4 Questions Every Real Estate Crowd Investor Should Be Asking

questions to ask about real estate crowdfunding
Zack Miller, About.com Crowdfunding Expert

To say crowdfunding is new to real estate [ed. read more about real estate crowdfunding here] is like saying Enzo Ferrari invented the car. He didn’t -- he just made it a whole lot better.

In the past, real estate deals were confined to ultra-wealthy individuals and asset managers investing one hundred thousand to several million dollars per investment. Today, real estate crowdfunding expands the time-honored business of real estate syndication to investors looking to make 10 to 20 thousand dollars on a single property.

 

Despite this time-tested business model, not every crowdfunding site is the same. Along with promising returns, investors face serious risks. 

For experienced and inexperienced investors alike, asking these four questions can significantly reduce risk in real estate crowdfunding investments:

Who’s Running the Platform?

The best real estate investors have years, sometimes decades, of experience in the field. They haven’t just seen the market’s upswings, they’ve experienced market downturns as well, and, most importantly, they’ve learned from their mistakes. Real estate crowdfunding teams with years of experience can offer better returns and lower risk to investors. 

Who is Approving the Deals?  

The investor must understand the decision-making process. A deal approval team which profits from the fees being generated does not offer the same assurances as an independent approval committee. From the portal’s deal intake to the decision to put it online and crowdfund, every step must be transparent.

How Well Do the Deal Syndicators Know the Market?  

Real estate is a hyperlocal business. In NYC, for example, the metrics of a deal can differ dramatically from borough to borough, neighborhood to neighborhood, and many times, even block to block. In turn, crowdfunding portals with one size fits all deal analyses can put investors at a serious disadvantage.

Firsthand local knowledge can make or break a crowdfunded investment. 

Are Your Interests Aligned?  

Are the portal and sponsor investing funds themselves, or are they just charging fees? There’s a saying in investing: No one will take better care of your money than you do. If the parties who are doing the deal have their own money invested in the property, you can bet that they’ll care about it a whole lot more than if they don’t. Skin in the game is critical.
 
Knowing the answers to these questions can help any investor evaluate nearly any real estate crowdfunding portal. With the right information, investors can reap the benefits of this promising new approach to real estate investing.

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David Behin is the CEO and Co-Founder of CityFunders. He has been involved in more than $3B of real estate transactions within the tri-state area and Philadelphia.

Dave co-founded The Developers Group in 2002, which brought to market thousands of condo and rental apartments in NYC. The Developer’s Group later became MNS Real Estate, one of NYC’s top-10 full service brokerages. In 2011 he launched the Investment Sales and Advisory Division of MNS as well as B.I.G., the Behin Investment Group, specializing in acquiring and repositioning Brooklyn commercial real estate.

Also a pioneer in the internet service industry, he started at Prodigy Internet Services in 1996 before co-founding Yadayada.com in 1999, which became the nation’s 3rd largest wireless Internet service provider.

An NYC native, he received his JD from Fordham University School of Law, and his Bachelor’s degree from Adelphi University. He is a guest lecturer at New York University’s Graduate Real Estate Program and he is frequently quoted in major publications including The New York Times, Crain’s and The Wall Street Journal.