Real Estate Investing Online Part II: Triaging Deals Online



How investors earn money from real estate deals


Equity vs loan (debt)





IRR vs Cash Flow (or Cash-on-Cash)










How deals are structured



Hurdle Rate
Preferred return




Hurdle Rate
Preferred return
Tier 1






Property management fees




Asset management fees




Bottom line: Avoid asset management fees like the plague.

One-time fees






  1. Thanks for the write up!!! As you know I recently just took my life savings and invested into my first Realty Shares deal. If all goes well I can retire! If it goes to hell......any chance your hiring?? :)

    I wish I had this write up when I made my first deal. It really nicely highlights the key things to look at. It can be confusing at first glance to figure out how the money flows when you invest in a deal.

    I enjoyed your break down of fees. My guess is the market will reduce fees over time (it always does). For me the fees are not bad. I have spent sometime in the hard money lending world and the fees you find on sites like Realty Shares are way less.

    Also, with fees. Yeah. Maybe they are a "high five" but cash flow is king in Real Estate. Many operators throw money into deals (skin in the game). Operators tend to have a lot of Real Estate all in the same area. If things don't go well even just appreciating a few percent less than predicted they can be high and dry. People do crazy things when things don't work out. I don't want operators to get rich on fees. But I want to make sure their families are taken care of. They are living a good life. You don't want operators checking out, doing stupid things, selling properties just to get out of them. They are making decisions on behalf of the fund. Their personal comfort is going to factor in (even tho it should not).

    One question. Lots of deals have a preferred rate. Often operators are throwing money into the deal as equity. Is their money preferred as well for the shares they own?

    1. Hi Spicer,

      It sounds like you've been reading my blog consistently and learned well the concept of diversification and managing risk. :-)

      Yes, fees ensure the survivability of the operators. However, as I alluded in the post, there are different types of operators: those that are also investors and are looking for *partners* and those who prefer to just put deals in place for other people to take risks while they take little of their own. There's nothing wrong with the latter. But they are more in the administration business than sheer investing. I prefer to invest along operators who are also heavily invested, rather than plan administrators who sometimes also have small positions in the deals. Of course, I also invest with the professional administrators who have a good track record of ensuring deal success and obtaining good returns for their investors.

      However, I see your point. It is a counter-argument to my point above: if an operator is not heavily invested in the deal and they're paid mostly by fees rather than investment returns, there's more emotional detachment from the deal and therefore they may be more able to make rational decisions in case something goes bad. But emotional detachment can be had with investor-operators too, especially the experienced ones.

      As I said, I prefer to be aligned with operators as much as possible. This is a personal thing but also a cost reduction issue.