By Dan Miller, Co-Founder, Fundrise, PUBLISHED BY SALVADOR BRIGGMAN
Real estate can be an extremely lucrative investment. But, the majority of these passive investments are limited to institutional investors or investors who have the capital, energy, and time to acquire and manage themselves.
As the CrowdCrux audience knows, the recent advent of real estate crowdfunding, which gives everyone the opportunity to invest in real estate, has the potential to change this.
In the four years since my brother and I started Fundrise, we’ve heard a lot of questions from investors on how the industry works and what they need to know before they start investing.
We’ve created a list of tips for anyone interested in real estate crowdfunding, along with some of the major questions to ask when evaluating an investment opportunity:
1. Vetting: Look into the due diligence process. How extensive is it? Does the platform look like they know about real estate underwriting? How much information are you provided on their process?
2. Research the Market: If you don’t live in the area, do you have friends or family who do? Call them and ask about the neighborhood, pricing, etc. Use online tools like google maps street view to take a tour of the streets around the property. Look at the neighborhood’s walkability ratings on WalkScore. Compare the property to other properties in the neighborhood using online property listings like Zillow, Redfin, or Trulia.
3. Evaluate the Risk/Return Profile: Does the return offset the risk? Remember, high return equals high risk.
4. Research the Sponsor: What is their track record? What other projects have they done? Do they have experience with this type of project? How well are they capitalized? How long have they been in business? How many millions of dollars worth of properties and other assets do they have under management? How much did they co-invest?
5. Look at the Pro Forma: What assumptions are the platform and sponsor making? Poor assumptions will lead to unrealistic projections.
6. Make Sure You Understand the Regulations: Know whether or not you are an accredited investor, and follow the laws accordingly.
7. Read the Fine Print: Every project is unique and it’s important to understand what will happen in the event that something goes wrong. If possible, it’s best to have a lawyer familiar with real estate investing to review the fine print.
8. Take a Step Back: Do not become emotional about investing! Does the deal make sense? 25% in 9 months may sound great, but how realistic is it?
It’s been very exciting to watch the real estate crowdfunding space grow and we look forward to being a part of its continued expansion as it shifts from an alternative strategy to one used by all individual real estate investors.
Disclaimer: This information is provided for informational purposes only, and should not be viewed or construed as investment advice.
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Dan Miller is the co-founder of Fundrise, the first real estate crowdfunding platform to allow anyone to invest directly in commercial real estate projects for as little as $100. Founded in Washington, DC in 2010, Fundrise was the first company in the US to crowdfund real estate for non-accredited investors, raising $325,000 from 175 residents of Washington, DC and Virginia for the company’s first project.
The Fundrise concept was born during Daniel and his brother Ben’s time as real estate developers, frustrated by the broken connection between a neighborhood’s desires and institutional investors’ bottom line. By allowing local citizens to be investors in real estate projects, development could more in tune with a neighborhood’s needs. Fundrise has since expanded across the United States as a platform for real estate companies to leverage technology to raise capital directly from investors.