Part of empowering real estate investors means providing comprehensive and transparent reviews of industry tools, like crowdfunding portals.
Crowdfunded real estate deals let investors pool their money to finance property acquisitions and share profits.
In the last several years, many different crowdfunding platforms have sprung up. Sponsors of deals in multifamily, industrial, office and other categories have raised money from both accredited and non-accredited investors through these platforms. We provide ratings as a way of helping potential investors understand the potentials risks and benefits of each platform.
We review all crowdfunding platforms on a 100-point scale across the following categories:
- Due Diligence: How -- and how well -- does the platform vet sponsors and real estate offerings? Does it have a process and a track record that indicates thorough vetting that prevents higher-risk real estate offerings from being featured in its marketplace? How does its business model and compensation align -- or conflict -- with its role to screen deals and sponsors?
- Fees & Commissions: Since real estate projects can be complex and expensive, there are several aspects to this. The first is how the platform itself makes money; some charge fees to investors, while others charge sponsors fees to list their offerings and to facilitate investments. Moreover, real estate projects often have construction costs, real estate management fees, and other expenses that sponsors charge to investors directly. Our goal is to rate each platform based on a combination of the fees investors will be charged by the platform itself, as well as transparency on all the fees for each real estate offering. The easier it is to find and understand what you’ll pay, the better a platform’s rating.
- Investor access: In general, our scoring here measures how broad a range of investors a platform is acceptable for. One of the biggest factors being whether or not they offered investments suitable for non-accredited investors. In short, the regulatory requirements are much less stringent, and it is far less costly for companies to offer investments to accredited investors only. This is why the vast majority of real estate crowdfunding platforms do not feature offerings for non-accredited investors. In addition, we also rate each platform based on offering a variety of deal types, and the minimum investment amount required.
- Deal transparency: While the top platforms all practice relatively robust due diligence, investors should consider this only the initial layer of filtering and take responsibility to further vet any deals before investing. With this in mind, our ratings for deal transparency are aimed at rewarding the platforms that make it easy to review deals and find relevant information about each prospective project. This includes both the structure of their deal pages, as well as easily-downloadable documentation. Moreover, we also rated each platform on how much information they make public about the returns fully realized deals on their platform generate. Even some of the most-popular won’t make this information public, and the few that do get extra recognition for their transparency.
- Bankruptcy Protection: We rate on several factors here, but primarily how at-risk any investments made through a platform would be if that platform were to fail. The best platforms are structured so that each deal is completely independent, meaning there’s almost zero risk to the underlying real estate asset. We also consider the implications on your investment for things such as performance reporting, tax documents, and dividend payments, rating each platform based on how integrated it is with each deal and sponsor, and what the short- and long-term risks are if the platform were to fail.
- Platform Financials: A harder area to rate since most platforms are privately held and keep this information close to the vest, we rated each based on cash flows, revenue growth, debt, assets, and other balance sheet information as it was made available.
- Investor Resources: We rated each platform based on how easy they make it for investors to access information about deals in the marketplace, as well as manage investments they’ve made through the platform. The best platforms have high-quality deal pages that make it easy to find relevant information quickly, and investor dashboards that save investors and sponsors time and effort to communicate during the duration of a real estate project investment.
- Fund Diversification: While a significant number of offerings on the top platforms are standalone real estate projects, there is high demand for diversified real estate investments. We scored and rated each platform based on the depth of their offerings in area, how accessible they are to investors at varying levels of capital, and the fees they charge for the products they offer.
- X Factors: No real estate crowdfunding platform that we’ve found so far is “one size fits all.” To the contrary, we have found that most platforms have at least one thing that they do very well and many have multiple things they are excellent at. And if you’re someone who that particular X-factor helps, we wanted to make sure to call it out as appropriate, and give each platform credit.
- Deal Flow: We rated each platform based on having a consistent quantity of deals offered on its marketplace and the variety of deal types and project lengths offered. In general, the more volume and variety featured, the more potential investors a platform is relevant for, so long as the platform also has a track record for practicing thorough due diligence.
- Fully realized offerings: We rated each platform on the returns generated by deals that have been fully realized on its platform. Specifically, we weighted how deals performed as compared to their targeted return, how many deals lost money, and the average & median rates of return for all fully realized offerings.
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