A few days ago, regular Landa users logged into the app and were met with an unwelcome surprise – new fees.
Landa Debuts And Ramps Up
Landa is a fractional real estate investing platform founded in 2019. They spent the first couple of years building the app and getting regulatory approval. It wasn’t until 2022 that they really had a product people could start using.
The app features very low minimum investment thresholds, with the ability to buy shares of a property for only a few dollars. They also have a secondary market for buying and selling shares of older offerings. Those two things are still relatively rare in the increasingly competitive field of fractional investments.
That may have been a large part of what propelled their growth. In a TechCrunch article from August 31, 2022, the founders reported seeing their user base grow by more than 24,000 in 2022. That’s not counting any growth that came in September through December, either.
This growth also shows through in their dividend payouts.
Payouts increased from just under $1,200 in January to over $53,000 in December. That’s an increase of over 44X in just one year.
A Fee Surprise
Historically, Landa offered free trades on their secondary market. This was especially critical in the earlier parts of the platform’s lifecycle when there were relatively few opportunities to invest in new property offerings.
For new users, fee-free trading was all that they had ever known from the platform.
On January 6th, news first broke on Reddit that additional fees were being introduced:
On January 10th, Landa sent an email update to investors announcing the news:
Starting today, we are no longer subsidizing the cost of trading on our platform, and there will be a trading fee assessed on all transactions in the trading section of the app.
-Taken from an email sent to Landa investors
The email goes on to explain that there have been costs associated with trades on the secondary market, but Landa was previously subsidizing them. Going forward, investors will face a 2% charge for buying and for selling shares on their secondary market.
The email notes that Landa is not retaining any portion of these fees. They are simply passing through costs charged to them by the broker-dealer used for their secondary market trades.
User Reception
On public forums, users mostly responded negatively to the news. While no one wants to pay more fees, the company’s handling of this seems to have amplified things.
First, the news effectively leaked out through an updated trading screen included in a beta version of the app.
Three different threads were started about the new trading fees in the Landa subreddit and several days passed before the company provided any official communication about these changes.
Second, the abruptness of the change caught users unprepared. Most users didn’t even know that there were trading costs the platform was subsidizing. To find out about them at the same time they received the news the costs were going to be passed on to them only heightened feelings of surprise and distrust.
Third, many seem to feel that the surprise rollout of new fees is in direct contrast to their promises to investors. As of press time, the business model* page of their website leads off with:
How do we make money?
When it comes to compensation structure we make it simple – No hidden fees.
– Landa’s Business Model Website Page*
The page then proceeds to document exactly two fees – a property management fee and an acquisition fee.
It seems that users have taken this to mean these are the only two fees that will be charged on the platform.
However, there is some nuance that it is important we capture. This page only discusses how Landa makes money. Since the new trading fees are going to their broker-dealers, it doesn’t directly conflict with anything stated on their website.
For many, who the money is going to seemingly doesn’t matter. They still see it as a hidden fee coming to light, in direct conflict with an aspect that attracted them to the platform.
* July 27th update: The page referenced here was available at the time the article was published, but has since been removed from the Landa website.
Conclusion
Whether this results in any tangible change to Landa’s user base remains to be seen. The lack of a secondary market is one of the main cons of most fractional investing platforms. Some of those platforms still allow investors to exit early; however, they may impose steep penalties if the investment has not met certain criteria for their holding period.
In comparison to those alternatives, a 2% trading fee seems like a very reasonable trade-off. Landa investors upset by this may ultimately come to the same conclusion.
As both an investing platform and a company, Landa is still very new. Hopefully they can improve communication around impactful changes in the future.