Why you can't rank real estate crowdfunding platforms

Why You Can’t Rank Real Estate Crowdfunding Platforms (And how to Determine which is Right for You)

Joe Stampone Featured, Innovation/Technology, Invest Passively 2 Comments

People love rankings. I get it. They attract eyeballs and enable us to compare across a large group of participants.

Rankings work great in sports where there are endless statistics and a level playing field, however for real estate companies who raise capital via crowdfunding, rankings make no sense.

Here’s why:

  • The business models vary widely with each appealing to a specific set of potential investors.
  • Each investor has a different investment preference and therefore is attracted to different models.
  • There is very little transparency and almost no required reporting.
  • There can be both good deals and bad deals within each platform.
  • The feedback loop on real estate deals is too long. Real estate crowdfunding has only been around since 2013, so we don’t have enough performance data to appropriately assess each platform.

So how can investors choose which real estate crowdfunding platform is right for them?

First, determine your investment preferences.

You can summarize your investment preferences by addressing the following questions:

  • Are you an accredited investor?
  • How much capital are you looking to invest in real estate over the next 12-months?
  • What is your tolerance for risk? (Risk Averse / Moderate / Risk Tolerant)
  • What is your investment objective? (Conservative / Moderate / Growth)
  • What is your investment time horizon? (<1 year, 1-5 years, 6-10 years, 11-20 years)

Based on these answers, you can begin to narrow down your options.

I’m not an accredited investor.

If you’re not accredited, your real estate investment options are limited. Here are the real estate crowdfunding opportunities for non-accredited investors.

I’m accredited, have a moderate risk tolerance, and short-term investment horizon.

I’m accredited, longer-term focused, and value cash-flow and capital preservation.

Once you’ve determined you investment preferences and selected the platforms offering opportunities which match those preferences, you can then begin to assess individual platforms.

How to assess a real estate crowdfunding platform:

  • Read in-depth reviews from professional sites such as Investor Junkie and the Real Estate Crowdfunding Review.
  • Discuss performance and the investor experience with current investors by searching the BiggerPockets Forums or asking the platform for investor references.
  • Compile all your questions and call the platform before committing to an investment. Make sure you’re 100% comfortable and always trust your gut.
  • Seek out real estate professionals who can help you cut through the clutter. You can reach out to me any time with questions. I’m happy to help.
  • Start small! Dip your toes in the water with a small investment and see how it goes. Use it as a learning tool.

While it’s great to see the media attention real estate crowdfunding is attracting, ranking the platforms on a single list is a waste of time and misleading for potential investors.

The platforms need to be broken down by category (marketplace, non-traded REIT, lending, and fund of funds etc.) to be compared apples-to-apples.

Investors can then choose which platform is right for them based on their investment preferences, past performance, fees and structure, the merits of the current opportunities, and their gut feel.

When in doubt, shoot me an email. I’d be happy to help you determine which platform is right for you.