Hi, every crowdfunding sponsor/borrower promises the moon. So, I'd like to hear other investors give their best tools/sites for crowdfunding property due diligence.
Note: I'm looking for sites/tools that you use to do diligence on the investments themselves, not on the marketplaces that they are offered on, or the sponsors.
(I've seen several posts on Bigger Pockets where people posted generic and unhelpful information on marketplaces and sponsors like: "feel comfortable with the sponsor by seeing their history and reading their site information". To me, this is **far** too trusting and not very helpful. Anyway, as I said, I'm not looking for marketplace or sponsor due diligence: I'm looking for information on how you do specific investment due diligence.)
- 1) Timing. Before anything, I need to understand where that particular investment type (apartments, residential, industrial, etc.) is in the current real estate cycle. Dr. Mueller, who pioneered much of the research on real estate cycles is who I use for commercial properties and is excellent. Here's his latestanalysis of the top 50 markets, split out by investment type.
- But, I'm still looking for a good nationwide analysis of residential investments. Does anyone have any suggestions?
- 2) Neighborhood basics:Zillow, Trulia, and Google Maps
- 3) suggested to me: rentometer.com, city-data.com, and bestplaces.net
Also, does anyone use the Bigger Pockets Pro tool for residential properties and does it work for them?
Hi Ian, I would classify what you're looking for as "desktop underwriting". Desktop underwriting can serve a useful purpose when you're looking for a 30,000 ft view of a particular investment, but obviously it cannot be a substitute for actually boots on the ground site visits. However, I will say that the tools available on the internet make the process so much easier. I can't tell you how many flights I can avoid just by doing a simple search on Google. It helps to have traveled the country a great deal as I have to have a basic feel for different submarkets, but Google street view can tell me a lot.
I won't plug my site because I don't think BP will let me, but I will tell you that there are a lot of tools, many that you have already mentioned, that can supplement or speed up the processing time for viewing the massive amount of investment opportunities that are out there. My site just takes basic bullet points of a deal and classifies them in grades. It is not a complete substitute by any means, but it highlights the particular areas and deals you may want to take a closer look at.
Sponsorship underwriting is a whole other ballgame. There is no objective measure of sponsorship quality, but you would be surprised how many sponsors could be flagged by a simple Google search. Resumes tend to be embellished, but if I see significant skin in the game and other connections to people or organizations that I know (LinkedIn helps a great deal) I can gain some confidence in their abilities.
@Jim Groves, yes I did see your site and had signed up previously. :) And yes, I'm looking for desktop underwriting data/tool recommendations. There are not too many crowdfunding investors who are going to jump on a plane for every $1-$5k investment. And even those that are willing to fly, are not going to jump on a plane first thing on seeing an investment. Even if money were no object, it would take too long to do.
Yes, Google is good. What are the other sites/tools that you mentioned you use?
By the way, I do like the concept behind your site. The execution doesn't work for me, but maybe might work for others. For me personally, seeing that the investments all get D-F ratings compared with corporate bonds, doesn't really help me weed out or choose. But perhaps it will be useful for other investors. I did sign up so that I could keep abreast of changes. Best of luck with the site.
Thanks for the feedback. I recognize that the ratings are all bound in the same range, but that's because they're all pretty similar in terms of equity risk, property types, etc. The key is really the implied return vs the projected cash on cash, as you'll start to see some deals that are clearly better than others. For example, there are deals rated D that are better than DDD because the relative return is better.
Right now I'm finding that the debt deals pay out a better risk adjusted return. That seems to be consistent with what I've seen in the market where debt spreads have been flat for almost a year (spiking up right now though) but cap rates continue to compress. That tells me that the equity market is getting a little overheated.
On another subject, you and I exchanged posts about your study regarding the NCREIF index and how it's not as volatile as REITs. I argued that the NCREIF uses info on core properties (I believed, but didn't confirm), so it is expected to be less volatile. I wanted to let you know I came across this explanation on the NCREIF website as part of my research on historical returns:
Is the NFI-DP a Core, Value-Added or Opportunistic Index?
Currently the NFI-DP consists of 8 funds that most closely represent core risk investment strategies; they generally target capital preservation, and stable operating income returns using moderate amounts of leverage. Although the types of investments will vary from fund to fund, they predominantly invest in private equity real estate, either directly or through fund of fund structures, along with public listed securities and cash to accommodate the daily liquidity provisions. As the universe of daily priced funds expands, NCREIF will monitor the product offerings and determine how to position products with non-core strategies.
How do the funds included in the NFI-DP differ from publicly listed REITS?
Investors in listed REITs buy and sell securities on a public exchange, the price of which is often influenced by supply and demand as well as other non-real estate market forces. Investors in the funds included in the NFI-DP buy and sell directly with the sponsor (manager) of the fund, the price of which is based solely on the daily valuation of the underlying investments in the fund.
Jim, I'm sure every investor has different needs. From my point of view, D versus DDD is not very much of a distinction, because it's too narrow. I'm only looking at real estate investments for the real estate portion of my portfolio, so a comparison to non-real estate assets isn't helpful.
Have you ever looked at Fund Rise's rating system? Or perhaps Lendingclub? They grade from a to F, with subgrades in between. That's the kind of wider range that's more helpful (at least from my point of view).
Regarding the volatility of direct real estate versus Reits: yes, you are correct that the NCREIF index is an index of core real estate, and not general real estate. So you can't compare the two directly because they are not comparing apples to apples. However, simply replace a general REIT index with an index of REITs that only invest in core real estate (such as the MSCI Core Real Estate Index). And as we discussed, measure the results on a yearly basis only on both, to eliminate the discrepancy between valuations (with REITs valued daily, and the core real estate funds only valued quarterly). You'll see that the REIT is severely more volatile, and corresponds much more closely to the stock market then the direct core real estate index. I have a graph of these on an article on my site, but since Bigger Pockets does not allow self-promotion I cannot link to it.
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