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Downsides of Lofty.ai
For all those impressive upsides, Lofty comes with its share of drawbacks. Keep the following in mind as part of your Lofty review and due diligence.
No Cash Option When Selling Shares
When you sell your property ownership tokens, you get paid in USDCa: a stablecoin cryptocurrency. Sure, it’s tied to the U.S. dollar, but that doesn’t assuage every investor’s concerns.
Lofty promises it’s working on a way to get paid out in actual cash when you sell your shares, and that can’t come soon enough for some investors.
Fees for Buying & Selling Shares
Lofty charges significant fees for both buying and selling shares. When you buy or sell shares on their secondary market, you pay 2.5% on each transaction.
Granted, Lofty waives that fee for new properties during their initial offering. But even the 2.5% fee for selling shares is higher than Fundrise’s early withdrawal penalty of 1% on its eREITs and eFunds, and the Lofty transaction fee never expires.
Bear in mind too that Lofty charges a 0.8% fee on inbound ACH transfers. It’s capped at $5 per transfer, and you can avoid it by transferring funds into your Lofty account by cryptocurrency, but that comes with its own headaches.
Inaccurate Cash Flow Estimates
I particularly don’t like how misleading Lofty’s returns forecasts are.
When they showcase a property’s expenses, they ignore vacancy rate, repairs, and maintenance. Given that these expenses often add up to 20% of the gross rent, ignoring them means woefully overestimating returns.
That means you need to calculate the real estate cash flow for prospective properties yourself. Use an independent rental cash flow calculator to more accurately forecast returns.
How Lofty Compares
Wondering how Lofty compares to other competing real estate crowdfunding platforms?
First, only two other crowdfunding platforms offer anywhere near the same liquidity: Concreit and Stairs by Groundfloor. Both pay in the 4-6% range for return on investment, and both are investments in pooled funds of loans secured by real property (not equity investments such as fractional ownership). Concreit dings your returns by 20% (but not your principal investment) if you sell within the first year, and it takes 30-60 days from initiating a withdrawal until you receive cash in hand.
The most similar investment model however is Arrived (formerly Arrived Homes, full Arrived review here). They too offer fractional interest in rental properties, with a minimum investment of $100. However, there’s no secondary market for selling shares, so you’re stuck with your shares until the property sells in 5-7 years (or thereabouts).
Fundrise and Streitwise let you buy shares in funds that own multiple investment properties. But they hit you with a penalty if you sell shares within five years, and it can take months to sell and liquidate your shares. That said, the Fundrise early redemption fee of 1% is still lower than the standard fee of 2.5% to sell shares on Lofty. (For more details, read our full Fundrise review.)
In short, no one but Stairs by Groundfloor offers the same liquidity as Lofty, and they offer debt investments that pay 4-6% returns rather than ownership interests in properties. But Lofty’s fees for both buying and selling discourage casual trading and incentivize long-term investing.
Should You Invest Through Lofty.ai?
If you don’t have $50,000 for a down payment on a rental property, Lofty offers an easy way to invest just $50 for fractional ownership in one. Sweetening the deal further, you can sell at any time, removing the long-term commitment that usually comes with real estate.
Just don’t plan on day trading shares in rental properties. The 2.5% fee for both buying and selling shares means you should still consider them long-term investments, albeit ones with an instant exit strategy if you need it.
Finally, get comfortable with the notion of receiving payouts from selling shares in cryptocurrency. Yes, USDCa is a stablecoin tied to the U.S. dollar, and that removes some risk and volatility. But it still leaves you with a tortuous process to convert rental property tokens into cold hard cash.♦
Have you invested with Lofty.ai? What have your experiences been?
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