view the performance of their investments.

Instalend also brings institutional-level real estate analysis to each of its deals. Analyzing deals is very time-consuming. To be successful at it, a high level of analytical expertise is needed. Investors get that expertise by investing in Instalend opportunities.

Lawsuits

We can’t talk about Instalend without talking about the lawsuits connected to its founder, Sohnin Shah. Shah was one of the founders and principals of iFunding which went bankrupt in 2017 due to insolvency. Leading up to the bankruptcy, there was an SEC action brought against Shah and his co-founder William C. Skelley. 

The summary of the lawsuits was that the co-founders were accused of using over $1 million of investor funds for personal expenses. There were also problems with how the LLCs for investments were created.

The SEC issued its final judgment against Shah and Skelley on July 16, 2019. Shah was ordered to pay disgorgement plus prejudgment interest of $73,794 and a civil penalty of $75,000. He consented to the final judgment without admitting or denying the complaint's allegations.

Are There Any Fees?

There are no fees. Instead, Instalend says that it makes money on the spread between the investor payout and the borrower payments.

How Do I Open An Account?

Due to the recent legal issues of its founder and CEO, we recommend exercising extra caution before opening an account with Instalend. 

However, if you think that it's right for you, you can visit Instalend's website to sign up. You'll need to verify that you're an accredited investor before you'll able to fund your account and begin investing in its offerings.

Is My Money Safe?

This is a highly risky and illiquid investment. So, no, your money is not safe and you could lose your entire investment. There are no FDIC or SIPC protections.

Is It Worth It?

Instalend's offers senior debt real estate investments with short terms and high interest rates. All of that seems pretty attractive. However, Shah's checkered past with iFunding gives us pause. 

Saying that a co-founder took investor funds and used them for personal gain or rewards is a major accusation. Yet Shah chose to settle the SEC complaint without attempting to deny these allegations.

While no similar complaints have been brought against Instalend, we still have our concerns. Our current recommendation is to wait and see. If the company is successful, there will be opportunities to use their platform in the future.

In the meantime, consider opening an account with a real estate crowdfunding platform that's led by an executive team with a better track record.

Instalend Features