Over the past few days I’ve met with a number of guys in their mid to late twenties who’ve been in high-paying finance jobs, but have the desire to transition into the real estate business. The most common question I get from them is how to learn the fundamentals of the real estate business and acquire the skills typically only obtained by on-the-job experience. Answer, crowdfunding.
Crowdfunding sites consist of networks of high-quality sponsors pitching all types of deals to HNW investors. Here’s what you can learn from the publicly available crowdfunding offerings:
Get into the head of the sponsor
A big part of the sponsor’s job is to curate the story and pitch their deal to potential investors. Review the current offerings and see how different operators approach their pitch. Track how quickly the deals are being funded. Put yourself into the shoes of the operator and think about how you’d pitch the deal.
Understand deal structures
Dig into the capital stack/financing, upfront feels, ongoing fees, investor splits, and other key deal terms. Looking through the current offerings the structures vary widely. Put your finance hat on and determine if you’d invest in the deal. Do the returns justify the risk? Why or why not? Take a shot at modeling the deal, run some sensitivities on the key metrics.
Review deal docs
Real estate can be a very complicated business and it takes time in the trenches to really learn the intricacies. Download deal docs such as the PPM, operating agreement, deal memo and read through them in detail. Compile your questions and review them with one of your seasoned real estate buddies. Understand the implications for both the sponsor and the investors. What controls do they have, are the terms of the deal clearly conveyed etc.
Crowdfunding sites offer motivated individuals an insight into the current market through live deals and the opportunity to learn from some of the smartest guys in the business. I recommend you start with RealCrowd, Fundrise, RealtyShares, Realty Mogul, GroundFloor, and Asset Avenue.
What do you think?