Crowdfunding is one of the biggest investment trends today, especially in the peer-to-peer (P2P) real estate lending market. It looks like new real estate crowdfunding platforms are emerging every day, choosing one.
What do you need to ask yourself before you start?
It all comes down to personal preference. The platforms available today – for the most part – are quite different. So before you decide, you may want to ask yourself a few questions about which service is right for you:
Are you a recognized investor? Many – though not all – crowdfunding platforms have this as a requirement to participate in their deals. If you are not recognized, your best bet would be a platform that offers private REIT, such as Streetwise (read the full review here).
What is your desired time horizon? The terms of these immovable property contracts range from a few months to a few years.
What type of property are you interested in? Are you desperately looking for commercial real estate offers or residential contracts and rents? Some platforms offer both.
How much money do you want to invest? Minimum investment is $ 0,000 to 000 50,000.
Debt or equity? Like the Resident vs. Commercial question, some platforms offer one or both. Debt and equity investments have different sets of risk, time horizon, and tax benefits.
The best real crowdfunding funding platform
One of the drawbacks of real estate’s best crowdfunding platforms in the investment space is how they stand out against each other. We’ve thoroughly reviewed and evaluated each of the crowdfunding services listed below.
Before you start
Necessary work first. Before you start looking at specific investment deals, you need to do some diligent work yourself about a crowdfunding company.
You can easily analyze displayed data. But there is an even greater need for diligence.
- What is the investment in the company’s strength and strategy? Do you feel comfortable with its selected markets and perspectives?
- How long have you been in business?
- Does the platform allow you to download and study actual documents such as title insurance and inspection reports?
- How transparent is the company? Does it provide an account of past transactions so that you can see if it has acted efficiently for a good reason?
- How many defaults have there been, and is it transparent?
- What fees does it charge investors?
- How many deals are financed by the company? Why is it proactive on every deal before posting on a crowdfunding platform? What is pre-testing? How does this enable sponsors to post deals on the platform?
- Is the deal already funded by a crowdfunding company? Does the transaction have its own amount? Does his client base include institutional investors?
- Do founders and staff members have adequate experience in the real estate industry?
- There are many real estate crowdfunding startups since 2012. There will be few companies that don’t make it. If the company goes bankrupt, what will you do with the deals you are involved in? Is your investment safe?
The answers to these questions will help you identify the handful of crowdfunding platforms on which you will consider deals and compete through offers on more than 100 existing real estate crowdfunding sites. Will end the great work of
Once you’ve selected the platform on your “shortlist,” you’re ready to explore the opportunities available. At every opportunity to provide all the information, you need to be diligent for a good reason.
Before choosing a crude funding service, you need to know 5 metrics
However, when comparing deals, you want to make sure that you are comparing apples to apples. Equity deals are very different from loan deals. Multi-family deals are different from single-family deals. Trade deals are different from residents’. Mezzanine-level debt is different from senior-level debt. And so on.
To help you understand what you need to look for, we’ve compiled a list of what to look for when screening a five-metric real estate crowdfunding agreement. Remember that it is not necessary to list everything you want to consider when comparing opportunities. But it must guide you in the right direction.
# 1: Local Market Settlements and Trends
In real estate investing, location is key. Each occasion should include a market report that provides an unbiased look at the location of the property. Take a closer look at this statistic for location details.
I’ve definitely learned the importance of doing it myself. A row of dilapidated, boarded-up townhouses sells for only 000 8,000, worth a block of $ 250,000 each. The importance of understanding the local market cannot be underestimated.
The market report provided on the crowdfunding platform would like to provide details:
- Comparison of local rental market and rent
- Population and its size, including whether it grows or shrinks
- An approach to job growth and job diversification in the region
- Local property tax rates
- Utility costs
- Property values
- School district classification
- Crime statistics
- Expected number of units being built in the local pipeline
- And more.
Of course, you can – and can – verify that Google’s Quick Search Market Report is accurate.
By its very nature, real estate is a long-term investment with high transaction costs. You cannot move a property to a better location. That is why these factors need to be thoroughly investigated and evaluated before investing.
# 2: Investment period or holding period
The holding periods should be specifically presented for each agreement. The holding period is the time that elapses during your investment and when you have paid the stated income in addition to your investment.
The standard holding time for crowdfunding platform deals is four to seven years. This means that your investment funds will be tied up for the time being. After the sale or liquidation of the real estate sponsor, you will receive interest and/or equity sharing in addition to the initial investment.
You will find the language in most transaction documents: “The investment estimates described here are only a projection, and there is no guarantee as to when and where the investment can be stopped. Is.”
The point is, you must understand that you are investing in an immovable asset, and you should only invest in the amount that you do not need in the short term. Unlike stock investing, real estate mobility contracts do not have a secondary market for buying/selling/trading their interests.
# 3: Expected Pro Pharma and Net Cash Flow
As an equity investor in crowdfunding deals, you can expect dividends. The documents should tell you how much and when to expect payment.
Generally, your payment will be positive cash flow. Cash flow will result from rental income, money from financing, or income from the sale of a property. The real estate business plan shows the projected schedule of income and expenses in a projected format.
The bottom line is net cash flow. This is the difference between income and expenses over a certain period of time. You will be able to compare deals by reviewing the estimated pro pharma.
These are predictions, so you need to consider that expectations cannot be met and that more unexpected revenue is given to investors, such as unexpected spending cuts.
# 4: Internal Rate of Return and Cash on Cash Return Targets
The internal rate of return (IRR) is one of the most common measures used in real estate crowdfunding and is the easiest way to compare a deal. The IRR is the annual rate of return on investment and usually appears in the range of one percent (e.g., 13% –15%).
Here it is calculated. We say you invest ڈالر 50,000 each year with an expected IRR of ٪ 15 and your holding period is three years:
Year 1 50,000 x 115 ٪ = $ 57,500
Year 2 $ 57,500 x 115 ٪ = $ 66,125
Year 3 $ 66,125 x 115 ٪ = $ 76,044
IRR is a total number. More importantly, the predicted return is usually expressed as a percentage of the annual “cash.” The goal is a net return on investment, fees, and expenses. Of all the things I’ve seen on real estate crowdfunding sites, this number is usually around 8%. The higher the expected IRR or cash, the greater the risk.
One site you find on most sites is something like this: “An investment is hazardous with real estate fluctuating values, lack of liquidity, environmental concerns, legal and regulatory issues. Regulations and other risks. ”
# 5: Equity more than one
When you compare one deal to another, using another metric is more than equity (EM). Equity is the ratio of your return on more than one paid-up capital.
The calculation is:
- Capital = equity more than one in aggregate divided returns / payments
- So if you invest 000 50,000 in a contract and make a net profit of 000 20,000, your equity is more than 1.4x, which is calculated:
- 50,000 50,000 + 20,000 / $ 50,000 = 1.4x
Like IRR, equity is more than one, the expected return on your initial investment is higher, and the potential risk is higher.
Other things to consider
There are other criteria for considering and comparing agreements, including:
Even if a capital call is needed, investors are asked to make the most of the holding period for unforeseen expenses or needs.
- What is the expected discharge cap rate?
- What is the administration and management fee?
- Terms of loan financing.
Real Estate Crowdfunding requires more efficient than investing in consumer debt (where every investment comes with a risk rating). There is no standard risk rating. You may only need one hour or more to review the contract documents.