REAL ESTATE CROWDFUNDING - BEST PRACTICES

Mar 14, 2016
2 min read

As with any other investment, it’s important to practice due diligence when investing in real estate crowdfunding. This ensures that investors are connecting with the right platform and investing in deals that are an appropriate fit for their goals and risk tolerance. Here are some tips investors should keep in mind to ensure that their real estate crowdfunding experience goes smoothly:

Choose the right real estate crowdfunding platform – There are dozens of real estate crowdfunding platforms to choose from and they vary in their investment approach. The first step for investors is carefully researching prospective tech-enabled crowdfunding platforms to identify the ones that are most likely to fit their needs.
Carefully consider the fundamentals of each investment yourself – Contrary to what some may assume, choosing to invest in real estate using one of these qualified platforms does not mean that they are investment advisors. While many platforms do vet deals beforehand, not all of them do. While a particular platform may appear to the best to begin investing in real estate, it’s still recommended that investors discuss the details with a financial advisor or fiduciary first.
Be sure to consider the time to liquidity– Real estate has very different liquidity schedules as well as unique return profiles for each individual investment. With debt investments, for instance, you may be looking at hold time ranging from six months to two years. With equity investments, the hold period can extend up to 10 years. Understanding how long you stand to be locked into a deal from the outset is a must when making investment decisions.
Don’t forget about risk – Although real estate investing itself can help to diversify and strengthen a portfolio, there are many types of investments within the class to consider in order to diversify the risk. As we mentioned earlier, equity investments tend to be riskier than debt investments but there’s a trade-off when it comes to the kind of returns investors enjoy. Ultimately, investors need to weigh these two factors against one another to determine which option is more suitable.