Mortgages & Creative Financing

7 Elements to Look for in a Real Estate Crowdfunding Portal

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What should investors be looking for when investing through real estate crowdfunding platforms?

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There is an increasing number of people trying to step into the real estate crowdfunding game. And now a variety of options have cropped up to serve different needs. So what should investors be looking for to ensure they are making a good choice?

Track Record

This is perhaps the most obvious, but can be overlooked in a rush. Has the platform you’re considering produced investment opportunities that have lived up to their claims in the past? What has been the experience of other investors who have used the platform?

Local Expertise

Are the operators of the investment local experts? Do they really know the local market? Or is the crowdfunding platform simply operators offering deals in distant markets, adding extra layers of fees?


Related: An Investor Analyzes: Could Crowdfunding Disrupt the Hard Money Lending Industry?

Boots on the Ground

All too often, we see investments being promoted by operators who live thousands of miles away from the properties they are offering. You have people in California selling investments in Texas and people in Michigan selling properties in Florida. There is not only the question of how much they really know the market, but how on earth they are going to keep on top of management and do it effectively from so far away. You can invest out of your area — and often should. But that still requires having a strong local team on the ground for regular inspections, rapid maintenance, and great tenant placement.

Clarity on What You are Investing in

Some portals appear to be pooling money without giving specifics on how it will be used until sometime later. No matter how flashy the branding, how many stories they have fed to the press, and how cool this type of tech-driven investment is, you’ve got to know where your money is going to be used and if it is a good fit for you.

Portals That Know & Screen Investment Opportunities

The only sound type of crowdfunding portal is one that screens each investment. That includes background checks on those promoting deals to ensure they have the legal right to market them. The best will evidence these efforts and their own confidence in the offerings by investing in each and every deal themselves. This keeps everyone’s interests aligned.


Related: 4 Crowdfunding Benefits All Real Estate Investors Should Consider

Character of the Executives

The character of the leaders of an organization is critical. Look for executives who are generous and demonstrate being in the community to help other investors, not just take from them. This may be evidenced by charity work, contributing content and sharing knowledge, and looking for ways to add value. A quick Google search should provide some good intel. And if they can’t be found online, that can possibly be a big red flag.

Goal Alignment

Find a site that is most aligned with your investment strategy. If you are looking for a long-term equity-based investment with consistent monthly cash flow, then a platform that strictly offers short-term fix and flip deals may not be a good option for you. The same is true in reverse. If you just want in and out because you need your capital for an expenditure in 6 months, keep that in mind.

Investors: Have you put your money into crowdfunding yet? What do you look for in a crowdfunding platform?

Let me know your thoughts with a comment!

Sterling is an multifamily investor specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling w...
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    Earl Minnis from Santa Barbara, California
    Replied over 4 years ago
    Anybody who invests in any crowdfunding needs to have their head examined. You have no control over anything. You will see these people on American Greed in the future. These are generally run by you tech people who think they have discovered the newest way to slice bread. A great saying for this is “a fool and his money will soon be parted”. These people do not have the experience to invest 10’s or 100’s of millions. These are Ponzi schemes waiting to happen. If you don’t have time to educate yourself on deals than you don’t have time to invest. From where do I speak. Lent 10’s of millions of my own money on real estate, bought and sold over 2,000 houses over 40 plus years. Earl Minnis
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 4 years ago
    That is a very broad generalization Earl. Have you invested in this space formally? I would like to hear more on what led you to that conclusion.
    Chris Falk Investor from Yakima, Washington
    Replied over 4 years ago
    Earl – The suggestion that they are PONZI schemes waiting to happen is a pretty broad generalization and not very fair or at all accurate to date. I invest in some crowd platforms (mostly equity) and at end of day I also communicate with the actual sponsors who bring the deals to the platforms (office, retail, storage unit, multi-family etc) so I know exactly who is developing or purchasing the property, who is managing it, the sponsor’s track record etc. The crowdfunding site just exists to help connect me w/CRE sponsors that I probably wouldn’t cross paths with otherwise (good sponsors aren’t out advertising like Charles Schwab or whoever and legally they more or less can’t “advertise” their deals to investors that aren’t accredited anyway; hence many of these types of investments were only offered via registered broker/dealers before the JOBS Act). In many cases, the actual $ is not even touched by the crowdfunding platform but instead they are getting paid a listing fee or commission in effect by the sponsor. One platform I invest through does set up a legal entity and handles the $ so yes there is always risk they could go out of business, but the LLC that invested in the property still exists and while not ideal to get caught up in a scenario like that, it’s more palatable than some other alternatives. Various of these platforms have also rec’d significant VC funding from companies that are certainly not known to finance Ponzi Schemes. That’s great if investors opt to buy RE directly in their name, whether SFR, multi-family, office bldgs, retail etc, but for some of us, the reputable crowd sites have opened up an opp to diversify and invest with honest, capable, hard working sponsors, in properties that I/we otherwise would not have realistic access to. As with any industry, there will be a few crowdfunding platforms that implode due to competition, poor mngmt, lack of funding or whatever and HOPEFULLY none of them will crash as a result of being some kind of ongoing fraudulent enterprise, but it’s possible and part of the reason investors should spend time doing their research and homework vetting not only the crowdfunding platform but the sponsor who is ultimately responsible for the success of the investment. I have acquaintances with 30+ years of RE experience, like you, and they have invested a portion of their portfolio via crowd sites. Bottom line, to each their own and there is risk in any type of investment at the end of the day.
    Stacy Witfill Investor from Dunnellon, Florida
    Replied over 4 years ago
    I Agree for the most part with earl. I have participated in crowd funding platforms since 2014 with .5 percent of my portfolio. The rest 95.5 percent is buy and hold rental properties. Most of the deals I have analyzed are highly specalative and hinge on a continue expansion of the economy. even the short term single family deals are speculative in the sense that they hinge on a flip sale in 12-18 months or a refiance . I was not investing in real estate in 2000-2008 but one can only wonder how long this hot sellers market can last. I would feel more comfortable with crowdfunding platform if the market appeared more balanced going forward. As far as Ponzi scheme is concerned I wonder how that could work if the principle money is being transferred to the borrower and the platform itself is only acting as the third party ? No capital is held by the third party in most of the platforms. If anything it would be the risk of the company raising the equity / individual borrower( who can be big well known companies that form funds to invest in multiple deals or one large commercial investment to individuals you know nothing about other than a credit score and maybe how many deals they have done) of being a bad apple.
    Chris Falk Investor from Yakima, Washington
    Replied over 4 years ago
    Stacy – see my reply to Earl.
    Chris Falk Investor from Yakima, Washington
    Replied over 4 years ago
    Good post Sterling. I’d also add that it’s wise to try and gauge the financial staying power of the crowdfunding platform (especially if your $ is passing through their hands into the investment, loan etc). It’s not always easy to do, but with a little bit of legwork and reaching out, an investor can typically determine if the portal is getting thin on funding and/or other signs of distress (lack of quality deals on the site, lack of updating the site, comments in misc forums such as on BP about people’s experiences w/XYZ site, lack of press releases or other publicity touting new business, funding etc). Some crowd platforms presumably won’t survive as the industry matures and RE cycles, etc but it seems logical that a quantity of platforms with staying power, funding and capable management will thrive for years to come.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 4 years ago
    Great points Chris. I completely agree. Thank you for the additional insight!
    Earl Minnis from Santa Barbara, California
    Replied over 4 years ago
    Chris, a lot of people knew Bernie Madoff very well. You see where that got them. The crowdfunding sites exist for one reason only, and that is to make the owners money. If you think anything else I don’t know what to say. If the deal goes sideways you will either loose all your money immediately or you will have hundreds of partners you don’t want to have and then attorneys will bleed the deal dry until there is no money left. Again “a fool and his money will soon be parted”. Just a word to the wise. The people you are talking to do not have the knowledge or experience to begin to get involved in this type of investment. These sites have groups of attorneys that write all the agreements with only one purpose and that is to protect their client and no one else. Do you have a group of professional attorneys to watch out for a 5k to 100k investment? I bet not. It would make no economic sense. I could go on and on but I really don’t have the inclination. Take care, Earl Minnis