Ark7 2024 Comprehensive
Review and Ranking

What is Ark7?

 

To avoid the financial conflicts-of-interests that are rampant on virtually every other review site, I DON'T accept any money from any outside sponsor or platform for ANYTHING (including but not limited to affiliate ads, advertising etc.). See code of ethics  for more.

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Ark7 is a newcomer to the Review that specializes in residential real-estate equity investments (i.e. rental homes). It has an exceptionally low minimum at $100, impressive investment volume and an innovative marketplace where an investor can trade/sell their investments. 

They accept all US investors above the age of 18 into their nonaccredited Ark7 offerings (which are direct deals). They also have their Ark7+ fund for accredited investors. 

 

What's the latest feedback on Ark7?

 

Ark7 is a new-comer to the Real Estate Crowdfunding Review.

So it hasn't yet accumulated a large enough number of investors to provide meaningful survey results (which are used to gauge investor satisfaction and produce rating/ratings).

Now that it's been reviewed, that will presumably change in the future. And Ark7 investors will be surveyed the next time the site surveys are updated.

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How does Ark7 work?

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First, Ark7 locates, vets and purchases the rental properties. These are located across the US (currently in Tampa, Austin, Dallas, Seattle, Chandler, Atlanta, DC and Berkeley). Ark 7 then charges a "one time sourcing fee of 3% of the property market cap".
 

Then they list the deal on their website for investors.

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Once investors fill a deal, Ark7 provides the property management (including investor accounting and tax forms).   This is charged monthly based on 8 to 15% of the rental income from the property.

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Each month, Ark7 says they calculate a distribution based on the rental income (after holding back expenses).  It produces an operating statement and then sends the money to the investor.

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After an initial holding period (which is specified on the deal), the investor can then do something fairly unique:sell their shares on the Trading Market.

Arc 7 claims  "The time from order placement to fulfillment truly depends on market demand and supply. We have many properties matched in 1 day if not sooner, and fulfilled in 1-3 business days. Investors are armed with data-driven trading insights to help make decisions. For example, Dallas-S8 Trading Insight will tell you the current active bid and sell orders, and respective prices."

 

If accurate, then this is a very impressive innovation.
 

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What are Ark7 Pros and Cons?

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I personally love single-family rentals. Why?
 

In the groundbreaking study, "The Rate of Return of Everything", residential real estate's long-term performance (1870 - modern era) walloped virtually every other asset class.

It absolutely destroyed bonds and treasuries. And to the surprise of many, it did about as well as the stock market did. 

And when investing, the after-tax return is what matters the most. But, the study didn't look at taxes (and how real estate often enjoys many tax breaks that stocks don't). So after factoring that in, real estate almost certainly beat the stock market, too.

This is why the core portion of my core/satellite portfolio is made up of single-family rentals with no debt. And it's this core that allows me to take more risk  with the satellite portion and feel comfortable with that. 
 

Many of the Ark7 deals have no debt, which is very unusual and hard to obtain in this asset class. And, as a conservative investor, this is something I personally love to see. (On the other hand, a more aggressive investor might find the no debt offerings too "boring​​​", and prefer only the deals with debt).
 

Minimum investment requirements are exceptionally low at just $100. This is a nice change versus the usual $25k - $50k minimums.

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Their individual deals (called Ark7) are conveniently open to all investors (meaning nonaccredited too) who are in the U.S. and 18+ years old. Their fund (called Ark7+)  is for accredited investors only.

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At tax time, they produce a 1099. This can be nice because it's the simplest types of tax return (and often ideal for investors with smaller real estate portfolios).
 

Also, Ark7 has an impressively large number of open deals (currently 11).And, the offerings span a surprisingly large number of cities across the US (for a newer platform to the Review). This makes them large enough to be an immediate contender for an investor's potential portfolio.

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Additionally Ark7 has a unique trading platform (that currently shows 23). This gives the investor the potential to exit when they want to. 

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On the downside, the Arc 7 deals are structured as a series LLC. Per the attorneys Farrell and Fitz,

"Series LLCs are relatively novel and there just hasn’t been enough case law generated to test certain features and provide reliable guidance. Series LLCs aren’t recognized in every state, so there’s a risk that a series wouldn’t be recognized in a particular state and that creditors of one series may be allowed to reach the assets of another series in that state.  

Series LLCs are not addressed by Federal and most states’ tax laws, so there’s some uncertainty surrounding the tax treatment of series LLCs.  

Finally, series LLCs are relatively untested in the context of bankruptcy, and it’s unclear if a series may file for bankruptcy as to its assets and liabilities separate from those of other series in the group or the series LLC itself."

I wish Ark7 would use normal LLCs and for me this is a personal dealbreaker. Another investor, coming from a different place, will disagree with me and be fine with this.
 

Another thing I'm not a fan of, is how the co-investment by principals does not seem to be disclosed on the deals. Ark7 claims that "typically" the principals will invest 1 to 10%.  But there appears to be no way to know how much it is on the deal you're considering. 

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I hope that Arc 7 chooses to change this going forward.  In the meantime, the lack of disclosure is a red flag (for me). Again a different investor (and with a different risk tolerance and perspective) will disagree with me and be fine with this.

 

Another potential risk factor is that Ark7 is a relatively new company. And typically I like to invest in firms that have at least a full real estate cycle experience with little to no investor money lost (so they aren't learning expensive lessons on my dime). However Ark7 does not appear to currently disclose their complete track record.

Additionally, if Ark7 were somehow not around then presumably there would be no way to trade and/or exit. 
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 Ark7 Quick Pro & Con Summary

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• Advantages: Very convenient way for virtually all investors to access the desirable asset class of single-family rentals for only $100,  convenient 1099 tax forms,  Large number of offerings, offers rare ability to get into the asset class without any debt, potential ability to sell/trade.
   

• Disadvantages: Uses series-LLCs (rather than separate LLCs), does not seem to disclose co-investment by principals on each deal, does not currently disclose their complete track record, new company that doesn't have full real estate cycle experience, apparent risk of not being able to exit or trade if the firm should shut down.
   

• Accolades: none

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Is Investing In Ark7 Legal?

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As mentioned above, their individual deals (called Ark7) are conveniently open to all investors (meaning nonaccredited too) who are in the U.S. and 18+ years old. Their fund (called Ark7+)  is for accredited investors only.

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What does a Ark7 deal look like?

Here is my step-by-step due-diligence on a random Ark7  investment. So it may or may not be a typical investment.

I'm not an attorney, accountant nor your financial advisor. So always consult your own financial professionals before making any financial decisions. This is just my personal opinion and could contain errors, so use at your own risk.

Every investor has a different risk tolerance, comes from a different financial situation and has different financial goals. So an investment that looks great to one investor will look terrible to another (and vice versa). And by the same token, there is also many ways to due-diligence (and no one "right" or "wrong" way"). This is my method, and others will do it differently. Also I'm a very conservative investor, so something that's I feel is too risky could be a perfect fit for someone else who is coming from a different place.

This investment is located in Southern California and is called:SoCal-S18.
 

Cycle:
 

Normally the first thing I do, is come up with an informed, personal opinion on where we are in the cycle, and figure-out what kind of deals I want to add to my portfolio. 

For the sake of this deep dive, let's assume that I did both of these, and this deal passed these tests.

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Asset class:

This is residential equity (i.e. single-family home rentals).

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As mentioned above, the study, "The Rate of Return of Everything", crunched the data on the return of every major asset class from 1870 to the modern era. And single-family homes walloped bonds and treasuries and surprised many as performing about the same as the stock market.
 

And, looking beyond the study,  the bottom line for any investment is the after-tax return. And the tax benefits of real estate are often many times better than stocks. So arguably this asset class’s after-tax performance almost certainly beat the stock market, too.
 

So I feel this asset class is a vital one to have in my portfolio.
 

Sponsor

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A recession can occur at any time and the repercussions can be severe to investments. So I don't want a newbie sponsor learning expensive lessons with my money. And in a mainstream asset class like this, I want them to have gone through a major downturn before and done well. So, I require full real estate cycle experience in the exact strategy (single family rentals in this case), with little to no investor money lost.

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To evaluate this, I look at the full sponsor track record which shows both their realized and unrealized deals. Sometimes a sponsor will have a great-looking realized track record, and have a bunch of dogs hiding in the unrealized (because they are unable to sell). So I require the sponsor to show me everything.

In this case Ark7 does not show a track record. They say they were founded in 2019 by a Google Engineer.  So, for me this is not enough experience and a dealbreaker. But, a different investor (and coming from a different place), will be fine with less experience than I am. 

 

Skin in the game:

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As a conservative investor I typically want to see 5 - 10% co-investment by the sponsor to offset the fact that the promote structure incentivizes a sponsor to push the risk envelope. It's also important that the co-investment be in cash and on same terms as the investor. If not, the deterrent effect is not as strong.

In this case, Ark7 charges a property management fee (8-15%) instead of a promote.  So I would be willing to lower my usual 5% minimum down to 3%.  

Unfortunately, they do not seem to disclose the amount of skin in the game on their deals.  They claim it’s “typically” from 1 to 10%, but that doesn’t help me with analyzing this particular deal. 
 

So what I would like to see them become more transparent and post this information.  But currently the lack of transparency is a dealbreaker for me.
 

On the other hand, a different investor may not care about this. And a more aggressive investor generally wants to incentivize the sponsor to push projected returns as high as possible. And when they do, they will prefer the alignment that comes from lower levels of skin in the game than I can personally tolerate (and so will have a different opinion on this).

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Debt

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To minimize the chances of default and losing 100% of the investment I like to see conservative use of debt at 65% LTV or less. I also want to see them eliminate refinance risk by locking in long-term debt at 7 to 10 years. And finally I want to see them eliminate interest rate risk, by locking in a low fixed interest rate.

In this case there is no debt at all, which is something I love to see. On the other hand a more aggressive investor will prefer to see the higher projected returns that come from taking on debt.

 

Bottom line
 

Had the investment all my initial checks, I would have dived in further to check out the sponsor, the property itself, the projections, etc. To learn how I do those things, check out The Comprehensive Guide to Hard Money Loan Investing and   The Conservative Investors Guide to Due Diligence.

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Where can I discuss other Ark7 deals?

You can do this with thousands of other investors in the private investor club. While the club is free, membership is restricted to investors who have no business connections to sponsors or platforms. Also, all members must agree to keep all club info confidential by signing a nondisclosure agreement. Click here to join or get more info.

Who are Ark7 Competitors?

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Here are the reviews and rankings for other similar sites.

 

• CrowdStreet

• 1031 Crowdfunding

• Real Crowd

• ArborCrowd

• Carlton Crowdfund

• Share States

• Roofstock

• Roofstock One

• SBRE Funds

• First Real Fund

• Realty Shares

• Equity Multiple

• Realty Mogul

• C.K. Mack

• Lending Home

• Holdfolio

• CityVest

• Prodigy Network

• Instalend

• Cadre

• All other sites (ranked and reviewed)
   

How do I invest in equity and/or debt?

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Looking to learn more about real-estate investing?

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• What are the 4 investment strategies? (Part 1: core and core+)

  • What are the 4 investment strategies? (Part 2: value-added and opportunistic)

• Should I invest in residential or commercial real estate? (Part 1: residential)

  • Should I invest in residential or commercial real estate? (Part 2: commerical)

• What is the difference between equity and debt?

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Related:

How to pick? Check out our step-by-step guide.
 

• The quick guide to picking conservative real-estate deals
   

• Top 25+ accredited investor sites (ranked and reviewed)