Real Estate Crowdfunding. Run The Other Way NOW!
Yep, most of us already know. We are in the business, hell we are the business. The legitimate commercial real estate business.
Boring at times yes, not too sexy most all the time but without question one of the largest and most important asset classes on the planet.
There are certain parts that many may question and I am as vocal as any about how the business of commercial real estate is conducted. There are and continue to be issues that need attention, move towards improvement and will evolve for the better of us all.
One of the new or not so new depending on how you perceive it ways of conducting the business of real estate is to crowdfund.
Crowdfunding- The practice of funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically via the Internet. – Oxford Dictionaries.
The definition alone should scare the shit right out of you.
When does crowdfunding sound like a good idea, or in actual practice need to possibly take place?
Saving children for any reason, yes. Bringing water to the needy, yes. Providing basic services and medical supplies to certain areas under distress, yes. A thorough analysis and computer model of my golf swing and all the coaching to fix it, yes.
Worthy and noble causes to be sure.
Practice, method or instrument allowing small investors or any type of investors for that matter to invest in real estate, NO!
Just starting with the “eye” test is easy to tear this down.
The websites are numbered in the hundreds. Kind of like juicing and colon cleansing sites. There everywhere.
Thay all have some form of REAL incorporated into the name. Something usually along the lines of RealfundmytriptotheBahamas.com CrowdRealfundMyLastbankruptcy.com RealCrowdMyNextXWife.com
You get the picture.
Thay all have most the same look. Tall, tall buildings on the front page that you look up at. Tall buildings, real tall buildings that you need to look up to metaphorically suggesting what? Tall symbols of________ Bullshit.
The simple “join here button ” to get your ass rich with on simple click.
The graphics explaining how hard it is for real people to invest and how real estate is such an amazing investment compared to that other stupid crap like stocks, bonds, or cash. Who wants cash? Not you right. You’re smarter than that.
The section about how easy it is to give them money and how “liquid” that money is. (The scariest and most deceptive part of all) and then, of course, a picture of their “offerings.”
Aren’t they pretty all new and shiny? Hell, some aren’t even built yet there so new and shiny and awesome.
A button or two that sends you to the docs you need to fill out that unbeknownst to you ask for your first and second born.
And the pics of the spectacular team…with beards…they always have beards…or am I just always seeing beards. Do these people shave? Of, course not. They have beards.
They all have like finance or mortgage experience which is finance right. Some real estate buying/ managing experience or they worked at someplace somewhere that owned or sold real estate somewhere sometime and then without out fail the tech geek guy. Just visualize your own picture of what he looks like. Mine is pasty white, bearded, flannels and those eyes that look they have not looked up from a video game since D&D came out (the emails from that one should be priceless) and there is always some reference to hacking you know on the side because that sounds cool to a geek.
Hitting a bit too close to home here for some people? That’s just stereotyping at it’s worse. Or is it?
The Not So Obvious.
What’s missing besides legitimacy, professionalism and a direct link to a lawyer to help keep people out of prison?
How about the basics of commercial real estate investment? I’m not going to bore you so stay with me.
What are they offering, (with a disclaimer of course) that you invest in? Real estate right?
Do you know what it takes to find what if any legitimate investments there are that qualify for investment?
What you thought is that they all should be available right. Any and all open to the entire world at any time.
That’s not how it works? That doesn’t seem very democratic, does it? What if you want to own a piece of the Chrysler Building? You’ve seen it on tv, and it looks nice. Seems solid, where is that investment thing at?
It does not exist. How many sites would you need to go through to find it if it did? How many different contract restrictions and legal paragraphs are between you and that little piece of Iconic American concrete glass and steel?
What is that you say? You not after that big flashy investment vehicle you just want something nice simple and near your back yard? How are you going to find that one too? Your not. So what’s on the sites? Sometimes NOTHING. I said NOTHING. Then what are they doing? You tell me?
If you do find something “legit” how do you know if it is a good investment? I’ll wait while you figure this one out. It’s got to be the bearded guys right. They know. Do they? What if it’s retail, multi-family, or industrial? You know all about those. It should maybe take you a day or two if you Google some of them right. Makes sense to me. Most of the people I know who do this for a living have done it every day of their entire lives and will admit that it’s hard and stake their reputations and others peoples BIG money behind all the decisions. But, a couple of days and The Google should suffice for you.
Still with me?
Keeping with The Google. Is that where you will find all the information you need? Are you sure? Are you sure what you should even be looking for? How about that “due diligence doc” from the website? What’s on there? What in the hell, does all that mean? How is that one little building going to compete against every other building in that area? How do you know? How do they know? Where did the get the information to figure that all out again? Can’t find it. They don’t have it either? WTF?
If you are not informed, how about the other “investors?” They’re smarter than you right. They know stuff you don’t so it makes it safer if other people are in there. They know. How do you know who they are? Are they accredited.? What’s accredited mean again? That means rich people that is what accredited means. Are you not rich? I thought this was “the crowd?” You and grandma and uncle Bob and some people. Investing. Investing in real estate like the rich people do.
What happens when Uncle Bob and one of his buddies who are invested decide to get out and use that money to fund a couple of “trips” to Vegas?
Not smart right, stupid money after stupid money. You are thinking long term. That’s why you are in this, the long haul. Good strategy. How do you know that the people who control that investment have the same strategy as you? You don’t? Why not? The bearded guys told you that’s how it works. You think they need to eat? How do they make money again? Are you sure it’s long term? Who’ protects you again?
Let me throw something at you to help. Most if not all real estate investors and when I say investors, I mean the big hitters,(big hitter the Lama) the pros have what they call a core strategy. Now that core strategy may vary, but generally, it’s a strategy that uses time as in long term time and diversity. What’s diversity mean in real estate investing? It’s anywhere from 40-50 to 70% diversity. You have no clue what that even means? Google that. I’ll wait. Ok, your back. Now how do you execute that? I’m asking you. YOU. Not the bearded guys. YOU. A fancy question you need to ask. How do you scale that? How do you even start to scale that strategy until you get to what percentage of diversity again? I’m not sure I have that answer, maybe the bearded guys do?
Crowdfunding will take years especially an individual site to get to the point that they could even start to build that base of information and then track and analyze it. Are you willing to be the one that gets fucked along the way while they get there if they ever do? Which I would guess 99.9% never will. It’s a fantasy. It’s not even attainable for accredited investors much less grandma. You say grandma is accredited. I would stay close to her.(Wink) I would make sure she doesn’t get sucked into one of these crowdfunded real estate scams and looses all that investment money you have earmarked (Wink/ProV1) for your children and grandchildren’s future (wink) and well-being.
The Democracy Of It All?
So, when does the little guy get a chance to get ahead? When do they get a chance to get in the game if at all? Great question. You know where I would look first. The financial markets. What? That’s where commercial real esate is going. It has to to stay alive in all the emerging and stable markets to be legit. The marketplace itself will democratize with transparency and help become it’s advocate for you. The “investor.”
Crowdfunding is not any way shape or form a way for real estate to allow that to happen.
If I were you and someone mentions Crowdfunding, specifically Real Estate Crowdfunding to you.
I would Run The Fuck The Other Way, NOW!
+1 Opinions are all mine. I sure as fuck have established that. That’s not a disclaimer.
+1+1 Take your best shot, it’s going to be weak as shit but if that’s all you got so be it.