Real Estate Crowdfunding

9 Replies

I am new to real estate investing & wanted to see if anyone has any advice about crowdfunding in general as well as particular sites that they have had good results with?  I suspect there are some good ones out there but don’t know how to weed out the good from the bad & don’t know if this is something good to get into versus direct ownership?  I have a full time job so the passive nature of crowdfunding appeals to me. Thanks!

There are a number of crowdfunding platforms that advertise on this site. Search under marketplace. Also, consider being a private lender.

@Katherine M. So I’d imagine you have go site -> sponsor -> deal. You’ll have to vet each step along the way. And you really have to decide what your own investment thesis is. I’m sure you could find deals for shopping centers, apartments, mobile home parks, etc. A sector doesn’t make any particular deal good or bad so you still have to learn (to some degree) about that sector/niche.

You don’t get the same tax benefits as ownership and you also lock your money up. I can sell my property(s) if I had to and it’s 100% at my discretion. It’s not free to sell. And if I need money quickly I’m at the mercy of low offers, but it’s my decision. Once you’re a passive investor in a syndication, you’re passive.

And, not for nothing, but a lot of sites and/or deals necessitate that you be an accredited investor. If you don’t meet the thresholds for that you narrow your options.

@Katherine M. it's just like direct investing in that you should underwrite 100 deals before doing one.  Doing so will give you the insight to spot a good deal and equally important, a good sponsor.

One last thing, if investing 50k in one deal saps your liquidity, you're not ready and should consider keeping more cash on hand first.

@Katherine M. I have been researching crowdfunding as well. @Brian Burke and others shared a lot of information in this thread, https://www.biggerpockets.com/forums/311/topics/52..., regarding crowdfunding and the pros/cons of crowdfunding versus investing directly with a sponsor.

In that thread, be sure to check out the links from @davidthompson as well, they are very helpful. I'm happy to share what I've learned so far. 

Hi @Katherine M.  I invest in real estate crowdfunding myself, and have also talked to hundreds of other investors about which sites they like and don't like, etc. 

I personally would not go to a site just because they advertised. That's like choosing to marry someone, just because they put up a dating profile on a website. And actually, I don't recommend even starting looking at sites for where you are at this stage.. Many people do that, and they end up with a portfolio that's not diversified, because they just choose whatever investments they happen to first run into.

I recommend you take a step back and first look at your entire investment portfolio, and how much you're willing to put into real estate, versus other investment options. Once you figured out your real estate allocation, then you need to have a plan on how much you want to put into debt versus equity, residential versus commercial, etc. Again, if you don't and just pick whatever site you happen to like, the odds of having a balanced portfolio are really against you.

Once you do that, then I would recommend taking a look at the top two or three sites that do whatever you're looking for. At that point, you can evaluate them based on objective criteria (do they have enough volume, have investors been complaining about them?, Do they have higher then usual failure rate, do they have skin in the game? Do they have legal protections for you should they go bankrupt, etc.).

I can help you with those things if you want to ask the questions here, or PM me privately. Your options depend on whether you are an accredited or non-accredited investor as well. Assuming you are nonaccredited, what makes sense will also depend on your unique situation. A good general recommendation is to have a good core plus equity fund. (BlackRock has a fund that's available for some nonaccredited investors). This will allow you to get some tax benefits from depreciation, as well as have a holding that has much lower volatility and higher safety than other strategies. Then a good second fund may be a debt fund, so you have diversity across both (since there are pluses and minuses of owning each). Realtymogul has a diversified debt offering for nonaccredited investors.

Then you may wish to diversify a smaller amount of your portfolio into more speculative, but perhaps higher-yielding strategies such as value-added. There are about 10 or 11 of these to choose from, depending on your situation.

Ian Ippolito

Dear Katherine,

I am in central in NJ and fix and flip and can offer you good returns in a JV. If you are comfortable in investing in a LLC that holds the title to the property in NJ, I can structure a fix and flip proposition for you. Capital needed 25K onwards for partnership or abt $200K for solo deals

Thanks

Jay Chopra

@Katherine M. You are paying for the connivence. The crowdfunding site is just not an option to a good syndicatior who does not want to pay fees to a match making service.

@Lane Kawaoka , there is some truth to what you're saying about some high-quality syndicators not wanting to pay the extra fee of crowdfunding. However it's not actually an "extra" cost for other high quality syndicators as they currently allocate budgets to bring in people through other means such as registered investment advisors, etc. anyway.

I the first person to complain about the quality of some crowdfunding sponsors, and the fact that there are too few with a real estate cycle of experience. However, it's no different with syndicators either (and actually worse in some ways). Any Joe off the street can create a syndication, but at least crowdfunding will put up minimum requirements that weeds out the majority of these syndications from being allowed to list on the site. 

I feel that either way, the investor has to do their due diligence, and expect that there will only be a few really great sponsors.

I would dig into both crowdfunding and syndication companies as both have pro's and con's as mentioned from other posters. The main thing for you is to understand the numbers and what they really mean and to understand the market, to be sure the sponsor is realistic. One of the biggest issues happening now, is that people are chasing deals and as a result they are fluffing their numbers to make it look attractive. I was just on the phone with a prospective investor for my deals and he talked a lot about that. 

The other important factor is to vet the sponsor to understand who they are and if they and their team can perform. 

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