By David Behin, co-founder and CEO of CityFunders.
Crowdfunding is the new frontier of real estate investing. It has revolutionized and modernized the oldest asset class by opening up a market previously available only to the uber-wealthy. In doing so, crowfunding has lowered barriers to entry as well as risk to investors.
Today, modern investors can diversify their portfolios with however much real estate they feel comfortable with. Investors have the opportunity to make up to 10 or 20 thousand dollars on a single property.
Despite this rock-solid business model, crowdfunding sites differ in their levels of risk and return. Therefore, investors must do their due diligence on platforms to ensure their investments are managed by the best syndicators possible.
Anyone considering real estate crowdfunding should be asking these four questions to significantly reduce their risk:
- Who’s behind the platform?
Trusting someone else with your money can be intimidating. That is why it is critical to choose a platform whose investors have years of experience in the field. Ideally, you want an investor who has seen it all. From market trends to real estate cycles, the experts should be able to expound on their experience to mitigate risk and deliver the best deals possible.
- Are your interests aligned?
The platform you choose should have skin in the game right alongside their investors. You want a portal that is investing the same amount of risk as you are – not just charging you fees. By ensuring that you share the goal of maximizing profits you solidify the quality of the platform’s offerings.
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- How well does your platform know the market?
They say real estate is all about ‘location, location, location’. This is why it is essential for your platform to possess the critical local real estate knowledge that can make or break an investment. This can only be obtained by a clear track record of success in their locale in order to effectively strategize their transactions.
- Who is approving the deals?
In approving crowdfunding deals, transparency is key. The ideal approval team would be an external committee that only offers their expertise to advise on a deal’s potential. This would mean that they are independent of the platform’s fee structure. A platform that uses an independent approval committee would mitigate any ulterior motive and prove that chosen deals have an investor’s best interests in mind.
Finding the answers to these questions is critical to successful crowdfunding transactions. Picking the best portal for your investments can help to maximize your returns and mitigate risk in the modern age of real estate investing.
David Behin is the co-founder and CEO of real estate crowdfunding platform CityFunders. He has been involved in more than $3 billion of real estate transactions within the tri-state area. A NYC native, he received his JD from Fordham University School of Law, and his Bachelor’s degree from Adelphi University.