Real Estate Crowdfunding Platforms Fees – Can Kill Your Return!

By Mark Robertson CrowdFundBeat  Sr. Contributing Editor. President at CrowdDD, LLC,

Fees reduce investment returns so significantly that the SEC issued a bulletin-warning alert about the long-term effect of fees on investment portfolios. In the SEC bulletin, they compared the effect of fees on a $100,000 investment for a twenty-year period. Even when investments are for shorter periods, one can assume the money made will be re-invested, so a twenty-year time horizon is a good way to look at the long-term effect of fees on investment portfolio returns.


In the SEC example, they used a very modest 4% annual return, assuming that in some years, the investor might do better than that, but in other years, they might do worse, noting that the effect of fees is lessened if the returns were higher. On the other hand, when returns are abysmal or go into the negative, the impact of fees is more dramatic. In general, what happens from an annual fee is an erosion of the initial investment capital.

For $100,000 invested at the average annual return of 4%, without fees the investment returns $120,000 to bring the portfolio value to $220,000 at the end of twenty years. The SEC compared annual fees of 0.25% with both 0.50% fees and with 1.0% annual fees. Over a twenty-year period the portfolio with a 0.50% fee loses $10,000. The portfolio with a 1.0% fee loses $28,000.

Additionally, there is the opportunity cost of the lost investment money, which could have been invested therefore increasing the overall portfolio returns through the effect of compounding. This opportunity cost for a 1.0% annual fee is the amount of extra money that could have been earning on the missing $28,000, which equals another $12,000 for a total of $40,000 in lost investment returns. This amount is one-third of the total return of $120,000 on original investment if there had been no fees.

Crowdfunding Fees
There are a variety of fee structures in crowdfunding deals, which range from investment offerings that have no fees to those with annual fees as well as partial participation in upside returns above the preferred returns offered and participation in profits on exit.

For comparison purposes, look at the difference in returns from recent investment offerings of Real Crowd, Realty Share, and iFunding. Real Crowd has no ongoing fees charged to the project, because the sponsor pays them to list the investment offering. Realty Share typically has a 1% annual fee. iFunding standard is a 2% annual fee and participates in any returns above the preferred rate of 10% annual return by taking 20% of the extra return.

For a hypothetical  investment of $100,000 with a preferred annual return of 10% and a 50% extra profit on exit after year five, here is how the calculations work out when comparing these three investment programs:

Initial Investment $100,000.00 Yr1 Yr2 Yr3 Yr4 Yr5 EXIT TOTALS Gross Profit IRR Annualized
70% to investor
Return 10% per year $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $35,000.00 $85,000.00
Funding Fees
Real Crowd no fees $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $85,000.00 85.0% 17%
Realty Share 1% annual fee $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $0.00 $5,000.00 $80,000.00 80.0% 16%
iFunding 2% annual fee $2,000.00 $2,000.00 $2,000.00 $2,000.00 $2,000.00 $7,000.00 $17,000.00 $68,000.00 68.0% 14%

Real Crowd makes a total return of $85,000 on the $100,000 investment for a total IRR of 85% or 17% per year. Realty Share makes a total return of $80,000 on the $100,000 investment for a total IRR of 80% or 16% per year. iFunding makes a total return of $68,000 on the $100,000 investment for a total IRR of 68% or only 14% per year.

From these examples, it is clear that fees and exit participations significantly influence overall investment returns, so investors would be wise to take a very careful look at the fees and participations in any deal.


Mark Robertson

President at CrowdDD, LLC

This article was also published at


This article also published on:


Tags: , , , , , , , ,


AZCentral.comTiny companies lure investors under Arizona crowdfunding lawAZCentral.comInvestors who make bets under the state's one-year-old crowdfunding law certainly have the potential to get in on the ground floor, but they must be patient and might not receive any returns. Th [...]

BloombergCouples Desperate For Children Turn to Crowdfunding FertilityBloombergCrowdfunding has become a popular mechanism for many couples who can't afford the high costs of IVF, or adoption and surrogacy. “It's not an easy thing to share publicly,” says Crystal Barrett, 33 [...]

WTTV CBS4IndyCrowdfunding effort to save Dorothy's iconic ruby red slippers from 'Wizard of Oz' raises $300000WTTV CBS4IndyThe Smithsonian has launched a campaign on Kickstarter aimed at raising $300,000 to preserve the ruby red slippers worn by Judy Garland in the belo [...]

Crowdfund InsiderMassive Rule 147 Amendments May Be On The Horizon Impacting ...Crowdfund InsiderAlmost a year ago, the SEC proposed certain amendments to the current Rule 147 which were intended to help foster, and increase the viability of, Intrastat.and more » [...]

Mountain XpressFaces in the crowd: WNC crowdfunding initatives | Mountain XpressMountain XpressEach week, Xpress highlights notable WNC crowdsourcing initiatives that may inspire readers to become new faces in the crowd. This week features a feature ...and more » [...]

MarketWatchWhy a crowdfunding site is giving out $10000 scholarshipsMarketWatchCrowdfunding site GoFundMe announced Thursday that it will award $10,000 to 10 students with pages on their site that fundraise for education. The award is part of a contest the site held throughout Septemb [...]

Android Authority (blog)Crowdfunding project of the week: Remix IO is an Android 4K set-top ...Android Authority (blog)The 'Crowdfunding project of the week' series is where we highlight some of the hottest campaigns from sites like Kickstarter and Indiegogo. There's pl [...]

Huffington PostReal Estate Crowdfunding's Pathway of ChangeHuffington Post“Crowdfunding is just the Internet,” stated Attorney Mark Roderick as he opened last month's RealCap Chicago. RealCap is an annual conference that joins crowdfunding leaders and innovators to propel th [...]

WestwordProgressive-Rock Band Marillion Pioneered CrowdfundingWestwordThat was the beginning of crowdfunding for us — and for every band, really.” When it came time for the recording and release of the followup to the 1999 record, Kelly and the band realized that one of [...]

BBC NewsNHS trust 'relies' on crowdfunding to equip wardBBC NewsAn NHS trust has launched a crowdfunding appeal to buy equipment for a new hospital unit because "it cannot get started without donations". The Royal National Orthopaedic Hospital (RNOH) in Stanmore, n [...]

CFB Finance

Press Release

Live Crowdfunding .tv

What's Next Step in Regulation A+ JOBS ACTS Title IIII :L Interview : Steve Cinelli with Brian Korn Securities and Crowdfunding/Peer-to-Peer Lending Lawyer, Watch more video library | Conference | Interview | Campaign Showcase | Research | Education |