This is a guest post from David Behin, CEO and Co-Founder of real estate crowdfunding platform CityFunders.
- Do your due diligence – Many investors assume that crowd-funding portals only offer guaranteed, safe investments. However, deal success really depends on the people behind the portal. Research the team, the investment and all the deal specifics before committing. Know who is managing your capital and where your money is going specifically. In order to mitigate default risk, do your research of the deal offer. Some portals may overestimate their investment returns to attract investors. Ask yourself if the investment strategies and pro-forma calculations make sense. Completing your due diligence to ensure quality investments can make or break your return outcomes.
- Focus on debt deals with solid metrics – Debt deals are notoriously less risky than equity, but can still offer a high return on investment. They are the perfect solution for a risk-averse investor because they offer a safer place to invest in a volatile market. Choosing the right debt deal can also lower the overall risk in your investment portfolio and can offer a passive investment strategy that is hassle-free.
- Don’t shove off the market – While some investors are hesitant about the market’s high prices, there are always opportunities to make a solid investment. Crowd-funding portals with local market knowledge have an experiential advantage and they can recognize investment opportunities that others might fail to notice. This is where choosing a portal with a qualified team becomes critical. Ideally, you want a team with expertise in finance, real estate, and technology. Additionally, they should have substantial experience, specifically in the market they are operating in. The team should vet their deals meticulously and set realistic expectations for returns. These characteristics are essential to gain access to better, more strategic deals.
- Preservation is the key – Modern investing is not always about getting the highest return. In 2016, investors are interested in sustainable, low-maintenance investments rather than high-risk, high-return approach. Going forward, the goal is to preserve steady, reliable capital growth and to analyze investment returns on a deal by deal basis.
- The little things matter – Finite micro-knowledge on deal specifics is vital to maintaining capital, especially in today’s choppy market. The more you know about a deal, the more equipped you are to recognize the risks as well as potential upsides that might arise from an investment. Some things to look out for might include: a deal sponsor’s proven track record, neighborhood trends, and even valuation metrics like cap rates and loan-to-value ratios. Additionally, it is imperative to choose a platform with a high level of transparency. You want a team that openly acknowledges investment risks and is straight-forwards about them.
Real estate crowd-funding promises to revolutionize investing as we know it. Being aware of and implementing these tips can maximize your returns as well as protect you from unnecessary investment risks.
About David Behin:
David Behin is the CEO and Co-Founder of real estate crowdfunding platform CityFunders. He has been involved in more than $3B 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.