There are some easy ways to spot crowdfunded real estate deals that don’t seem quite right.
A recent LA Times article interviewed Manshoory and he’s laid down some helpful ground rules that anyone looking to dive into crowdfunded real estate should know.
Do Your Homework
In investment terms, this means doing your due-diligence. Many crowdfunded projects rely on flash and pizazz to get investors in the door rather than a sound business plan. Make sure you dive deep into the leaders of the project and their specific game plan to see if it passes the smell test. Manshoory says one of the common pitfalls is over excitement about the investment leading to lack of research. So what are some specific red flags that potential investors should keep their eyes out for?
Fuzzy Math
The term made infamous in the 2000 presidential election also applies to real estate investment financials. To quote Homer Simpson, “You can come up with statistics to prove anything.” You should keep this tongue-in-cheek quip in mind when pouring over the numbers surrounding a potential investment. Always remember that even math can be massaged and it’s the job of the project leaders to convince investors to fork over their money. That’s not to say they’re feeding you bold faced lies, but they could be highlighting positive yet unimportant figures while downplaying negative, yet material numbers.
Common mistakes/ways of spinning include underestimating expenses or feeding investors “projected” revenue numbers that are based on the developers vision for the property, not on the actual revenue stream of that property in its current state.