For years, investment in real estate has been limited to institutional investors or investors who have the capital, energy, and time to acquire and manage property themselves.
The advent of online real estate marketplaces, which give investors online the opportunity to invest passively in real estate, have the potential to change this.
In the four years since we started Fundrise, we’ve received hundreds of questions from investors on the real estate crowdfunding industry, how it works, and what members need to know before they invest.
We’ve created a shortlist of tips for anyone interested in real estate investing online, along with some of the key questions to ask when evaluating an investment opportunity on any platform:
Look into the due diligence process. How extensive is it? Does the platform seem to know about real estate underwriting? How much information are you provided on their process?
2. Research the Market
If you live in the area, go by the property. If you don’t, do you have friends or family who do? Call them and ask about the neighborhood and pricing. Use Street View in Google Maps to tour the community. Look at the neighborhood’s ratings on Walk Score. Compare the property to others nearby using online listing services like Redfin, Trulia, or Zillow.
3. Evaluate the Risk/Return Profile
Does return offset the risk? Remember, high return equals high risk.
4. Research the Sponsor
What is their track record? Do they have experience with this type of asset? Are they well-capitalized? How many millions of dollars worth of properties and other assets do they have under management? How much equity are they investing into the project?
5. Look at the Pro-Forma
What assumptions are the platform and sponsor making? Poor assumptions will lead to unrealistic projections.
6. Make Sure You Understand the Regulations
Know whether or not you are an accredited investor, and follow the laws accordingly.
7. Read the Fine Print
Every project is unique and it’s important to understand what will happen in the event that something goes wrong. If possible, have a lawyer familiar with real estate review the fine print.
8. Take a Step Back
Do not become emotional about investing! Does the deal make sense? 25% in 9 months may sound great, but how realistic is it?
It’s been exciting to watch online real estate investing grow so quickly over the past couple years and we look forward to its continued expansion as marketplace lending shifts from an alternative strategy to one used by all individual investors.