Why I NEVER Invest with Crowd-funding and REITS

Why I NEVER Invest with Crowd-funding and REITS

In recent years, Crowd-Funding and REITS (Real Estate Investment Trust) have become popular for investors who have only limited amount of investment funds or those who wants to invest passively.

Many high net worth folks for example, are looking for alternative investments so they can diversify their portfolios. They are looking to take calculated risks, and most view real estate as a fairly safe bet. They are inclined to invest passively, i.e. in a deal that you find and control.

But, that’s for high net worth individuals – People who have excess money to place totally in someone’s else care or whose investment objectives is completely different from the ordinary guy investing for retirement or fund his kid’s education.

When you enter into a property deal with a crowd-funding platform or invest through REITS, you’re placing your hard-earned money entirely in the hands of people you’ve never met in your lives.

Real Estate is called real estate for a reason.

REITS earned expensive yearly management fees from retail investors. It does not matter if your investment is doing well or not. Fund Managers still make money from you regardless and you are left fighting for scraps. You’ve zero control over income, expenses and how the properties should be run and managed. Neither can you sack the management team and key players if they are not doing a good job. Everything from A-Z is totally out of your hands.

When market is booming, REITS rise with it. When market falls, REITS fall in accordance. As they say, “Every investor appears to be a genius when the market rises.”

You’ve no control whatsoever to mitigate losses or increase profits if you want to. The recent upheavals in stock market and a slow down in the property market have shown stronger evidences of such investment fallacies.

Real Estate is called real estate for a reason. The proven concept of landlords physically owning a piece of land with a building on/around it goes back thousands of years. Paper Estate is a recent concept evolved by American Congress in the 1960s for average investors.

REITS are simply expensive mutual funds disguised and marketed as real estate to unsophisticated investors. The fund manager owns the real estate, while you own a piece of paper with no actual ownership of the properties.

A REIT manager manages your money. You have no say in what they do. Their incentives are aligned by the amount of money they have under management, rather than on performance of the REIT.

In real property, you are master of your destiny.

Crowd-Funding Platforms = Advertising Platforms 

Crowd-funding platforms are no different. Most are not MAS (Monetary Authority of Singapore) approved investment platforms like REITS. They are simply middle-brokers who earned their incomes primarily from advertising fees and commission kick-backs from real estate sellers or deal finders who placed their deals in these platforms.

Here’s the problem – Some of these platforms offer shady investment deals. Inexperienced investors and ego investors who think they know what they are doing are often easy preys as such.

It’s fine if you like to remain a passive investor, but do understand the key difference between “taking advantage of” and “being taken advantage of” 

Will You Get Rich on REITS & Crowd-Funding?

I discussed this above, but in simple terms, real property is not a financial instrument. It is a direct property investment, which is susceptible to sentiment, but certainly not the volatility of the stock market — which is at the highest it has ever been all over the world. Funds and REITs have strong correlation with the stock market and therefore, one can expect massive volatility in the coming years. That is why the super wealthy are investing in direct property.

There is a reason that there is a saying, “He who owns the land is king.” For centuries, real estate has been the best asset to create and preserve wealth.

The last person in the value chain is you, the person who invests in the fund or REIT. You want to get wealthy, invest in this financial product (which you think is real estate) and are happy to just beat inflation. The problem is you never get wealthy as you are at the bottom of the value chain and you are susceptible to stock market volatility and sentiment, not property fundamentals.

How about Crowd-Funding?

While Crowd-Funding is investing in real property, the problem lies in the integrity of the fund raiser and if the property is indeed a sound investment. There’re also many intricate aspects to consider such as the structure of the deal, experience of the deal maker, who the co-investors are. In Crowd-funding, one of the dangers is not knowing who your co-investors are.

If you want to be truly wealthy you have to do what the top one percent are doing — invest higher up the value chain – cut the middle-man, cut the frills, cut the glitzy marketing, go directly for the kill – on your own terms.

Developers make a lot of money from real estate. Many of the world’s rich are property developers. They invest high up in the value chain – Wholesale and they sell retail to retail investors/buyers. That’s where they make the bulk of their money.

Crowd-Funding is just another technological marketing platform like Uber. Uber founders certainly make lots of money from providing a convenience for consumers via a technology platform.  It may provide convenience for consumers, but certainly, the real people who are profiting and getting rich behind the curtains are the founders themselves. Consumers just spend.

If you truly want to be wealthy (millionaire-wealthy), form your very own Crowd-Funding/technology/co-investment platform instead, rather than be slaves to other people’s dreams.

Are there any investors who you think would not be a good fit for real property? Why?

Negative people and people who want to hand over responsibility to others. People who want to blame others and always have an excuse for their lack of results or the fact that their lives are not as they wish.

Real property enables people who want to be in control of their lives, take responsibility for their decisions and be accountable for the results. This is why real investors focus on only two things: education and results. We ensure that we’re educated so that we can make informed decisions as to what we want.  Results are direct correlation from being educated. It depends on the level of education and common sense of the investor.

It is only for people who want to be in control of their destiny, not be slaves to other peoples dreams.


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To your investment success,

Gerald Tay

About the Author

Gerald Tay Author, entrepreneur, professional investor and loving father, runs with a tongue-in-cheek approach to property investment - and himself. He is widely regarded in the industry as 'The Common-Sense' Investor. Gerald writes with passion and straight-forwardness, disclaiming wild claims and impractical investment strategies behind lies and ignorance pervasive in the property industry for vested interests. His well-known statement, "All I did is to value my investments with science, logic and common sense.'

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