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Diversyfund has been selected as a “Top Deal” by KingsCrowd. If you have questions regarding our deal diligence and selection methodology please reach out to firstname.lastname@example.org.
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Did you know that since 1992, multifamily real estate projects have provided the largest average return (+9.75%) with the least amount of volatility (+7.75%), according to CBRE data?
The reason for this high level of growth has to do with shifting consumer dynamics when it comes to buying a home. Due to elevated housing prices, rising student debt, and more mobility amongst millennials, the desire to own a home has fallen meaningfully.
That’s why multifamily originations in the US are estimated to be $317B in 2019. Only 45% of 30 to 34 years olds own a home in comparison to the national average of 64%. Clearly, with these changing dynamics those who invest in the multifamily real estate asset class have an opportunity to find outsized returns for their portfolio.
Finding a stable yet high growth asset class like multifamily real estate is much like the holy grail of investing. However, until recently multifamily projects were largely reserved for institutional investors only.
Most of these projects are typically dominated by an exclusive network of large investment funds that pour hundreds of thousands if not millions into each project. Accessing this asset class has essentially been near impossible even for wealthy individuals until now.
Thanks to the JOBS Act, private market assets have become more accessible than ever. With that we have seen the rise of platforms that now provide entry into exclusive real estate investment opportunities with low barriers to entry.
The target company we are looking at today is Diversyfund, which provides a platform where you can invest into diversified investment funds of multifamily real estate projects with a low $500 minimum in just a few clicks.
Much like investing in franchises where the unit economics of each store are understood, investing in an established asset class like multifamily houses tends to be similar. On Diversyfund, their portfolio’s aim to provide returns to investors in the 17% to 18% range based on historical returns.
While market conditions are a systemic risk as it relates to real estate investing, a diversified portfolio approach helps to reduce the downside and multifamily tends to be more stable than single family home projects as seen in the low volatility of the asset class.
So in just a few clicks, anyone can invest just $500 into a portfolio of multifamily projects that target returns that are nearly double that of the historical S&P returns.
Moreover, the team provides a level of transparency rarely seen in real estate investing with regular updates, strict underwriting guidelines, and clear disclosures due to teams qualification of its offerings with the SEC. That means more protection for investors. Investing like a seasoned real estate exec has never been easier.
Diversyfund is in a young and fast growing market of online marketplaces that enable online transactions into private real estate deals. Specifically, Diversyfund is focused on creating diversified investment funds made up of multifamily investment projects, a $317B market.
While there are several upstart online marketplaces that enable similar types of investments to Diversyfund, there are two that clearly act as direct competitors to it.
Fundrise has raised over $50M to date. Similar to Diversyfund this team provides investors the ability to invest as little as $500 into diversified portfolios of commercial real estate projects including multi-family projects.
The product in totality is relatively similar to Diversyfund, however Diversyfund because of its vertically integrated business model does not charge fees to the investor, whereas Fundrise does. Fundrise however has raised over $50M to accelerate the growth of the business.
RealtyMogul also creates diversified portfolios of commercial real estate projects for investors to deploy capital into. The major difference of this platform is the $5,000 minimum to invest in the fund.
Regardless, over $400M has been invested into the funds on the platform and over 130,000 investors have joined the platform. This is about 4X what Diversyfund has done to date.
Diversyfund wins on no investor fees driven by the vertically integrated business model and the low minimums. However, this market will be won by driving outsized returns over the long term.
In such a large market, we think there is more than enough room for all three companies to compete and become large entities.
Why We Like it
- Early Entrant: While there are competitors the nearest competition to DIversyfund is Fundrise, which is at a similar stage of development. We are also talking about a $317B yearly market that is still in the early days of being disrupted. There is plenty of room for multiple winners and we think Diversyfund is nicely positioned.
- Product Market Fit: With 30,000 subscribers to date and 65% reinvesting after their first portfolio investment, the team seems to have found clear market traction. Though no fees are charged to investors a 10-20% fee is charged to the project developers. During 2017 an estimated $2.1M in revenue was generated from projects the team invested.
- Scaleable Revenues: Since the team is vertically integrated meaning the team invest in and directly manages the project, the monetization model is quite lucrative. On a $1M investment, it is estimated that the team can make $300K to $3M during the sale of each property. On $94M in invested assets to date, the team projects to make somewhere in the ballpark of $21M. Put simply without huge volumes of transactions, the teams monetization strategy leaves room for significant revenues in comparison to middleman platforms that are not vertically integrated.
- Experienced Management: Craig Cecilio and Alan Lewis are both experienced in investing, starting up and the real estate markets.
Craig Cecilio is not only the Co-Founder and CEO of Diversyfund, but he is also the Founder of CCFG Investments. CCFG Investments is a real estate investment company with a long track record of doing deals in the space. Wisely, Craig has rolled the business into Diversyfund and now powers investments into the fund through an open tech-enabled investment platform.
Utilizing a business that has been running for nearly 12 years in the same space, and adding tech onto the top to create a seamless and more open investment network is an intelligent strategy since so much of winning real estate deals is about network and credibility. The team comes into it already having those capabilities.
Alan Lewis, the Co-Founder and CIO comes into the business with many years investment banking and real estate investing experience. He spent time at Brill Securities and JF Capital as an active investing Partner.
Both members of the founding team brings significant domain expertise with their many years industry experience, and Craig also comes with founding experience as well. We like the capability in management to execute on the opportunity in front of them.
The Rating: Top Deal
Diversyfund is a Top Deal. Its early entrance into a vast market with an innovative solution and an experienced real estate management team all work in favor of the organization.
While we do have concerns about the other well funded startups that compete directly with Diversyfund, we think the team has built an early foothold that is meaningful enough to play a significant role in this new commercial real estate investment market.
The traction shown to date including $94M in invested assets, millions in revenue and a growing investor base of 30,000+ provide nice signs of product market fit that can be replicated with increased marketing and infrastructure spend. For these reasons, we think this is an intriguing investment opportunity to consider.
About: Chris lustrino
A Boston College Eagle for life, on a mission to democratize startup investing for all people at KingsCrowd, with a passion for Fintech, investing, social impact, doing well and doing good, and an avid runner, cyclist and writer.