What is Real Estate Crowdfunding?
How to get started with only $10 a month
How to change you life
Myths
- You can't start investing if you only make $36,000 a year, your better off focusing on making more money at your job.
- You need a lot of money to start investing in real estate
- You can't start investing if your in debt
- You cant start investing until you have an emergency fund
- Isn't it risky, how do you know they will pay you back
- You can make more money in "Fill in the blank"
Here's why I disagree with experts when they tell people this.
1) You can't start investing if you only make $36,000 a year, your better off focusing on making more money at your job.
There is a lot true here, conventional advice is don't invest, focus on getting a better job so you can make more money then you be able to invest. All great advise you should those things as soon as you can because it will get you closer to being financially independent. My problem here is many of the people who say this think you should go to school (aka spend more $) and get training to find these better jobs. That's not alway easy or possible, it might not fit your situation. Focus on lowinger your spending, looking for more income opportunities consider moving to a place with better economic opportunities, and invest any extra money you can afford. Additionally you can get a second job or side hustle and use that money to start investing.
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| How a GroundFloor loan works |
2) You need a lot of money to start investing in real estate
Just a bold lie, you can invest in real estate by joining in real estate crowdfunding in Groundfloor or buying REITs at a brokerage like M1 Finance (sign up
link for M1) for $10 bonus. I'll focus here on real estate crowdfunding, real estate crowdfunding allows you to buy a portion of a loan and make high returns, on average over 10%
[4]. With such low minimums it's much easier to diversify your money across multiple loans and loan grades. It's important to know that most platforms have really high minimums as high as $5,000-$25,000 per investment. So with start something like Groundfloor where the minimum buy in is only $10.
3) You can't start investing if your in debt
This is true, the highest return you'll ever get is in paying off your debt, but some debt is good. People will tell you debt is all bad, they are wrong. I'll give one good example: if you have $100k and you can buy one house for $100k and get $1k in rent. Or you could get a two houses $100k with two $50K mortgages and two rents of $1k ($2k total). In the first choice you have $100k in property and second choice you have $200K in property. So if the market goes up only 3% per year, 5 years later the house will be worth $15,927 more or the two houses with be worth $31,854 more. And during those 5 years your collecting rent: with one house you will have collected $60k in rent and with two house after paying the mortgage you will have collected over $91K in rent. In short debt can be bad but it can also make you money so learn as much as you can about debt before using debt.
4) You can't start investing until you have an emergency fund
Yes this should be a high priority, but most people don't have an emergency fund to begin with and
may never have one at all. If you want to get 3-6 months money in the bank before beginning to invest go for it. I'm not telling to forget creating an emergency fund, you definitely need an emergency fund. But you should think about what an emergency is, and how to plan for it.
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| Click the picture to see my latest returns |
Here is how I have planned for emergencies. I have 5 different emergency funds: bank account, M1 Finance, Groundfloor, Peerstreet, LendingClub and IRA.
Cash Account - my savings account has enough money to cover some expenses (this usually what experts refer to as emergency fund) I don't keep much at this level.
M1 Finance - M1 is my brokerage account, at least 10% of my investments are in bonds and precious metals.
GroundFloor - Fix-nFlip crowdfunding, I allocate at least 25% of this portfolio to short term loans 30-90 day loans. This money is always cash flowing to me and can quickly be accessed at very short increments. For example every week I buy a 30 day loan so every week a 30 day loan is returned to me. This happens while all my other high returning investments are returning cash flow. so any give month a high amount of my total balance is available to me.
PeerStreet - Fix-nFlip crowdfunding, I allocate around 4% of my portfolio to short term 30 day loans, same as above this money is always returning to me and can be accessed quickly. Also as above the cash flow from here is extremely high and accessible.
LendingClub - Unsecured crowdfunding, the cash flow from this investment can cover all my expenses for an extended amount of time.
IRA - Hardship withdrawals avoid penalties.
At any point if I lose a job, my expenses are covered by multiple sources. A recession might affect one or all sources but I can source the optimal one for the situation. As each investment has different risk I'm not worried they will all have significant losses at the same time. If they are all wiped out I should have focused on investing in guns and ammo. At anytime I can stop buy new crowdfunding loans and quickly have a surplus of cash for a downpayment for a house. I have invested through recessions before and my portfolio was designed to provide opportunity during recessions.
Point, counter points:
Point:This is not a traditionally liquid emergency portfolio
Counter: I would say it's more liquid than stock or real estate, when you buy stock they say it can go up or down and you should have a time horizon of 5 years or more. In an emergency if you go to sell stock it might be down 35% same with real estate. I know many people who invest in stock and dont have separate emergency funds. If the Stock market declined in that same time my gold and bonds will be worth more. The short term loans are in some cases guaranteed and in all cases always secured. As for the unsecured even if there was a reseccion greater than the housing market crash of 2008 I would still receive large amounts of cash flow for extended period of time. In summary even in a massive recession I will have multiple income streams as well as access to larges amounts of principle providing more money than I have planned needing.
Point: What if you have a really big emergency?
Counter: I have more than enough money to cover all emergencies I could think of. Here are some of the big ticket emergencies I have planned for. Down payment on new house, roof collapsing, paying all my expenses, paying all my wife's expenses, medical bills. leave a comment if you think of something really big I should plan for!
5) Isn't it risky, how do you know they will pay you back
Yes partially true, there is risk in everything even breathing. So , some people will not repay their loans, some of the unpaid loans will require a foreclosure, some foreclosures will result in a loss of principal. Here is a diversification example: If you buy 1 loan for $1,000 and that one has a loss your screwed, if you by 100 loans at $10 each and one has a loss you still make money. I have had losses, and I have made money. Except that it will happen and plan for it, and learn from it when it happens, don't waste time complaining that it happen to you.
6) You can make more money in "Fill in the blank"
That's true you could make more money with a time machine. But sadly no one knows future or what the best return asset will be in the next 12 months, maybe tulips will be worth hundreds of dollars, maybe you should buy bitcoin. I dont put 100% percent of my eggs in one basket and neither should you, so even if you think the stock market will go up 50% next year you can still put some money in bonds and crowdfunding just in case you're wrong. Here's some stats:
JP Morgan "20-year annualized returns by asset class (1998 – 2017)" Average Investor 2.6%[2]
"20-year annualized returns by asset class (1999 – 2018)" Average Investor 1.9% [3]
"20-year annualized returns by asset class (1999 – 2018)" S&P 500 5.6%[3]
"20-year annualized returns by asset class (1999 – 2018)" Inflation 2.2%[3]
GroundFloor average rate of return over 10%[4]
So you could make more in the stock market than in Groundfloor, but historical most people didn't!
Change your life
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| Compounding interest table $10 per month |
Let's say you start today: Sign up using the
link above and you get $10 bonus (that's why year 1 returns are more than year 2 in the compounding interest table), if you commit to deposit $10 per month and invest it in Groundfloor loans the average return rate is over 10% so by year 8 you'll be making more in interest than you deposit each year. You'll make double what you deposit with in 11 years and triple with in 13 years. Because of compounding interest you make more and more money in the later years, so with in 20 years make $1,788.92.
Had you deposited $100 per month you would make over $26,500 in year 20.
Had you deposited $1,000 per month you would make over $276,900 in year 20.
It may seem hard, because who has an extra $1,000 a month? Well you will if you start now, it might take a year or 10 years or longer but if you don't start, you'll never have an extra $1,000. So click the
link above and get started now.
The first time I saw a compounding interest table like this above I was in my teens, I remember thinking, if I applied myself and saved, I could retire in my early 20's. I know now I was right, I could have, I could have, but I didn't, and I regret it. I went to college while working full time and ran up debt (credit cards, college loans) that took me years to repay. Investing is a long haul strategy you can't do it over night but you can start today.
One of the best things about automating investing (even if its just $10 per month), it's automatically taken from your checking account. Now you can't impulsively spend it on lattes, cigarettes, soda, candy, phone apps, shoes, or any other thing you might be wasting your money on. It can force you to control your spending and think more conservatively about money.
It can be addictive, once you see returns from your investment an normal though is why didnt I invest ment more. This drive a lot of us to keep or increase investing over time.
References
[1] www.Groundfloor.us © 2019
[2] JP Morgan
Guide to the Markets 2018
[3] JP Morgan
Guide to the Markets 2019
[4] © 2018 Groundfloor.
Investors
M1 Finance: Getting started...
M1 Finance offers many services like investing, barrowing, banking and research. For the purposes of this article I will focus on the investment side of their website. M1 Finance is perfect for the buy and hold, long term investor searching for dividend income with no fees. It allows you to buy fractional shares, so you can get the stocks you want even if you can't afford to purchase an entire share. Instead it will buy chunks of the stocks over time to build the portfolio as you go. I started my account by depositing $40 a week. Because this site is for dividend investors like you and me, there is only one trading window. That's right, stocks are bought at the beginning of the day during the trading window[2] and can't be sold or bought again until the next day during the trading window. This type of trading platform is perfect for people who want to invest money over time in stocks they plan to hold for long periods. It's also a great platform for people with very little money to invest or people new to investing.
They have both a website and a mobile app that are easy to use. You select the stocks you want and they are divided into a pie. You can specify how much of the pie each stock will allocate and when a purchase is made that is how it will be allocated. If you've never invested before this site makes it very easy to do, users can share there pie (here's a link to mine) or you can pick from prebuilt "Expert pies". I recommend buy stocks in companies you can understand as opposed to one you don't. Example I own Target, I shop at Target and it's competitors and I follow this sector to help understand my exposure. I also recommend buy dividend growth stocks every Monday for a period of about 20 years.
