A Crowdfund Platform’s Services – Allowing Real Estate Operators to Focus on Their Projects

iFunding receives questions about the activities that our crowdfunding platform performs as part of its services. The services benefit both the investors and the real estate operators, but it’s usually the operators that ask how the crowdfunding company helps administer the deal. iFunding’s intent is to perform most of the financial, legal and investor communication efforts, which allows developers and operators to focus on the quality and speed of their project.

Let’s look at some of the most significant responsibilities and costs we take care of for our project sponsors.

  • Entity setup: A series LLC is set up to hold the property, funds and document the relationship between all parties. iFunding inserts any specific considerations for a deal into the legal documents and works with our legal counsel to register  a Form D with the SEC. Our executive team is involved in a full legal and registration review. Once funds are being committed, additional steps are taken to register in each of the states in which investors live, where this is required.
  • Listing on the platform: For a project such as a home flip, we work with the operator to prepare and clarify the project documents, including the pro forma and listing description, and securely organize and present these documents online. This can take several days of effort. Our graphic designer edits the photos and video to have them display attractively on the site. Larger commercial projects require additional details.
  • Promotion: iFunding coordinates and hosts a webinar on behalf of the operator for investor Q&A, sends notifications to its registry of thousands of investors at the time the deal is listed, and writing updates weekly as part of our newsletter. We also often call investors with particular interests to highlight the project to them. For projects with special themes (e.g. particular locations or property types), we also may interview the sponsor and write a multi-page blog post promoting their expertise.
  • Potential investor interaction: Because many investor questions may be similar, iFunding handles the first line of support for investor inquiries, and updates the website description to cover recurring questions. As needed, we share new questions with the project sponsors and as needed arrange calls involving the sponsor and the investor(s). When dealing with scores of potential investors examining a deal, this first line of support can save the operator considerable time while they’re focused on preparing their permits and property for work.
  • Financial commitments and fund transfers:  We use a secure, online document sharing and signature service for each commitment by an investors and take care of the per-signature charges on behalf of the operator. Next, the secure transfer of funds from investors to the project during the commitment stage involves use of an escrow account. iFunding covers the cost of the escrow service, which is a percent of the deal raise, on behalf of the project operators.
  • Weekly investor reporting: Investors appreciate having the ability to read timely updates about their investments. iFunding writes and posts weekly updates in text and images and disseminates by email to investors. All updates also reside on a private website dashboard the investors can log into.
  • Tax reporting: Our financial team prepares K-1s to send to every investor for every project in preparation for annual tax submissions.
  • Due Diligence: There are numerous steps and research services involved in performing the initial due diligence on a property and a project sponsor. These increase investor confidence in your projects and help facilitate funding. They include use of due diligence services such as CoStar, which iFunding pays for on each deal. These will be covered more in a subsequent blog about services we perform on behalf of investors.

Because crowdfunding often involves more investors than a traditional real estate deal, each of the above steps requires extra effort. Fortunately, iFunding has the infrastructure to make these steps significantly more efficient than if a project operator was doing it on a smaller-scale, and iFunding covers the cost outlays in filing and transacting the deal. In fact, the administration fee charged to the investment project is effectively break-even for our crowdfunding service. iFunding believes enough in aligning itself with its investors and operators that profits to the platform mainly come from the last tranche of returns, after a project turns a profit for its investors.

In sum, we believe that many real estate sponsors seeking financing will find it faster, easier and more cost-effective to rely on a crowdfunding platform to reach large numbers of investors.  As many of our partners say, “crowdfunding lets my business scale.”

Real Estate Investing Due Diligence: How to pick your market (a bird’s-eye view)

In today’s vast and sophisticated real estate market, investors have opportunities to directly or indirectly access real estate assets worldwide. As real estate starts to recover as an investment class, it can become a daunting task to decide where to place your chips.

Before diving into to the juice of the actual deal, (asset returns; asset condition; asset location) it’s imperative to research the “market” in which that asset lies. Seasoned investors know different risks involved with each region; my goal is to get the average investor to think about the not so average due diligence questions.

For the purpose of this blog, we will focus on the continental United States, although the scope of this research approach can and could be applied elsewhere. Regionally speaking, we can divide this topic into four regions; the East; the Midwest; the South and the West. Each with its own nuances, you can imagine there are far too many to cover in this blog, so we will cover broad areas for investigation.

 

Culture

Are state laws friendly towards investors? Is this rumored to change and if so, how will it affect your strategy? Touted as America’s most disliked tax, (and known as a lagging indicator) property taxes vary state by state and tend to follow the direction of political environments.

Are the political heads competent enough to get things done? Double-checking on the leaders of your potential investment region is key before finding yourself in business with them. There is nothing more stifling to projected long term profit than city leaders who cannot respond to growth needs. A good place to start is the cities 5-10 year plan. Make sure your goals will fit into their projected plan.

Changes in demographics

Population changes are huge game changers as investors in natural gas states like Wyoming and North Dakota have found. Projections from independent and reliable resources such as The Brookings Institute are worth checking, on a regular basis. Places with stagnant or declining populations should have compensating factors and accompanied with well thought-out long term strategies

Diversity

Diversity in population has proven to bring increasingly stable returns. We are finding dense populations and higher returns around urban more so than suburban areas for numerous reasons; diversity in food, shopping and entertainment experiences are a few of them. Americans love choice and convenience, these two amenities are luring them to the surrounding urban areas.

Seasons & Natural Elements

Weather will affect your bottom line. Consider the South where for all intensive purposes it rains a lot or consider the Midwest where the winters are most fierce, what type of additional expenses should an investor include in their calculations? For these examples biweekly grass trimming, winterizing and snow removal expenses are cash flow attackers. Investors in NV should think twice about buying assets with aluminum siding as hailstorms frequent the region and can damage the curb appeal once held.

Geography

Is the area predominantly developed? Does it have its infrastructure needs met? Is there a finite amount of livable and build able land? It is safe to assume property values will be higher in more developed areas. It can also be reasonably deducted that the more sophisticated the infrastructure, the more money needed to run that economy.

As you can see, this due diligence aspect can become as expansive or detailed as you want. It’s important to keep in mind that Investing whether in your backyard or out-of-state will require knowledge of your market. Once you’re financially involved with a real estate market it’s all about managing the experience. Putting a lot of the work in on the front-end can make that process more profitable and palatable.

 

Jasmine Willois is the co-founder of WBRE Mgmt, LLC. Learn more about her real estate investment clubs and follow Jasmine Willois on LinkedIn!

Challenges of Investing in Real Estate

The commercial real estate market is making a comeback! Recent data suggests that now seems to be the ideal time to add real estate to your investment portfolio. Some benefits of investing in commercial real estate are:

  1. Stable cash flows: Commercial properties are typically occupied by tenants that have long-term leases, making cash flow fairly predictable.
  2. Low risk diversification: Private commercial real estate investments can be a wise portfolio diversifier since their returns have low correlations with other asset classes such as stocks and bonds.
  3. Inflation Hedge: Given its positive correlation with changes in the consumer prices, real estate investment can provide a partial hedge against inflation. As consumer prices rise, so do real estate cash flows and, typically, associated property values.