143: What is an Automated Investment Fund? With Ray Sturm


On this week’s episode of the InvestFourMore Real Estate Podcast, I interview Ray Sturm, who was one of the founders of Realty Shares and is the current CEO and founder of Alphaflow. Alphaflow is a company that brings a brand new investing concept to the market. They invest in hard-money loans that are typically used by house flippers. Alphaflow buys hard-money loans for their investment fund, which is available for you to get involved with. On this episode, we talk about Alphaflow, how it works, how to invest in it, as well as why Ray likes to start companies and what is involved in building a startup.

How did Ray get started in the real estate business?

Ray graduated from business school and jumped right into the world of Wall Street. Ray worked for Bear Sterns, which was one of the firms that went bankrupt during the housing crisis. Ray got involved in private equity but was not happy working for big companies. He left Wall Street and helped start Realty Shares after the Jobs Act was passed. Realty Shares became one of the largest real estate crowdfunding companies and is still doing well today. Ray decided he was not done creating companies, so he left Realty Shares to start Alphaflow.

What is it like creating and running large companies?

I have a lot going on in my world, but I run very small businesses compared to Realty Shares and Alphaflow. On the show, I ask Ray what it is like to create these companies and why he loves to do it. He explains that there is no other feeling like walking through your own company that you created from scratch based on a brand new idea. He also has some words of caution:

  • Starting a company is very hard and very time consuming.
  • It is almost impossible to have a work/life balance.
  • Getting people to work for you when you can’t pay as much as the competitors is tricky.
  • It takes a huge commitment to see the concept through to fruition.

We also talk about the environment in San Francisco and how people feel like you have not succeeded unless you build a billion dollar company.

How does Alpha Flow differ from traditional crowdfunding sites?

Real estate crowdfunding basically works like this:

  • The crowdfunding company finds a project to invest in.
  • The crowdfunding company sets the rates and returns the borrower will get.
  • The crowdfunding company allows many investors to invest in that project with small investments.
  • The investors are paid a return once the project sells and the loan is paid off.
  • The projects can be house flips, commercial projects, short-term loans for rentals, etc.

Ray started his new company based on buying existing loans instead of creating loans. Instead of finding projects to invest into, Alphaflow buys existing hard-money loans that are pooled together in their fund. The investors who put money into Alphaflow are not investing into one project but rather as many as 70 at a time. This reduces the risk that comes with crowdfunding. Alphaflow investors are also able to have their money invested at almost all times without having to wait for and pick new projects.

How does Alphaflow pick the loans they buy?

Ray and I talk a lot about how Alphaflow chooses the loans they buy. They are very picky and only pick the best loans that have a very low chance of default. They use artificial intelligence as well as many other tools to find the best markets, the best investors, and the best projects to invest in. They claim that their default rate on the loan they buy is about 10% of the industry default rate. I thought it was very interesting that one of the hard-money loans that I recently obtained was actually sold to a company like Alphaflow.

Conclusion

Ray and I talk about many very interesting things, including:

  • The current and future housing market.
  • What areas are working well for flips and rentals.
  • Investing with an IRA.
  • Who can invest with Alphaflow and the returns they can expect.

You can contact Alphaflow at Alphaflow.com or invest@Alphaflow.com.