Investor’s Corner Posts

7 Things to Consider Before Making a Real Estate Crowdfunding Transaction

7 Things to Consider Before Making a Real Estate Crowdfunding Transaction on earlyshares.com

What you need to know before you hit that “invest” button.

Real Estate Crowdfunding, while still a relatively new concept to many investors, has truly taken the industry by storm. This is evident in the billions of dollars that’s been raised since its inception and the fact that more and more investors are discovering its unique and unprecedented opportunities. And while anyone who’s actively invested in real estate (or any asset class, for that matter) should follow the same method of analyzing potential deals, crowdfunding presents several distinct facets that should be considered before getting started. Take a look:

1. Real Estate as an Asset Class

It wasn’t until quite recently that commercial real estate rose from existing as an alternative investment to becoming the fourth major asset class for investment. And although many people have learned and relied upon their real estate investments for diversification, cash flow, appreciation and other benefits, understanding the intricacies and uniqueness of this asset class is key before taking on your first crowdfunding deal.

What makes real estate so desirable as an asset class?

  • Stability
  • Cash flow
  • Appreciation
  • Tangibility
  • Portfolio diversification opportunity
  • Insulation against inflation
  • Global opportunities
  • Harnessing the momentum of local, national and international market
  • Certainty in an uncertain market (as compared to stocks, etc.)

2. Market

Depending on the nature of the deal, whether it’s a hotel, multifamily, industrial, retail or office property, before investing in a crowdfunding deal, it’s important to consider the market of the property.

Questions you should consider include:

  • What’s happening in and around the area?
  • Are there improvements underway in the form of city and state investments?
  • Is it a thriving market or one that’s in the process of being gentrified?
  • How much are units being rented/leased for?
  • What are the demographics of the area?
  • What other developments or projects may compete with the subject deal in the market?

Taking the time to research and gather information on the market will give you a better sense of the potential for the investment and what kind of results you can expect. Market studies are typical for a development or redevelopment deal, and contain most of the information you need to address all of the points mentioned above. The crowdfunding platform you choose should have this information readily available for each deal they’re presenting.

3. Financials

When considering an investment in a real estate crowdfunding deal, it’s crucial to view and analyze the financials of the offering. Is it a debt or equity offering? Are there figures in place for cap rates, cash-on-cash and net operating income if applicable? Having a clear view of the deal’s financials is necessary to decide if it’s suited to your goals and the level of risk you’re comfortable with. On EarlyShares, this information is readily available and laid out in an easy to understand format for each deal. Here are some of the documents you can reference that address economics in the deal:

  • Operating Statements (Historical & Proforma)
  • Appraisal
  • Market Studies
  • Historical Occupancy Reports
  • Rent Roll

4. Supporting Docs

A truly reputable crowdfunding platform will make all supporting docs available to you before you are able to make an investment. This includes all the deal financials, a pro forma, the offering memorandum, and a subscription agreement. Before you click that invest button, it’s crucial for you to review these documents.

5. Team

In every real estate crowdfunding deal, it’s critical to take a good look at who the sponsor is. Whether it’s a developer, an owner-operator or an acquisition firm, the team that’s backing the deal is key to its success or failure. Do your homework and research the sponsor’s experience, their track record, their expertise and their portfolio.

Making the move to crowdfunding is daunting to many investors because they simply don’t know a lot about it or how it works. But those who’ve begun to reap the rewards of this investment vehicle have discovered the importance of choosing the right platform—and the team that’s running it.

One of the main considerations you want to take into account is the team and their background. Are they professionals who have extensive experience in real estate and securities law? How broad is their network in the real estate industry and what’s their track record in successful deals thus far? Even though crowdfunding is still relatively new to many, you want to choose a team that has a broad range of skills in investing real estate and technology.

6. Time Frame

Each real estate crowdfunding deal has a time frame associated with the investment. Some offerings, like many debt investments, have a shorter hold time than others. Choosing the deal that is ideally suited to your investment goals and style is key and to do so, it’s important to consider the time frame or expected hold period. For many investors who don’t want to have their money tied up for long periods of time, a deal with a shorter hold time is more desirable. Hold times should be listed along with all the other pertinent information of the offering.

7. Risk/Reward

Like any other investment vehicle, there are risks involved with commercial real estate crowdfunding. In order for a deal to be viable, there should be a balance between risk and reward—and this balance can be determined by taking into account all the other considerations discussed so far. The location and type of project, the structure of the deal, the projections and assumptions and the hold time all factor into figuring your risk and reward.

It’s also important to be mindful of your risk tolerance, keeping in mind that less risk often yields a lower return and vice versa for those with high risk. Another key consideration here is to invest with a platform that has a realistic view of the risks and rewards—be wary of those sites that boast out-of-this-world returns on every deal.

Real estate crowdfunding is being touted as an investment phenomenon which is alluring to many investors. There’s no debating the success of this method, but before getting started, take the time to get acquainted with these key considerations. If you have questions or want to learn more, feel free to take advantage of the many resources on our site or shoot us an email and we’ll be happy to answer your questions.

EarlyShares EarlyFive from May 27, 2016

We have some exciting news to share with you! Beginning in June, we’ll be switching things up in an effort to give you even more interesting and useful information about Commercial Real Estate Investment and Crowdfunding.

Instead of our weekly newsletter, we’ll be rolling out a monthly wrap-up that features news about new offerings, updates on the progress of existing deals, and a hand-picked selection of articles and topical industry information that we know that you’ll find useful.

To kick it off, I’ve included some key takeaways from the keynote presentation I recently made at DePaul University’s annual real estate conference, which gives some very useful facts about the opportunities that crowdfunding has created for investors and sponsors.

Also included is a look at our recently funded Marriott Courtyard deal.

DePaul University Real Estate Center Presentation

DePaul University Real Estate Center Presentation: Key Takeaways: Real Estate Crowdfunding Investing

Why invest via Crowdfunding vs. Traditional Investment Options?

Crowdfunding includes all the positive aspects of traditional real estate options, including little capital outlay and passive/indirect participation, but offers other desirable advantages including the ability to pick and choose individual real estate properties with direct ownership.

What’s the attraction of Crowdfunding for investors?

More and more investors are discovering the benefits of Crowdfunding, including asset-driven return expectations, cash flow and capital appreciation, pre-determined investment horizons and access to individual transactions previously unaccessible. Average returns range from 6-8% cash on cash annually with mid-teen IRRs.

Here’s a snapshot of our recently funded deal, Courtyard by Marriott in Lynchburg, VAHere’s a snapshot of our recently funded deal, Courtyard by Marriott in Lynchburg, VA.

Key facts: Hotel Investment from RPS Hotel Holdings, $3.125MM raised, 42 investors participated, cash flowing to investors and a $25k minimum investment. Many factors made this a successful deal, including that it’s an attractive property that offered strong return projections and was offered by an experienced sponsor.

How Title III Will Impact The Real Estate Crowdfunding SectorHow Title III Will Impact The Real Estate Crowdfunding Sector

Title III has been long awaited by the industry, as it is the first time that unaccredited investors can participate in a private placement. With all of the excitement though, Title III has restrictions and financial reporting requirements that issuers/sponsors should be aware of. This is important for our industry and it will be interesting to see how things progress.

http://www.crowdfundinsider.com/2016/05/86042-aig-introduces-equity-crowdfunding-insurance-for-investors/AIG Introduces Equity Crowdfunding Insurance For Investors

Global insurance provider, American International Group, Inc. (NYSE: AIG), has announced the launch of a new insurance vehicle, Crowdfunding Fidelity, which was developed specifically to protect investors on equity crowdfunding platforms against issuer fraud. We’ve been hearing about this for years and while it’s not open to US investors yet, we are interested if/when that may change.

EarlyShares EarlyFive from May 06, 2016

There are worries once again among those investing in stocks as the markets went down early in the week.

If you’re tired of the turbulence, it’s time to consider the benefits of commercial real estate investing. Check out our latest offerings including our Downtown Vegas Redevelopment deal, which has just posted an update with some great news concerning the property.

Also, we are pleased to announce that the Philadelphia Multi-Family Fund II deal, sponsored by Investco, has been fully funded and is now closed. Investco will be launching their third fund over the summer, so stay tuned!

I hope you enjoy this week’s articles. Have a great weekend and Happy Mother’s Day to all the wonderful Moms out there.

April 29, 2016April 29, 2016
What to Expect as Real Estate Evolves
By Scott Klocksin, Bisnow

Although commercial real estate has sometimes been reluctant to adopt new technology, experts at Bisnow’s Future of Real Estate event showcased some cool new tools that may prove irresistible.

May 3, 2016May 3, 2016
Perspective on Crowdfunding: This New Industry Will Flourish
By Doug Ellenoff, Crowdfunding Insider

Every year since its inception, real estate crowdfunding has continued to flourish—giving rise in opportunity to small businesses, investors and real estate professionals. And it’s just getting started.

May 3, 2016May 3, 2016
The Fabulous Real Estate of Prince
By Martin Drake, Bisnow

The unexpected death of Prince shocked the world. His rock star persona, remarkable, eclectic talent and numerous hits are just part of the legacy he left behind. Here’s a look at the real estate holdings of the music icon.

By Martin Drake, BisnowMay 3, 2016
US Stocks Slide Amid Fears of a Slowdown
By Martin Drake, Bisnow

It’s always concerning to stock investors when the market experiences a drop and on Monday, anxiety went up as stocks went down once again.

6 Things every revitalized building needs to appeal to modern tenantsMay 3, 2016
6 Things every revitalized building needs to appeal to modern tenants
By Sage Realty, Bisnow

What does it take to transform a legendary building to one that’s cutting-edge? Hint: It’s not just about sustainability—these iconic structures must have what it takes to appeal to today’s modern workforce.

Four Years Later, the SEC Completes All the Rulemaking Under the JOBS ActBONUS: May 3, 2016
Four Years Later, the SEC Completes All the Rulemaking Under the JOBS Act
By JD Alois, Crowdfundinsider.com

The JOBS act, which was signed into law by President Obama in 2012, is finally complete according to the SEC. Securities and Exchange Commission Chair Mary Jo White stated that these amendments finish off all of the rulemaking for the JOBS

EarlyShares EarlyFive from April 25, 2016

Did you get your taxes in on time? Wasn’t it great to have an additional weekend to get them done this year?

Q2 is well underway and we’re seeing more and more investors discovering the benefits of real estate crowdfunding. One of the articles I’ve included this week gives great insight into what’s drawing them in—be sure to check it out and take a look at our current offerings, you may find the perfect deal to get you started.

Since it’s almost summer, and you may be ready to start planning your vacation, I’ve included a BONUS article that features an interesting concept—the anti-vacation.

Will Non-Billionaires Ever Be Able to Afford NYC Housing?April 14, 2016
Will Non-Billionaires Ever Be Able to Afford NYC Housing?
By Alexe Barrioneuvo, CurbedNewYork.com

Prices in Manhattan have not stopped rising with the average sale price of $2million in the first quarter. This trend, and the fact that the only development going on is incredibly expensive, indicates that even millionaires don’t have many options.

Five Tech Unicorns that Could Change Commercial Real EstateApril 19,2016
Five Tech Unicorns that Could Change Commercial Real Estate
By Martin Drake, Bisnow

The impact of technology on the way we conduct business in nearly every industry is not new. But these five tech start-ups, who are just a small portion of the more than 159 now valued at $1billion, are likely to change the way the real estate industry does business.

As Fed Goes Silent, so too go chances of April Rate HikeApril 19, 2016
As Fed Goes Silent, so too go chances of April Rate Hike
By Greg Robb, Marketwatch.com

According to experts, the chance of a Federal rate hike right now is slim to none. Fed officials will meet on April 26 and 27, but based on events over the last month and a half, everyone expects rates to stay where they are for now.

Growth of Real Estate Crowdfunding in 2016April 18, 2016
Growth of Real Estate Crowdfunding in 2016
By Waleed Esbaitah, Crowdfundbeat.com

In 2015, the crowdfunding industry reached $34.4 billion. Based on growth trends since 2013, the numbers for this year are predicted to be much higher and this article touches on the numerous reasons that real estate crowdfunding draws in so many.

Here’s Why Politicians Want Changes to EB-5April 18, 2016
Here’s Why Politicians Want Changes to EB-5
By Martin Drake, Bisnow

The EB-5 visa program, which was meant to give visas to foreigners who invest in rural areas or areas with high-unemployment, is under debate by legislators. Their beef: Most of the money is going into affluent areas, not where it was intended.

The Millennial Vacation: Blindfolded and taken to a tiny houseBONUS ARTICLE
April 18, 2016
The Millennial Vacation: Blindfolded and taken to a tiny house
By Patrick Clark, NREIonline
Getaway CEO Jon Staff calls his successful new model the “anti-vacation” because it’s the opposite of the traditional American vacation that includes spending a small fortune and flying to a faraway place. And it’s working—the start-up is booked for months.

EarlyShares EarlyFive from April 18, 2016

With last week’s celebration of the JOBs act’s 4th birthday and the growing popularity of real estate crowdfunding, it is becoming increasingly apparent to many investors that traditional investment venues are not as viable an avenue.

If you’re ready to enjoy the many benefits that crowdfunding provides—especially the fact that you can maximize and diversify your investments, check out our offerings and use our numerous resources to familiarize yourself.

Still investing in Real Estate through conventional Traditional Avenues? April 8, 2016
Still investing in Real Estate through conventional Traditional Avenues?
By Steven Kaufman, Entrepreneur

Real estate crowdfunding continues to grow rapidly and this article explains the top reasons why investors are choosing it over traditional avenues—including a quote from me about the fact that crowdfunding gives investors the opportunity to start at lower price level.

Commercial Real Estate Economists Weigh In Which Asset Class Looks Best for 2016April 12, 2016
Commercial Real Estate Economists Weigh In: Which Asset Class Looks Best for 2016
By Martin Drake

While nobody can predict the future, these top economists offer their expert opinion on which CRE asset class they’re bullish on for this year.

Can 3D Printing Create Massive Legos for High-Rise Construction?April 7, 2016
Can 3D Printing Create Massive Legos for High-Rise Construction?
By Barbara Eldredge

There’s a lot of talk about 3D printers these days, but this Singapore company wants to take 3D printing to a whole new level—by creating giant 3D printers to create entire buildings. Their plan includes printing one floor at a time, then stacking them up like Lego blocks.

Marriott’s $12.4 Billion Starwood Takeover Approved by InvestorsApril 8, 2016
Marriott’s $12.4 Billion Starwood Takeover Approved by Investors
By Sarah Mulholland, NREIonline

An acquisition that will create the world’s largest hotel operator has been approved by shareholders of both companies. The result: Marriott’s purchase of Starwood will mean that the operator will now control 1.1 million rooms across 5,700 properties.

JLL Takes the Open Office Concept in a New DirectionApril 8, 2016
JLL Takes the Open Office Concept in a New Direction
By Brian J. Rogal

Looking to set a trend, JLL has given its corporate headquarters in Chicago a whole new look. But it’s the process they used to design the revitalization that’s truly progressive—they got input from their more than 1,200 employees.

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