In the past couple of weeks, I published some tips for entrepreneurs seeking to raise funds for their real estate projects. For this post, I have decided to turn it around and give you some best practices for those seeking to invest in private real estate projects online. For those of you who aren’t familiar with real estate investing, there are excellent books and resources out there and a simple Google query should get you started.
1. Do your homework. Remember that GroundBreaker is a “direct” investment platform. This saves investors substantial costs and maximizes potential returns. However, this also means investors have to do their own homework (or get someone to do it for them). Keep reading if you want to find out what I mean by this.
2. Meet the entrepreneurs. This cannot be emphasized enough. Investors should meet the team behind the listed project and be comfortable with them, both as people and as real estate professionals. Do you think that they have what it takes to deliver the goods?
3. Do the reading. Know your rights (and responsibilities). You wouldn’t sign something without reading it first, right? Riiiiight? Make sure you know what you are getting into ahead of time: know when reports and distributions are due (and how distributions will be calculated), the length of the investment horizon, the selling/transfer restrictions, etc.
4. Ask questions. That’s what the forum is for! There will be ample opportunity to get your questions answered.
5. When in doubt, seek help. If you don’t understand something, call up your accountant, advisor, lawyer, or a smarter friend.
6. Do some fact-checking and request backup information. You can Google pretty much anything these days. Savvy investors will check critical facts affecting the investment, such as market comparables and demographic information. For the “trickier” items, investors can always call up the entrepreneur and get the backup.
7. Go over financials and projections carefully (and remember that they are called projections for a reason). Make sure you review the financial model and that it makes sense. Are the assumptions reasonable? Have they considered multiple scenarios?
8. Understand the investment case and the risks. You should understand the investment case for the project (i.e. why and how the entrepreneur intends to make money). On the flip side, you should acknowledge that real estate investing has risks. Make sure you understand them.
9. Balance it out. You should not invest your life’s savings or money you will need during the investment term on illiquid real estate projects. If you need help with this, talk to your financial advisor.
10. Leverage GroundBreaker. Use GroundBreaker to meet fellow investors and tackle the due diligence process together. Make sure you read through the deal wall and see what others think of the opportunity. Let the power of crowdsourcing be your ally!
GroundBreaker is giving you an opportunity that has not been available to most investors before. Happy investing!