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Republic Real Estate Review 2020: Is This Platform Right for You?


Jul 16, 2020 by Matthew DiLallo
56

Republic Real Estate

2.8 / 5 stars

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Summary

Republic Real Estate (formerly Compound) provides a sleek mobile experience that allows all investors to buy equity stakes in condos for very low minimums.

2.8 / 5 stars

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Highlights
    • Low default risk as all deals are cash-only and has very low minimums
    • Investment strategy is focused on price appreciation vs. income generation
    • Fee structures that are high and opaque

Bankruptcy Protection 8/ 10

Deal Flow 2/ 10

Deal Transparency 1/ 5

Diversified Fund Options 3/ 5

Due Diligence 4/ 10

Ease of Use 9/ 10

Fees & Commissions 4/ 10

Investment Minimums 5/ 5

Investor Resources 8/ 10

Leadership 1/ 5

Non-accredited Investor Offerings 5/ 5

Platform Financials 1/ 5

Skin in the Game 0/ 5

X Factors 5/ 5

Total 56 / 100

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What is Republic Real Estate?

Republic Real Estate (formerly Compound, which it acquired in June of 2020) is a real estate crowdfunding platform that provides investors with the opportunity to purchase shares in condominiums in major gateway cities like Miami, New York, and San Francisco. The company finds condos and then "slices" the ownership up into 100,000 equity shares. It then offers these shares to investors on its mobile platform. It also secures tenants for the unit on either an annual or short-term basis.

What's unique about Republic Real Estate compared to other equity real estate crowdfunding platforms is that it's targeting the capital appreciation of the unit rather than generating an income stream for investors. In a sense, investors are purchasing a growth stock where the idea is to buy high and sell higher.

That focus on growth over value and capital appreciation versus income provides investors with the opportunity to earn a higher return. In exchange, however, they're taking on more risk since these condo investments could lose money if real estate values decline.

Summary: Is Republic Real Estate a good investment?

Republic Real Estate is for investors seeking capital appreciation from real estate investments, specifically high-quality condo units in top cities. Thus, it targets growth-focused investors instead of those desiring income. While its condos will distribute semiannual cash payments, providing there's enough income after expenses, it aims to buy properties that have a high appreciation potential.

For this focus on growth to pay off, Republic Real Estate needs to get several things right for investors to make money. These include selecting the right market, condo building, and unit, which it needs to purchase at a good price.

However, even if it picks a market that delivers strong price appreciation overall, localized issues in or around the condo building could cause the unit to lose value. On the other hand, if the localized real estate market and units in the building appreciate, then investors could make a lot of money. In other words, these investments live or die by the old real estate mantra "location, location, location."

Republic Real Estate pros and cons

Pros

  • Non-accredited investors can invest in Republic Real Estate's condo offerings.
  • The condo investments have a low minimum of as little as $50.
  • Excellent mobile app.
  • Republic Real Estate provides investors with the ability to build a portfolio of cash-flowing condos.
  • The platform buys condos for 100% cash, which limits risks when debt is also used.

Cons

  • Limited offerings: At the time of this publication, Republic Real Estate had one closed deal and only had three live offerings, though it had several coming soon.
  • Management lacked transparency and wasn't very forthcoming with their due diligence process.
  • Republic Real Estate doesn't take direct equity stakes in condos available on its platform unless it can't raise enough investor capital to cover the property's purchase price within 18 months.
  • Limited track record.

How Republic Real Estate works: How are investments sourced?

Republic Real Estate targets high-quality condominiums in large cities around the world that have high appreciation potential. It seeks to acquire them at a sensible price, which increases the probability that they'll appreciate over the next three to five years. At the time of this review, it had selected properties in Miami, Austin, and Nashville that were open for investment. On top of that, it planned to expand its offerings to San Francisco, New York City, Los Angeles, Tokyo, Paris, and London in the future.

Republic Real Estate rents out the acquired properties to tenants through market-based 12-month leases or via the short-term rentals market. It slices up the ownership into 100,000 equity shares, which it sells to investors. The equity shares are in a separate Crowd IPA (Interests Purchase Agreement) that owns the single condo unit.

Is Republic Real Estate legit? How strong is it?

Republic Real Estate performance

Republic Real Estate is a new startup with a limited operating history. It's in the process of building out its condo offerings, none of which it had opened to investors at the time of this review. Thus, it doesn't have any realized deals to gauge past performance.

Republic Real Estate management

Janine Yorio is the CEO and co-head of Republic Real Estate. She is a 20-year real estate veteran, having worked as the senior vice president of acquisitions & development at Standard Hotels and a managing director at NorthStar Capital. She was also the founder and CEO of NewSeed Advisors. Yorio founded Republic Real Estate to enable more people to own wealth-creating real estate by reducing the initial capital requirement and streamlining the buying process.

Jesse Stein is the other co-head of Republic Real Estate and currently serves as its COO. Before that, he was the founder and CEO of Commencement Capital, which Republic Real Estate acquired in 2018. He was also the co-founder and COO of ETRE Financial and the executive vice president of acquisitions for United Realty Advisors.

Who can invest in Republic Real Estate?

Most of Republic Real Estate's offerings will be open to both accredited and non-accredited investors (provided the latter don't invest more than 10% of their annual income or net worth in any of its offerings).

What is the minimum Republic Real Estate investment?

The typical condo offering on Republic Real Estate's mobile app requires that an investor buy 10 shares. With share prices ranging from $5 to $20 apiece, a minimum investment can be as low as $50. However, the average investment is $2,100.

What are Republic Real Estate's fees?

Republic Real Estate receives 6% of the offering proceeds for each condo deal plus a 2% commission. On top of that, Republic Real Estate acts as the buy-side real estate broker and earns commissions on the purchase, which the seller pays. Republic Real Estate also manages the property and may collect a fee or hire a local vendor.

Finally, while Republic Real Estate doesn't take any share of the profits upon the sale of a condo (unless it retained an equity stake in the property), it may also serve as the eventual selling broker, entitling it to fees paid by investors from the sales proceeds. Management doesn't specify the terms of management or sales fees, though.

Republic Real Estate returns: What should you expect?

Republic Real Estate's condo offerings generate returns for investors via semiannual dividend payments from the income generated by the rental of the unit and capital appreciation upon the sale, with the latter making up the bulk of the return potential. Republic Real Estate estimates the potential dividend payments for each offering based on the projected rental income, less assumed amounts for vacancy and property expenses. At the time of this review, dividend estimates for offerings on its platform ranged from a yield on the initial investment of 1.41% to 2.85%.

Republic Real Estate anticipates holding each unit for three to five years before exiting via a sale. The app provides historical data on prior sales of the offered unit (if any) as well as comparable sales and data on prices in the area for the last one, three, five, and ten years. Over the past five years, for example, condo prices in the markets where Republic Real Estate had offerings lined up ranged from a 3.5% decline in value to a 43% increase.

When (and how) can you sell Republic Real Estate investments?

There currently isn't a secondary market for shares of condos purchased through Republic Real Estate, nor does it offer a redemption program. Instead, investors must continue holding shares until Republic Real Estate sells the property, likely requiring a three-to-five-year commitment.

Going mobile: Is there a Republic Real Estate app?

Republic Real Estate has an excellent mobile platform. Republic Real Estate has an elegantly designed and very easy-to-use app with lots of information on each condo that's available to investors as well as previews of those coming soon.The app currently allows investors to review available offerings and eventually will enable them to purchase shares and manage their portfolio.

Republic Real Estate risks: Is Republic Real Estate safe to invest with?

Republic Real Estate aims to buy condos debt-free, which reduces an investor's risk of a large percentage loss if the property value declines significantly. It will only use leverage via a no-interest acquisition loan provided by Republic Real Estate, which subsequent equity offerings would repay. If it doesn't raise enough capital to repay the loan within 18 months, Republic Real Estate will convert it into equity in the unit.

Meanwhile, investors will hold shares in separate LLCs, known as Crowd IPAs, that Republic Real Estate will form to individually own each condo unit. These LLCs will shield investors from losses on other deals as well as any business issues with Republic Real Estate.

Those risk-mitigating factors aside, an investment in a condo offering by Republic Real Estate is much riskier than many of the opportunities available through other real estate crowdfunding platforms. That's because the main driver of returns will be capital appreciation.

While Republic Real Estate does seek the best values possible to enhance investor returns, it's betting that the markets where it buys condos will enjoy steadily growing real estate values. Because of that, investors who use Republic Real Estate should have a growth bend and be comfortable with the investment thesis of buying high and selling higher.

Disclosure: Matt DiLallo owns shares of the Republic Real Estate Series #Reach.

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