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Three Objections to Investing in Real Estate via Crowdfunding

08/07/2014
Fundrise blog, crowdfunding blog, CRE blog, RE investing blog

I’m guessing that’s not a headline you ever thought you’d see from me, right?

As my brother Dan and I work to disrupt the real estate industry and spread awareness about real estate crowdfunding, we get asked a lot of questions. It makes sense -- real estate crowdfunding is a brand new idea and smart investors naturally want to do their research before adopting something new.

Below I’ve outlined three of the questions we’re frequently asked by investors and some tips for investors to use when looking into the space.

“Real estate crowdfunding doesn’t allow me to control what happens to the property. Isn’t it bad that I won’t have direct control over my investment?”

Investments through real estate crowdfunding provide passive income so that investors don’t have to worry about management and the headaches that can be associated with it. Many investors view the strategy as an opportunity to test new locations and property types before moving onto more time- and money-intensive investments.

Passive investing puts a premium on understanding the terms of a deal before you choose to invest. Check to make sure the due diligence process of the platform you choose to invest with is extremely thorough and spend time looking into the market, the sponsor, and the assumptions of the project, in addition to the fine print.

“What if the project I invest in requires additional investment? Will I be obligated to kick in more cash after the fact?”

Most crowdfunding platforms do not ask for additional funding from investors.

At Fundrise, we structure our investments to guarantee no capital call requirements, which prevents against investment dilution and ensures that investors will never be asked for additional funding. This is another important area to look into before you choose to make an investment.

“What if the project I invest in goes under or turns out to be a bad investment? What if I lose all my money? Is this a common scenario?”

With real estate’s cyclical nature, people investing in private real estate transactions need to be aware of the risks associated with it. As with any investment, an investor needs to be entirely comfortable with losing the entire principal before making an investment.

While every investment carries inherent risk, investors should be diligent about scrutinizing potential platforms to make sure that every investment undergoes a strict due diligence and underwriting process to make sure only the highest quality, safest investments are available.

Disclaimer: This information is provided for informational purposes only, and should not be viewed or construed as investment advice.

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By: Ben Miller

Co-Founder | Fundrise

Twitter: https://twitter.com/BenMillerise

Visit Ben's Website: www.fundrise.com

Email: contact@fundrise.com

Visit Ben's blog: blog.fundrise.com

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