The Pros and Cons of DiversyFund: Is it the Right Investment Platform for You?
Investors usually have a whole bunch of investment options at their disposal. Real estate investment is one of the most lucrative investment ideas that has recently gained popularity. Real estate investment platforms such as DiversyFund and Fundrise have allowed all forms of investors to have a share of real estate investment as low as $1,000.
However, before you invest in DiversyFund, I strongly recommend that you read through this DiversyFund review to know the fine details of this real estate crowdfunding platform.
What is a DiversyFund?
DiversyFund is a real estate crowdfunding platform that has emerged as one of the fastest-growing ecospheres in real estate crowdfunding programs. The primary purpose of DiversyFund is to democratize real estate investing. It strives to achieve this purpose by giving an average investor the ability to open a DiversyFund account with low funds.
How does DiversyFund work?
DiversyFund invests in apartment buildings with more than a hundred units. DiversyFund's real estate investment trust (REIT) will acquire an undervalued apartment already generating income but in limited proportions. It will then refurbish the apartment to improve its rental income. As the rental income increases, so does the value of the apartment.
The income received from the apartments or office buildings will be reinvested monthly to finance the improvement of the property until it meets a specific disposal value. The accumulated dividends and capital appreciation will be distributed to investors based on specified proportions upon selling the asset. Investors can either choose to cash out the dividends or reinvest with DiversyFund.
DiversyFund Features You Need to Know
The following are some of the DiversyFund features which you ought to know.
1. No Management Fees Involved
Most crowdfunding real estate platforms usually include a 1% management fee. However, DiversyFund is known to include no such fees. The 1% management fee is generally meant to cater to platform costs and play a matchmaker between projects and investors. However, DiversyFund owns and operates multiple real estate projects without charging such fees. You should note that developer fees of 2% to 8% apply to cater for each holding acquisition and management.
2. DiversyFund Is Available to Nonaccredited Investors
Whereas most online real estate platforms are available to only accredited investors, the DiversyFund is open to all kinds of investors. SEC defines an accredited investor as: "an individual with gross income exceeding $200,000 in each of the two most recent years or joint income with a spouse or partner exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year."
3. Low Minimum Investments
The Securities and Exchange Commission, in May 2019, approved DiversyFund's bid to reduce its minimum investment from $2000 to $500. The move played in favor of small-dollar real estate investors.
4. How the Returns Work
With DiversyFund, upon the disposal of the asset at a profit or purchase price, the investors will receive back their principal and a 7% preferred return before the company receives any profits. In any case, the apartment is liquidated at a profit of over 7%; all the subsequent profits will be shared in the ratio of 7:13, company and investors, respectively until investors make a return averaging to 12% p.a. Any further proceeds from the investments will be split in the ratio of 1:1 between investors and the company.
5. DiversyFund Owns and Runs All Investment Properties
As already mentioned, DiversyFund is exceptional in the way that it owns and operates all its assets. Its real estate investment trustees are spread across many parts, owning luxury homes in Texas, Southern California, and North Carolina. Its primary aim is to purchase properties, renovate, and sell the properties within five years. One thing that investors must appreciate with DiversyFund is that its managers have real skin in the game.
Who can Invest with DiversyFund?
The popularity of DiversyFund is majorly influenced by the fact that almost anyone can invest. Anyone who has $500 could become a successful investor in DiversyFund.
Is DiversyFund a Worthy Investment?
You now understand what a DiversyFund is, how it operates, some of its features, and the type of investors that can invest with DiversyFund. You are probably wondering if it is a suitable investment for you.
DiversyFund is unique from other real estate investment platforms in the sense that it accepts nonaccredited investors. It accepts nonaccredited investors, which is one element that makes it stand head and shoulder high above other platforms. The platform does not charge a management fee like other platforms, and it also allows minimal investments of as low as $500. What else could you ask for from a real estate investing platform?
On the flip side, the illiquidity of DiversyFund and its inability to pay dividends unless the asset is sold might be a turn-off for investors who need money as soon as possible. DiversyFund is also characterized by limited investment choices, which is another turn-off for most investors. One important thing that you must understand is that DiversyFund only gives out REITs. It does not offer any other asset, neither does it allow its users to open retirement accounts like IRAs or other saving accounts. Additionally, once users set up their accounts, they will not make withdrawals unless after five years. So, the ball is in your coat.
How safe is DiversyFund? The fact that it is a newer investment option means that there is limited information about DiversyFund, especially from the risks' point of view. In fact, there are crowdfunding real estate platforms that are less risky than DiversyFund.
Although DiversyFund's vertical integration has been touted as a feature that lowers associated costs, from where I stand, I could confidently say that it creates additional risks.
A single party handling all aspects of a real estate venture, from asset management, sourcing, property development, property acquisition, and asset sales, there are more risks that investors stare at in case things go south. All investors should only work with the DiversyFund platform with an understanding that the company handles many management aspects, and in case it is overwhelmed, the potential impact could be so devastating.
Moreover, there are a few integrity issues with the management that should be scrutinized. For instance, DiversyFund has had cases of past violations with real estate regulators and an ongoing case about an undisclosed DiversyFund development. Such issues are what should make investors practice utmost caution when dealing with DiversyFund.
What are the Pros and Cons of DiversyFund?
The following are some of the advantages of investing with DiversyFund;
- It is a perfect investing platform for both the accredited and nonaccredited investors. It means that DiversyFund's Real Estate Investment Trust is open to even nonaccredited investors.
- It allows for low minimum investments of as low as $500. As such, it gives as many people as possible a golden opportunity to invest.
- No management fees involved
- It gives investors access to commercial real estate deals.
- It employs automated real estate investment management.
The following are some of the challenges that come with using DiversyFund.
- DiversyFund involves extremely high developer fees. Higher fees mean lower investment returns for investors.
- It lacks liquidity or a secondary market. As such, unlike other crowdfunded real estate platforms, DiversyFund lacks a redemption policy. The investor is only paid dividends after five years.
- Whereas most real estate investment trusts generate passive income, DiversyFund growth real estate investment trust require an automatic reinvestment; hence there is no income.
- DiversyFund has no clear track record, which makes it particularly difficult to measure the ability of the management to deliver.
- Limited investment choices
Is DiversyFund Legit?
So, is it a legit business or a scam out to steal money from investors? Well, DiversyFund is a genuine real estate investment company with multiple holdings. However, as pointed out earlier, I still have some serious concerns about how it runs its operations.
DiversyFund is an unusual player in the game of crowdfunded commercial real estate investments. DiversyFund owns and manages its assets directly and does not act as a broker to connect investors with specific projects. As a result, it does not charge any management fees to investors. If you are contemplating investing with DiversyFund, this DiversyFund review will guide you through some of the things you must know before you start investing.