Interested in getting started investing in commercial real estate, but don't have the capital to get started? BuildingBits is making commercial real estate investing accessible to all.
Like it sounds, you invest in a "bit" of a property, along with other investors on the platform. This allows you to start investing with much lower capital than traditional commercial real estate investing. However, you still get to participate in your fraction of the gains, losses, rent, and more.
Does investing with BuildingBits make sense for you? Find out more in our BuildingBits review.
- Real estate crowdfunding platform focused on commercial real estate
- $500 to get stated
- Average fee structure compared to other companies in the space
1% acquisition fee, 1% exit fee, 0.75% annual fee, and 1% of gains
What Is Building Bits?
Building Bits, also spelled BuildingBits, is a real estate crowdfunding platform. They focus on commercial real estate, such as office buildings and multifamily buildings. BuildingBits is located in Portland, OR.
Like other real estate crowdfunding platforms, Building Bits takes advantage of Section 401 of the Jumpstart Our Business Startups Act (JOBS Act), which expands Regulation A. The Act allows non-accredited investors to invest in private companies. Those same companies can also solicit non-accredited investors.
What Do They Offer?
Building Bits allows retail investors and accredited investors alike to invest in commercial real estate for as little as $500. When you buy an investment with Building Bits, your money goes into an escrow account. Once the property you are investing in meets its investment goal, the property title is transferred to a Building Bits holding company (Building Bits Properties I, LLC).
To be clear, you aren’t actually buying real estate, but are instead investing in BITs, which are tied to a property. This is Building Bits’s way of expressing fractional shares or ownership in a property. Building Bits’s SEC filing was for offerings of BITs.
After you have invested in a property with Building Bits, there are a couple of ways to make money from it. The first is through quarterly dividends and the second is property appreciation once the property is sold. Keep in mind that dividends are not guaranteed.
To help you analyze properties, Building Bits has created a proprietary rating system called BB Rating. It displays information for six metrics:
- Cap rate
- Location and local market dynamics
- Tenant quality
- Lease term
- Building class and quality
- Useful life
Currently, there are only four listings on the website. All have a ways to go until they are fully funded. Their BB Ratings are 3.3, 4.0, 4.2, and 4.3.
When looking at a property listing, you’ll see how much of it is funded, the funding goal, location, and the projected cap rate. Cap rate or capitalization rate is the expected return of the property based on the income it generates (net operating income, called NOI) divided by the purchase price.
Clicking a property listing displays a lot more information about that property, including:
- An investment summary
- Building info
- A tenant summary
- Key features
- A map
Once you create an account, you’ll also be able to see a property’s financials, gallery, documents, and investor comments.
Each property listing has an earnings calculator. Using the AT&T Retail Building listing as an example, the calculator displays the IRR by year based on the invested amount. If $500 is invested in this property, its IRR looks like this:
- Year 1: $542
- Year 2: $588
- Year 3: $638
- Year 4: $693
- Year 5: $751
As for timelines on funding and closing on a property, building funding is expected to take one to three months and closing another two to three weeks.
Building Bits is available in all states except Texas and Washington. They are working with regulators in those states to get approval.
How Is BuildingBits Different from an REIT?
An REIT is a public security traded on exchanges in the open market. REITs invest in different sectors of real estate. As an REIT investor, you have no control over what the REIT will invest in. Advantages of REITs are that they pay dividends, are very liquid, and can be easily sold.
Building Bits allows you to choose a specific single property to invest in. Your BITs also pay dividends. However, there is no secondary market for selling BITs. You’ll have to hold your BITs until the property is sold by Building Bits or you find a buyer for your BITs. In other words, BITs are extremely illiquid.
Are There Any Fees?
Yes — there is a 1% acquisition fee and a 1% exit fee. There is also a 0.75% annual assessment fee and Building Bits charges 1% of any gains at the time of exit.
How Do I Open an Account?
You can open an account by following this link. You’ll need $500 to make an initial investment.
Is My Money Safe?
Building Bits uses HTTPS encryption on its website and mentions that it takes reasonable security efforts to protect your data. Once you choose a property to invest in, funds go into an escrow account. If the property doesn’t meet its funding goal, you’ll receive all of your money back.
Is It Worth It?
For anyone who wants to get started with commercial real estate investing, Building Bits provides an easy-to-use platform with lots of educational content on commercial real estate investing. How the platform works and how investment deals are completed is straightforward.
For beginners and experienced investors alike, Building Bits can be a reasonable commercial real estate investment alternative.