Off the Clock: David Nusz, M.D.

David-Nusz

In his free time, Atlanta-based anesthesiologist David Nusz has long enjoyed managing his investments, from retirement funds to stocks, bonds, and precious metals.

When he became interested in diversifying his portfolio through real estate, however, investment opportunities were often either too labor-intensive – buy a house, rehab it, and flip or rent it – or too capital-intensive to fund on his own.

Nusz began researching peer-to-peer lending. He came across a site called Prosper, which assists borrowers in ways that conventional lending sources can’t or won’t. Aggregate lenders, like Nusz, make monthly payments through the site, which disburses the funds to borrowers.

“I started doing that five years ago, and I have been enjoying a 9 percent return, and you’re feeling good about helping someone out,” he said. “You’re not a big bank, so you can feel good about that too.”

From peer-to-peer lending, Nusz turned his eye toward real estate crowd-funding, a concept based on similar mechanisms, but with a stronger base of collateral. He did some homework as the crowd-funded real estate market bloomed; today he has accounts with about 25 sites, some for research purposes, and some for investment.

Real estate crowd-funding is similar to the peer-to-peer lending model, in that a group of investors lend homeowners money to repair or flip their houses at 10 to 15 percent interest. Investors (backers) in the loan draw a monthly return, recouping their investment plus the interest. Other investments are structured as equity loans, in which crowd-funders actually purchase a stake in a building project: they either own a loan that’s collateralized by the building or a piece of the property itself. The pool of funds helps office buildings reach capacity for leasing thresholds and can give a project the infusion of cash necessary to break ground or wrap. The risk is more significant in some cases, but so is the return; in either circumstance, Nusz said, “you have to have a lot of patience.”

“That’s another big decision that one has to weigh,” he said. “A lot of these [loans] are five years, and there’s really no way to cash out.

“The benefit that I find with doing these real estate loans is that there’s the equity or the collateral of the home,” Nusz said. “Say a person falls on hard times and they cannot pay that loan back. Then they have the house as collateral; the money you’ve lost isn’t going to a collection agency, it’s being repaid directly to you.”

Investors who are more risk-averse but better capitalized can invest in straightforward building project loans, but the money required is significant.

“You have to be an accredited investor,” Nusz said. “You have to have a million-dollar net worth or a verified income of $200,000 for the past two years. Then, typically to invest in a lot of these projects, at minimum, it’s $5,000. A lot of them, it’s at least $25,000 a unit if you’re going to be an equity partner [in an apartment or office building].”

Some websites have half-million-dollar investment minimums; other crowd-funding sites focus on smaller projects. At Groundfloor.com, as little as $10 can help contribute to individual rehabilitations. Those kinds of projects interest Nusz as much as the larger-scale build-outs. Often he’ll invest in a community he’s visited or in which he’s lived because the pride of ownership of helping bring it along appeals to him.

“A dilapidated building in New Jersey that a bank doesn’t want to deal with, you’re turning that into a nice house,” Nusz said. “I’ve invested in some of these house flips in Atlanta, and I’m making my city better. It feels good to know that you’re investing alongside with someone else who’s owning the property versus a real estate investment trust or the stock market.”

“[In those arrangements], you’re just paying your money to someone else who will manage your funds, and you don’t really know where the money is going,” he said. “This is your own part of the building, and there’s no real middle man to take a piece of it.”

The crowd-funding market is still “extremely new,” Nusz said; younger than five years as compared with the 134-year-old Dow Jones, and its track record is still being established. He describes it as “a new horizon in investing,” yielding returns of 8 to 12 percent, with equity deals offering something more than 15 percent. Nusz said his activity is limited to his current liquidity; bucking up for a project usually means parting with money for six to 12 months, or sometimes for far longer. Those calculations affect his likelihood of investment.

“I’ve seen a lot of good deals come and go because I don’t have the money to invest,” Nusz said. “I go for the longer-term equity ones, and that’s usually a five-year time horizon. Am I able to part with $25,000 for five years, or just invest this in Microsoft and sell it in six months to get to the money?”

As crowd-funded real estate gains greater notoriety, Nusz believes the market will also make strides toward mainstream appeal. In the meantime, it will remain an investment opportunity in which the broader lending market is still weighing its own interest.

“Not a lot of people are aware of it, or people that do know about it, I don’t know if they trust it yet,” he said. “I think there’s a lot of scrutiny and a lot of regulations. A lot of these crowd-funding websites have been getting a lot of venture capital to build the site, and I think there’s a lot of hope from these venture capitalists.”

“I’ve been fortunate and happy with investing [in crowd-funding real estate],” Nusz said. “I enjoy learning about it. It gets me seeing how businesses run and how other things are done outside of the medical field. There’s a plethora of choices out there, and there’s all different amounts of risk one can take.”