HoldFolio Review - A Good eREIT Choice or Not?
Holdfolio is a good platform that offers a better return on investment than most of their competitors; in our opinion they aren’t the best eREIT available currently for reasons we’ll cover below.
Before breaking it all down we’ll give a brief summary — Holdfolio offers above-average returns for an eREIT, however it has no early-redemption period guarantee, and early sales (if successful) often come with high fees.
Overall we’d say while Holdfolio isn’t a bad eREIT we’d still prefer going with either Fundrise or DiversyFund, as while DiversyFund has similar restrictions on early-redemption’s they have a much lower minimum investment while still offering best-in-industry returns — Or if you want more flexibility Fundrise offers the best early redemption program of any eREIT, charging between nothing and a few percent depending on your time invested, while still offering above-average returns (albeit less than DiversyFund & HoldFolio) and the best diversification of any eREIT.
What Does Holdfolio Have to Offer?
Holdfolio offers one of the best eREIT returns on investment with an expected annualized return of between 10% to 18%, however there are a few things you should know before deciding if Holdfolio is right for you.
Holdfolio doesn’t offer commercial or industrial properties, nor do they invest in single-family properties, so when you invest in them your investment is going towards multi-family (residential) properties, generally the best options for an eREIT investment.
Overall Holdfolio does a great job diversifying your money by spreading it over a large number of different real estate properties, however their platform doesn’t provide the same level of diversification that a Fundrise provides due to Holdfolio’s more narrow focus.
How does Holdfolio Compare to its Competitors?
Holdfolio is better than most other eREIT’s out there, as we mentioned above, so we’ll only be comparing Holdfolio to competitive alternatives, namely Fundrise and DiversyFund — in our opinion the two best REITs out there.
To brief you on the competitors we’ll be comparing Holdfolio to: Fundrise is above-average in both quality and diversification of it’s assets, however it doesn’t have a lower-minimum like DiversyFund, with investors to invest at least $500 with Fundrise. DiversyFund is an eREIT that offers a similar product to Holdfolio, but with lower account minimums (You can invest $500 rather than the $20,000 minimum Holdfolio has).
Enough with the broad strokes — lets get into specifics.
Does Holdfolio Provide a Good Return On Investment Compared to It’s Competitors?
Yes — Holdfolio’s expected return is higher than most eREIT’s — in fact you might even say they have a higher expected return if you believe the numbers they provide. Ultimately we’d say Holdfolio‘s return is about the same as DiversyFund‘s return, potentially a little higher or lower, and a bit above Fundrise as well, albeit with less diversification and more risk than fundrise.
To not continue burying the lead — Holdfolio offers a IRR of around 15-18% with little to no diversification, as there currently isn’t a ‘fund’ to invest in, but rather ONLY single (multifamily) apartment complexes. Fundrise offers extreme diversification due to being the largest eREIT currently with tons of funds and hundreds of properties under management — Fundrise offers a IRR of between 14% and 20% depending on the fund you choose. DiversyFund offers a similar product to Holdfolio and an average IRR of 18% -> 21%, with lower investment minimums and more diversification (albeit not as much as fundrise).
What Fees Does Holdfolio Charge and How Do They Compare?
One of the biggest drawbacks to Holdfolio is not only do they have a high penalty (can vary, generally 10%+ from what we’ve heard) for selling early, and that taking a whole bunch of time, but they also have more fees than most eREIT’s.
To be specific: Holdfolio charges 1-2% when you buy into the fund, then 2% annually thereafter for ‘management.’ That may not sound like much, but that’s of your entire portfolio with them. Not the profits — meaning that you lose out on thousands of dollars in fees to Holdfolio over a 5 year period.
To put that into perspective Fundrise, one of their competitors we mentioned above, charges only 5% in fees over a 5-year vested period, and DiversyFund charges anywhere between 2% and 8% over 5 years — this is compared to Holdfolio’s all-in-fees of 11% -> 12%.
So What Advantages Does Holdfolio Actually Have?
Their competitiveness struggles due to their size, losing out on many of the advantages of a larger company (economics of scale) – however they do offer the ability to hand-select your investments and go ‘all-in’ one of their properties if you think it’s a particularly good deal, and it has some tax advantages.
Tax-wise Holdfolio has it so that when investing with them you receive a portion of ownership of an LLC that holds the company — this makes 80% of your profits tax-sheltered until the property is sold (at which point you’ll have to pay for all gains).
However this isn’t really unique to Holdfolio — Fundrise and Diversyfund also offer this (Fundrise also offers normal taxation if you choose), so ultimately it’s not an advantage compared to other eREIT’s so much so as publicly traded (stock market) REIT’s which generally do not offer K-1 tax-advantaged reporting.
Keep in mind though while this is tax advantageous it also requires more paperwork, cost, and overhead to do — so if you aren’t familiar with K-1’s then it’s probably better to go with a regular publicly-traded REIT or Fundrise which offers normal (1099) taxation.
Our Honest Conclusion: Holdfolio is an OK eREIT
The Holdfolio platform offers an attractive return on investment, however due to the high fees and lack of diversification it’s difficult for us to recommend them as more than a one-off investment. Fundrise and DiversyFund are better suited for long-term investors who invest regularly with eREIT’s for the reasons we mentioned above, at least in our view, and they’re the platforms we’ll continue to use.
Hopefully in the future Holdfolio lowers their investment minimums to a reasonable level, creates a ‘bundle’ fund, lowers their fees, or something to make them stand out but until then we wouldn’t really say there’s a good reason to choose them over their competitors.
Is Holdfolio Legit?
Yes — Holdfolio is legit and has a good track record of 50+ multi-family deals being completed over the last few years and currently manage over 350 million dollars of assets. The question you should ask is if they’re the best choice for you, or if another eREIT would be better — not if they’re legitimate or not.
Does Holdfolio Pay Dividends?
Yes Holdfolio pays dividends every quarter (3 months), well they don’t call them dividends for legal reasons — instead they refer to them as ‘distributions’ or ‘disbursements’ to keep compliant with K-1 requirements.
Does Holdfolio Use Debt or Mortgages to Finance The Properties They Acquire?
Yes along with investor capital they use some of their own, as well as take out a bank loan for between 35% and 65% of the acquisition purchase price (depending on the acquisition type) — this means you’re protected from inflation-events when investing with Holdfolio — however this is common with all eREIT’s as well as even publicly traded real estate investment trusts.