Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.
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28 • September 2015 • Western Real Estate Business www.REBusinessOnline.com B uilding wealth is crucial to pre- paring for fnancial security dur- ing retirement. Unfortunately, most people are not fnancially ready for retirement and fnd themselves working well past the traditional re- tirement age of 65. However, people have the power to overcome this prob- lem by investing in global real estate, which can open the door to building and preserving wealth and preparing for a comfortable retirement. The advent of crowdfunding makes it even easier for people to access wealth-generating opportunities in real estate all over the world. This platform allows investors to build wealth with a diversifed portfolio, while hedging against currency and infation fuctuations. Getting started in real estate crowd- funding requires a solid understand- ing of the fundamentals of real estate investing. Here are fve helpful "laws" that can prepare aspiring fnanciers for successful investment in global real estate assets, which will allow them to build wealth for greater fnan- cial security down the road. Law 1 — Understand the Fundamentals One of the biggest mistakes a new investor can make is to pour capital into seemingly promising deals with- out frst gaining proper knowledge of the real estate industry itself. It is cru- cial to learn the fundamentals of real estate investment, rather than relying on a hunch or the word of friends and family. This knowledge comes about by reading helpful resources on the subject. The real estate landscape can be unpredictable, and investors need to plan for all possible outcomes, di- versify multiple regions and indus- tries and avoid overexposure to the industry they are investing in. Law 2 — Buy from a Motivated Seller The openness of the internet now gives an investor access to an almost overwhelming amount of deals. An investor can narrow down the feld and choose to buy only from a seller who is motivated to sell their prop- erty, regardless of proft. Bank repos- sessions and the threat of foreclosures can make sellers eager to sell quickly. It can also sometimes put them in an emotional state, making it easier to negotiate the best deal possible and gain more favorable terms. Law 3 — Do Your Homework Smart investors always do their re- search frst. By running the numbers before making an investment deci- sion, they can determine the likely return of investment, calculate the risks involved and ensure they have the means to manage those risks. In- vestors should also research the real estate developers and sponsors using crowdfunding platforms to raise capi- tal before using an intermediary. Finding a reliable real estate crowd- funding platform that conducts due diligence on each proposal before list- ing them on their website is critical as well. These platforms should assess the risks and rewards of its oferings for potential investors. The best plat- forms are also founded by teams that have a thorough understanding of the real estate industry. A team that had real estate experience frst and then embraced crowdfunding technology is much more likely to have quality oferings. Likewise, platforms that are actually invested in their own listed oferings will more likely have the in- vestors' best interests in mind. Law 4 — Look at Cash Flow, Then Capital Appreciation To do well in an unpredictable mar- ket, investors should prioritize invest- ments that will give them reliable cash fow, preparing a "Plan B" along with expected capital appreciation. This will prepare investors for the possi- bility of economic downturns and en- sure debt and equity investments are properly balanced. Real estate crowdfunding platforms give investors the chance to limit over- exposure in a particular asset class by ofering them a variety of investments and allowing them to diversify glob- ally. This mitigates the risk of tying up assets in one coun- try or currency, and helps investors gen- erate immediate re- turns while provid- ing opportunities for capital appreciation. Law 5 — Build Relationships to Build Your Wealth Building relationships with experts of particular markets, in addition to creating a strong network of contacts, will give investors the edge that will help them make the smartest deals at the right times. A new investor should start building and nurturing relation- ships with key investment crowd- funding players early. This will give them access to more opportunities and help them build an experienced team. Working alongside a team of investment veterans can allow a new investor to beneft from shared knowl- edge and leverage collective buying power. Crowdfunding platforms aford ac- cess to endless investment opportu- nities. Anyone can make their retire- ment dreams a reality with the added knowledge of how to invest wisely. Scott Picken, CEO and founder of Wealth Migrate, a global real estate investment marketplace. R eal estate in- vestment has found its way to the frontlines of the crowdfunding movement. This phenomenon has been hailed as the "democratization of fnance," with the Internet playing a central role in exposing an array of investment opportunities to potential investors across the country. More than 118 real estate crowdfund- ing platforms exist today in the United States alone. It seems we can't make it through a week without hearing about another new launch. Though there may be many choices available today, investors still need to know what to look for in a real estate crowdfunding platform whether they're looking to invest or raise capital. Real estate investing is a disci- pline that demands its own level of respect, even as we leverage tech- nology to tear down the barriers be- tween investors and opportunities. As renowned investor Peter Lynch's old adage goes, "invest in what you know." This is especially true of real estate investing. It can be incredibly difcult to accurately vet an opportu- nity in real estate without an under- standing of the property itself. It also requires knowledge of the surround- ing area, local vacancy rates, the local economy, population trends and a hundred other critical inputs that can make the diference between a return and a loss. For technology-driven companies, scale is often held above all else. The story coming out of Twitter's recent earnings call was that of stagnant user growth. Little mention was made of an earnings beat. Shares plunged on the news. In technology, sometimes it feels like growth is the only metric that matters. Crowdfunding platforms, however, stand to gain so much by maintaining focus, even at the cost of scale. Deal quality is bolstered because stakehold- ers and investors alike are able to ac- curately vet opportunities by leverag- ing their expertise in a given market. Better opportunities make for better returns, happier investors and a more robust marketplace in the long term. This approach represents our best opportunity to create a viable and sustainable real estate crowdfunding marketplace. One of the primary ar- guments behind the JOBS Act — the 2012 legislation that made invest- ment crowdfunding possible — was the impact of a phenomenon called the "wisdom of the crowd." Crowd- funding proponents would argue that in a crowd, experts rise to the top and help the rest of the group de- cide whether or not an opportunity is worthy of investment. In real estate, the wisdom of the crowd is diminished as we lose local expertise around individual proper- ties. Any platform can point to histori- cally low vacancy rates in the city or 12 straight quarters of increases in average monthly rent as encourag- ing signs, but that only helps so much when picking the right neighbor- hood or new development. Success in real estate is so often built on an understanding of a city's changing culture, and you can't capture that on a spreadsheet. A competitive ad- vantage can defnitely be gained if in- vestors pair with platforms that ofer institutional knowledge of the com- munities they serve. Just because real estate investment is moving online nationally doesn't mean local market knowledge surrounding investments goes out the door. If anything, it is more important than ever. The best investors are able to stay ahead of changes in a city and capi- talize as they are happening. That re- quires true expertise and a boots-on- the-ground approach, which in many ways is the value proposition of the traditional brokerage. It's incredibly important not to lose that value when leveraging technology to create ef- fciencies in real estate investment. Real estate crowdfunding will con- tinue to grow, but the lion's share of success stories will likely happen on smaller, specialized platforms. In this industry, a local focus is the right ap- proach. Marshall Saunders, co-founder and managing partner, SaundersDailey, an online investment marketplace connecting investors to exclusive real estate opportunities. INVEST WITH CONFIDENCE The fve laws of building wealth through real estate. By Scott Picken Picken Saunders LOCAL KNOWLEDGE MORE IMPORTANT THAN EVER IN CROWDFUNDING Crowdfunding has become a popular way for many investors to jump into the commercial real estate marketplace. Not all platforms are created equal, however, just as no one region is like the next. By Marshall Saunders