Real Estate Crowdfunding
This post originally appeared in BanklessTimes.com, by Jilliene Helman
This is part two of a multi-part series. If you have not read part I, you can find it here.
It’s All About Deal Flow
One of the greatest benefits of crowdfunding, whether it is for real estate, startups, or any other asset class, it is the ability to source quality deal flow.
While deal flow is easy to find, quality deal flow is more challenging to find and the greatest benefit of new crowdfunding companies will be their ability to curate transactions and cut through the noise.
I liken the role of a crowdfunding company to that of a recruiter. Rather than presenting every candidate to a company, the recruiter’s job is to identify the best-of-the-best and save time for the company.
While there is always risk in any investment, including any investment brought about by crowdfunding, strong crowdfunding companies will add considerable value combing through deal flow.
One of the questions we get frequently at www.realtymogul.com is how do you identify quality deal flow.
The short answer is we are incredibly stringent on our underwriting criteria and we put relationships first.
Even though we are a technology company, we believe relationships trump everything else and we look to build relationships with best-in-class real estate operating partners.
We turn away 98% of the transactions that are submitted to us and go above and beyond for the clients we choose to do business with.
Doing Business Based on Culture
Before we go too far into a relationship, we make sure that our operating partner understands what is important to us – our investment culture — and we are always looking to align incentives.
For example, at Realty Mogul, we are 100% cash flow investors. For equity investments into commercial real estate like apartment buildings or office buildings, the majority of our due diligence is spent on looking at existing cash flows and the potential to add value to the property to increase cash flows.
While we love property appreciation and we love the inflation protection that investing in real estate provides, we place less emphasis on the future value of the property and much more emphasis on current cash flow.
Our mentality is that if there is strong cash flow either at purchase or once certain value has been added to the property, the appreciation potential will always be there.
Conversely, if the asset is not performing to its full capacity and cash flows and not increasing, the appreciation potential will be hindered.
This belief is strongly ingrained in our culture and we ensure our operating partners have this same philosophy before we do business with them.