Risks of investing in private real estate

Private apartment investments are speculative. The property may lose value, the loan may go into default, and investors may receive back less than they put in, or nothing at all. Only invest money you can afford to lose entirely.

There is no public market for these interests and the operating agreement restricts transfers. Expect to hold your investment for the full hold period, which may be longer than planned. You generally can’t get your money out early, and may be unable to sell at any price.

Projected returns, rents, occupancy, expenses and sale prices are the sponsor’s estimates based on assumptions that may be wrong. DoorRaise doesn’t check or endorse projections. Past results of a sponsor don’t predict future results, and a sponsor’s track record may not be verified.

Most deals use a mortgage. Rising interest rates, a lower sale price or refinancing problems can wipe out investors’ equity before the lender is affected. Some loans require a sponsor guarantee, have rates that change, have prepayment penalties or come due before the planned sale.

Rents and occupancy can fall because of local job losses, new competing buildings, rent regulations, insurance and tax increases, natural disasters, climate-related events, environmental problems, crime, tenant defaults, vacancy, construction delay or cost overruns, deferred maintenance or major repairs. Insurance may not cover every loss, and may become costly or unavailable.

Investors don’t manage the property. Results depend on the sponsor’s skill, judgment, honesty and financial strength. Sponsors may be new, may have little or no track record with a property of this size, may lose key people, and may make mistakes or act dishonestly. Sponsors are paid fees and a share of profits, which can create conflicts of interest. Investors usually can remove a sponsor only for cause, and doing so may be difficult or costly.

Some offerings fail because of fraud, theft, misuse of funds or false statements by the people running them. DoorRaise screens sponsors and investors as described on the site, but we don’t audit sponsors, can’t detect every false statement or hidden problem, and don’t guarantee anyone’s honesty. Do your own due diligence.

Some sponsors find investors through videos, posts and email. A sponsor or promoter may be an influencer who is paid or has a personal stake. Promotional material may be one-sided. Rely on the offering documents, not on what you saw or heard on social media.

Criminals impersonate sponsors, escrow agents and title companies and send fake wire instructions. Only wire to the account shown inside your signed-in DoorRaise account, and only after calling the escrow agent at a phone number from its own website. DoorRaise never sends wire instructions by email and never asks you to wire anywhere else. Money sent to a wrong account can be impossible to recover.

If the property needs more money, the sponsor may ask investors for more. Investors who don’t contribute may be diluted or lose rights. Read the operating agreement for what applies to your deal.

You’ll receive a Schedule K-1 each year and may owe tax even in a year without cash distributions. K-1s may arrive after April 15, so you may need to file a tax extension. You may need to file returns in the state where the property is. Tax laws, depreciation recapture and audits can change what you owe. IRAs and retirement accounts may owe unrelated business income tax. Ask your own tax adviser.

These offerings aren’t registered with the SEC or any state, and no regulator has reviewed or approved them. You receive less information than for a public investment, and the information comes from the sponsor.

“Verified” on DoorRaise means only that we checked the listed facts against documents given to us, on the date shown. It doesn’t mean a deal is safe, that a document is accurate in every way, or that we checked anything not listed. Software we use to help review documents can make mistakes.

DoorRaise provides administration and software. If DoorRaise stopped operating, was hacked, or lost data, the deal’s entity and sponsor would still be responsible to investors, but reporting and payments could be delayed or lost. Escrow agents, banks, title companies, lenders, property managers and other third parties can fail, make errors or be unavailable. DoorRaise is not liable for them.

Laws and rules change. A securities exemption may be lost if a rule is broken, which could give investors a right to rescind but leave the entity unable to pay. Rent control, zoning, tax and landlord-tenant laws can reduce income or value. Bad actor or licensing problems at a sponsor can end an offering.

If you invest through a retirement account, additional rules and taxes may apply, the custodian may charge fees and may not accept some deals, and funding may take longer than a deadline allows.

Nothing on DoorRaise is investment, legal or tax advice. Nobody can promise a return or the return of your money. Talk to your own advisers before you invest.