Holdfolio is one of the lesser-known real estate crowdfunding platforms that has become a true insider’s tip. With low fees and fair capital distributions, Holdfolio has gained significant market share in the multi-family sector. But are there any monthly fees associated with investing?
Holdfolio does not have a monthly fee. Fees are charged only on a per-property basis and realized once profits from rental income or sale are distributed to investors. When it comes to distributions a profit split is applied so that 15-35% of the profits remain with Holdfolio or the sponsor.
In this post, we’ll go over all of the fees associated with investing in a Holdfolio deal. I’ll also cover how exactly Holdfolio makes money, how their platform works, and even if there’s a mobile app.
Before we go any further let me state that I have invested in several deals with Holdfolio and have a vested interest in seeing this company succeed. However, all information contained in this article remains objective and fact-based.
FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).
What fees does Holdfolio charge?
While Holdfolio has been very transparent with the fees that are involved in each deal you still have to read the fine print of each agreement since sponsors between deals can change and implement different fee structures.
Let’s look at some of the more common that are associated with real estate syndication and how Holdfolio have positioned themselves with regard to these:
- Acquisition Fee: This is the one that is typically associated with acquiring property and includes anything from travel costs to paying agents. It may also include any administrative or personnel costs associated with closing the deal. Holdfolio does not charge an acquisition fee.
- Maintenance Fee: This fee is related to the maintenance of the property and includes the costs of minor repairs inside and outside the building, managing tenants, or paying a property manager. Holdfolio also does not charge a maintenance fee.
- Disposition Fee: The disposition fee relates to the final sale of the property and is used to offset the costs of the sale. This can include the costs for agents, brokers or lawyers. In most cases, Holdfolio does not charge a disposition fee but some sponsors have included a 1% clause in their agreements.
However, the main fees that are charged are not at all related to the above ones and can more accurately be described as a profit split. This split is not so much a fee as it is a commission for finding managing and selling the property at a profit.
Since this profit split can be anywhere from 85/15 to 60/40 it typically includes all of the costs that are incurred from the aforementioned activities.
NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).
How does Holdfolio split profits?
Profit splits can occur in multiple ways but are always related to the distribution either of rental or sale proceeds. Each multi-family property that Holdfolio purchases is owned by a separate LLC. This LLC has different levels of members: the managers and the regular investors.
Profits are split within the LLC between these two member classes according to a pre-established ratio that both parties agreed to at the signing of the contract. Some typical arrangements for profit splits are:
- 85/15: An 85/15 split means that 85% of the profits go to investors while the manager (Holdfolio/sponsor) keeps 15% of the profits. This is probably the most advantageous split you can find with Holdfolio as an investor, although I have even seen splits as high as 90/10.
- 70/30: A more common split within real estate syndications is the 70/30 profit split where the investors receive 70% of the profits and the managers 30%. Most other deals that can be found on platforms such as RealtyMogul or CrowdStreet offer such terms.
- 60/40: While this is definitely on the lower end of the spectrum a 60/40 split does not necessarily disqualify a deal right away. It is also important to consider how much risk the sponsors are taking on themselves and if the reward matches the downside potential.
While these are the most common scenarios that you will face as an investor with Holdfolio there are countless other variations on fees and profit splits.
Another common one you will find are preferred returns, which indicate that investors are always paid first up to a certain return (typically 7% or 8%) and the manager only gets his split thereafter.
FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!
How does Holdfolio make money?
If you have been following the article so far and read about managers, sponsors and splits you might be wondering how Holdfolio themselves actually make a profit. While there also may be some information that is not available to the public we can deduce at least three different ways that Holdfolio makes money:
- Co-Investment: Frequently Holdfolo will co-invest (alongside the investors) in their own deals. This not only creates trust with investors that interests are aligned but also allows Holdfolio to profit from their own efforts.
- Profit Splits: As mentioned before profit splits are one of the main ways that a real estate syndicator can profit from their property deals.
- Agreements with Third-Party Sponsors: While not stated explicitly by Holdfolio there may exist agreements between Holdfolio and their operating sponsor whereby a commission or fee is paid by the sponsor in return for the referral of investors.
There may certainly be some additional ways by which Holdfolio profits from its business activities but the three above appear to be the most crucial.
ALSO: Small-cap equities can add a lot of upside to a portfolio while mitigating risks. Recently, I've discovered Mainvest's investment platform which makes it easy to invest in small and local businesses with returns of 10-25%. Take a look here (link to Mainvest).
To sum up, Holdfolio does not charge a monthly fee or any fee in the true sense of the word. Profit splits are applied among investors and sponsors and Holdfolio further profits from a sizeable co-investment.
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.