Tips for Real Estate Crowdfunding

Apr 23, 2016
2 min read

Real estate crowdfunding might be a newer concept, but it’s growing like wild fire. As Crowdfunding is evolving it will be exciting to see what changes come about in the real estate crowdfunding industry over the next years. One thing is certain, investor confidence in real estate is back and investors are looking for new and creative ways to participate.

Accordingly, it is now more important than ever for investors to understand exactly what they are purchasing when participating in a crowdfunded real estate investment. Right now, there aren’t many places online that you can go to get your real estate crowdfunding questions answered. Therefore, we’ve created a list of tips for anyone interested in real estate crowdfunding and some of the major questions to ask when evaluating an investment opportunity:

1. Vet the platform - Does the platform have a track record of successfully finding great deals? What is the background of the platform operators? Does the platform look like its operators know about real estate underwriting? How much information are you provided about their process?

2. Evaluate Risk/Return - Does the return offset the risk? Remember, high return equals high risk. Consider your investment profile. Investors willing to accept a lesser return in exchange for less risk might want to consider a debt offering. Conversely, an equity development project might work for investors looking for a greater return and willing to accept greater risk.

3. Perform due diligence on the project. - How many similar projects have they done? What is the worth of the properties that they currently have under management? Do they have experience with this type of project? How well are they capitalized? How long have they been in business? How much did they co-invest?

4. Research the market - While the platform will conduct its own due diligence, conducting your own research will help you understand whether the offering is right for you. Compare the property to others in the neighborhood using online listings. Does the deal make sense? Making 25 percent in nine months might sound great, but how realistic is it?

5. Read the Fine Print carefully - Closely review the deal's financials to determine if the assumptions made realistic. Every project is unique, and it’s important to understand what will happen in the event that something goes wrong.

While there are many factors to consider, real estate crowdfunding makes many new investment opportunities available. Investors can now invest in a wide variety of real estate deals all over the world. We at COL are excited to be part of the democratization of real estate investing, and we look forward to seeing how the industry continues to evolve in the future!