Risks of investing in private real estate

Private apartment investments are speculative. The property may lose value, the loan may go into default, and investors may receive back less than they put in, or nothing at all. Only invest money you can afford to lose.

There is no public market for these interests and the operating agreement restricts transfers. Expect to hold your investment for the full hold period, which may be longer than planned. You generally can’t get your money out early.

Projected returns, rents, occupancy and sale prices are the sponsor’s estimates based on assumptions that may be wrong. DoorRaise doesn’t check or endorse projections. Past results of a sponsor don’t predict future results.

Most deals use a mortgage. Rising interest rates, a lower sale price or refinancing problems can wipe out investors’ equity before the lender is affected. Some loans require a sponsor guarantee or have rates that change.

Rents and occupancy can fall because of local job losses, new competing buildings, rent regulations, insurance and tax increases, natural disasters, environmental problems or major repairs.

Investors don’t manage the property. Results depend on the sponsor’s skill and honesty. Sponsors are paid fees and a share of profits, which can create conflicts of interest. Investors usually can remove a sponsor only for cause.

If the property needs more money, the sponsor may ask investors for more. Investors who don’t contribute may be diluted. Read the operating agreement for what applies to your deal.

You’ll receive a Schedule K-1 each year and may owe tax even in a year without cash distributions. K-1s may arrive after April 15, so you may need to file a tax extension. You may need to file returns in the state where the property is. Ask your own tax adviser.

These offerings aren’t registered with the SEC or any state, and no regulator has reviewed or approved them. You receive less information than for a public investment.

DoorRaise provides administration and software. If DoorRaise stopped operating, the deal’s entity and sponsor would still be responsible to investors, but reporting and payments could be delayed.