Currently, there are hundreds of real estate crowdfunding platforms worldwide. Even for an experienced investor, choosing the right platform can be a time-consuming and confusing process. And it is definitely very difficult for a new or inexperienced investor.
On top of that, each platform has its own specifics, style, and approach, so it can be very easy for investors to get lost in this environment. Not every platform is suitable for an investor’s goal and expectations. Also, choosing the wrong platform can lead to a lot of troubles, which in the worst-case scenario might lead to a loss of money.
Before we get started, here are some key facts about the industry to help you get a better understanding:
- The industry is still rapidly developing. The first platforms emerged in the USA in 2012 with the establishment of JOBS (Jumpstart Our Business Startups).
- Real estate crowdfunding is booming. In 2016 the online property investment market was worth more than 3.4 billion EUR. By 2025 the industry is predicted to grow to 300 billion EUR. That’s an astounding growth of 88 times within less than a decade.
- Worldwide, there are more than 250 real estate crowdfunding platforms and this number is increasing rapidly.
- 200+ platforms have already been collected and analyzed by BrikkApp.
How to Choose the Right Platform
There is no standardized business model for real estate crowdfunding platforms.
Some of the main differentiators are:
- Investment types
- Property types and location
- Platform experience and history
- Fee policy
The real estate experience of the team behind each platform is very important, in order to filter all possible real estate crowdfunding opportunities and to choose the most appealing and promising ones.
For the long-term success of a platform, the mix of real estate experience and the quality of the management team is crucial. In some cases, platforms are run by purely “Silicon Valley” tech companies who only happened to enter the real estate space.
This was the case, for example, with the US platform RealtyShares, which had to close suddenly in 2018.
However, some platforms are run by experienced real estate professionals who have harnessed technology to start new businesses and expand their customer bases. These platforms can offer high-quality and professional opportunities to their users.
With this being said, there are some major aspects, investors have to take into consideration, when deciding what platforms they would like to invest with.
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Many platforms limit investors based on their country of residence, so it is important to make sure that you are eligible to invest before researching a platform further.
Some platforms in Europe have restrictions on investors from outside their respective countries. Investors from outside these countries will sometimes have additional legal requirements in order to invest with the platform.
A major indicator, when choosing where to invest, is a platform's history.
When researching the history of a platform, investors should look for the following insights:
- How long has the platform been operating?
- How many crowdfunding projects have they done so far, and how many of them were successfully funded and finished?
- Their average return performance
- If the platform is regulated by the local regulation authority
- Have they been fined by the local government for breaching regulations?
Some of these answers are not easy to find, but even if a platform doesn't provide such information, investors can ask for additional documents such as a track record or the company's source of funding.
The personal experience and feedback of clients is, without doubt, a very important insight for investors, when choosing the right platform.
Also, there are communities of investors, where people can ask what others think about a specific platform or an issue, for example, this Facebook group.
Who runs the platform?
Delving a little deeper and finding out who is behind a platform and what experience its team has can say a lot.
For instance, if the platform is led by real estate professionals with many years of experience in the market, it definitely adds some plus points. However, it doesn’t necessarily mean that the platform is completely safe in which to invest.
Types of investments
Real estate crowdfunding platforms are very often focused on specific types of investments and properties. Investors should know what type they want to invest in, before choosing a platform.
If you still don’t know the different types of real estate a crowdfunding investor can invest in, take a look at our two articles focused on this topic: Real Estate Crowdfunding: Debt & Real Estate Crowdfunding: Equity.
Origin of the platform
Investors should pay particular attention to the background of each platform and its purpose. Some platforms have a team of professionals, ensuring that all crowdfunding projects they offer have been analyzed and evaluated.
On the other hand, there are some platforms that work more like matchmakers, connecting investors with sponsors and developers without evaluating the projects in the first place.
Most of the platforms are focused on their local market and don’t offer international projects.
Hence choosing the locations of your investments first and then looking for a suitable platform for your goals and requirements makes sense.
Secondary market & Auto-invest
Secondary market trading can be a very handy feature for investors, especially for those interested in long-term investments. It allows investors to buy & sell their investments with other investors, hence making their investments much more liquid.
Some investors can also find an Auto-invest tool very important when choosing the right platform. Such a tool automatically distributes an investor's assets among available project deals within the platform. However, it is highly recommended to use this tool with caution.
Fees are also a crucial aspect when deciding on which platform to invest in. Keep in mind that the fee policy of platforms can vary a lot.
Some platforms charge depending on an investor’s returns. Some platforms charge even before investors receive any returns and the fees don’t reflect them. Some don't have fees on the investor's side and charge only sponsors and project developers.
Do your research and read each platform’s fee policy before investing.
Yields and liquidity
Investors should, of course, research the liquidity and yields a platform is offering. Some holding periods can stretch to several years and make an investor's assets very illiquid.
Also, it may sound illogical but some platforms can offer lower returns and higher risk, and others higher returns and lower risk.
Comparing several platforms with similar projects and their yields is a good start.
Investors should also realize that most platforms often have a team ready to help clarify any uncertainty or provide any missing information. Hence contacting a platform with a couple of questions can help investors to make the right choice.