By Amy Rene Babcock, Special to BrotherAmin and Amin News Service
The internet. So much information, so many ways to make money. Everything from GoFundMe, to Kickstarters, and even Facebook pages of people who genuinely want to help individuals that are having financial difficulties, there are so many ways to make a buck on the world wide web. One of the most popular is through Crowdfunding. This is the practice of funding a project or venture by raising small amounts of money from a large number of people. In fact, in 2015, over $34 billion was raised worldwide by crowdfunding. It’s no wonder this method has gained so much traction in recent years.
Recently, a company that claims to offer people a way to make money through a minimal $5 real estate investment has come to the forefront. They are called Landa. Their app is available for free download for iOS and Android users alike via iTunes or the Play Store. Sounds easy and affordable, right?
If you’re like most people, you probably are willing to jump at the chance. And, let’s face it, $5 isn’t all that much money. Still, there is the old saying: If it sounds too good to be true…it probably is. And that’s just what was found by digging deeper into this company.
Landa claims that they are SEC exempt and compliant and that the filing is available to view once you’ve downloaded the app. SEC is the acronym for the Securities and Exchange Commission of the United States. They protect investors, promote fairness in the securities markets, and share information about companies and investment professionals to help investors make informed decisions and invest with confidence.
In reading the reviews from users of the Landa app, there are a multitude of complaints about the lack of SEC paperwork. In an independent search of the SEC database, there are no filings under this company, who claims at the bottom of their app website to be Landa Holdings, LLC. Even if the company were exempt, there would be a record of that within the SEC database. So, I dug deeper.
Eventually, the search lead to an SEC filing under Landa Properties, LLC. On page 4 of this report, it can be clearly seen that the company had no revenue and utilizes outside investments of $4. This is similar to what is stated on the app. However, I found that the individuals who signed the SEC filing were unsearchable. I could find no information on these individuals outside of the SEC paperwork. And although the company filed with the SEC in Delaware, they can also be traced back to the state of Florida. So, the research seems confusing.
Still, with 5,000 downloads of this app to date, I wanted to know more.
Landa boasts that for each $5 share you purchase, you will earn $0.03 in rent each month. The more shares you buy, the more money you make. Sounds easy enough, until you do the math and realize it will take 166 months (or 13 years) to make back that initial $5 investment.
When you look at the “About” section on the app, it states only that for a minimum investment of $5 (as mentioned above) anyone can get into the real estate game. There are no further requirements listed. The reviews, which are largely negative, are from individuals stating that the company actually requires “qualified” investors (those that make $200,000/year). I decided to see how much truth there were to these reviews. So, in an effort to give the company a fair shot, I downloaded the app and attempted to begin my new career in real estate.
Here’s what happened.
I started out by registering with my Google account. After going through an easy intro with an automated system, it asked if I was an accredited investor. I answered that I was unsure, in order to see what qualifies as an accredited investor. It was at this point that the automated assistant gave me the income requirements to qualify. I lied. I wanted to see if they required proof of income. They did not. Below are the screenshots of this “conversation.”
Once I was accepted into the program, I was shown a list of properties in which I might want to invest. The prices ranged from $2-$8 per share with only 10,000 shares available for purchase per property. The return on these vary depending on the price per share. Properties with share prices of $2 per receive 14% return per month. For $8 per share, the returns are roughly 8%. So, now, we will look at the math.
Let’s pretend I am qualified and can afford to buy all shares of a given property at the highest price per share. In other words, I spend $80,000 to invest in one house. If I truly get a return of 8% then that would work out to $10,000 per month in rent I would receive. But the reality is not that the investor would get 8% of their invest returned as rent. What they would really receive is 8% of the total rent received. So, let’s rework the numbers.
If the rent for a given property is $2000 per month, 8% of that would be $160 per month. But again, this is not the reality of what the app gives. When you click on a given property, it will show you that you will receive, for your $8 investment, $0.04 per share in rent. The rent on this particular property is $825 per month. If the investor were truly getting an 8% return, their monthly payment should be $66. However, it clearly states that the investor will only get $0.04 per share. This would mean the investor could never actually receive the 8% return on their share unless they bought all 10,000 shares in a single property. So, for an investment of $80,000 for this one property, the investor should receive $400 per month based on the $0.04 paid per share, per month. However, 8% of the $825 per month rent only comes out to $66 per month. So, which is it? Does an investor make the lower of the two amounts or the greater should they decide to invest in all 10,000 shares of a single property?
I decided to investigate further. Out of the monthly rent charged to the tenants of the property, taxes and insurance, plus HOA and management fees are deducted. This leaves the rent profit at $478 per month. 8% of $478 comes out to $38. But once again you have to remember that paying out $0.04 per share per month means that the investor, should they have invested for all 10,000 shares, would still be entitled to receive $400 per month. The numbers don’t add up.
In the end, I deleted the app. Not only do I not truly qualify based on their criteria, but I am unwilling to invest when the terms are so unclear. And what initially led to me investigating this company was a phone call I received from a colleague. Wishing to remain anonymous, this colleague stated that there were concerns with regard to how Landa might purchase property. Were Landa to purchase several properties for an initial price of, say, $15,000 per property, then afford the individual with an additional 10,000 shares of each property, the company could then pay the standard payment of $0.03 per share in rent per month. Imagining just one of these properties was valued at just over $200,000, it would still take 616 months (or 51 years) to pay off the rest of the value of the property in this manner.
My final thoughts on all of this? Landa is a bad idea for both property investors and sellers. I advise all who are looking to make some quick cash to stay away from this particular crowdfunding company.
EDITORS NOTE: We attempted to contact Landa, to ask questions and see if they would be willing to respond to specific complaints about them on social media. No answer was forthcoming. One common complaint was that they do not respond to emails.
Other screenshots mentioned in the article: