Every once in a while an idea comes along that you wish you’d thought of.
In this case it was the perfect combination. Sizzling-hot, super-prime real estate. Two of (arguably) the world’s most legendary A-list sport celebs. And a phenomenal piece of dare-devil stunt marketing.
In possibly one of the craziest real estate launch stunts ever performed, Formula One racing legend David Coulthard took to the top of the Miami’s tallest residential tower to spin some donuts – 700-feet off the ground!
And to top it off, fellow sporting superstar David Beckham dropped a cool US $20M on a full-floor penthouse in the Zaha Hadid designed building.
Hark the (re)emergence of the Real Estate Crowdfunding Platform.
Real Estate Crowdfunding isn’t new. The concept’s been around for over a decade. Although now it’s enjoying a re-birth during this age of post-pandemic excess liquidity.
Let’s start at the beginning.
What is Real Estate Crowfunding? It’s the ability for retail investors (Mr or Mrs Smith) to invest nominal sums towards a direct real estate asset acquisition, via a platform that manages the transaction, the financing, and the asset, in exchange for a fee.
In plain English, ‘Invest in property for as little as $500‘.
These soundbites may sound sexy, but they’re often misleading. So together let’s take a closer look at the Pros and Cons of real estate crowdfunding:
The Pros – Why to crowdfund a real estate investment?
AccessAll Areas
The biggest benefit of real estate crowdfunding is access to dealflow.
Some years back I participated in a crowdfunded acquisition of a commercial property on London’s Oxford Street. The deal proposed that investors would earn an income yield of 2.15% (net of fees) and an IRR of 13% from the value uplift that was explained within the investment pitch. It was a 4-hear hold. I’ll tell you how it went, further down this article.
Point is, the deal was fully subscribed. Investors like me, who’d have never otherwise had the chance to participate in an Oxford Street commercial property acquisition, piled in. Access.
Small Tickets to Big Plays
Real estate is traditionally a very lumpy asset class. It takes a large amount of capital to buy a property, and ties up that money for the duration of your holding period.
Crowdfunding real estate can be done with small tickets. Enabling investors to participate in big real estate investment plays, without needing to have, or indeed lock-up, large sums of equity for long periods of time.
Liquidity – Getting your money out.
Direct real estate ownership is when you directly own a property in your name. Like your house.
Crowdfunding real estate is not direct asset ownership. It’s indirect. You will own shares in companies that are set up to buy and own the properties directly. Those shares can be sold to the other shareholders of the company, or to third party investors, via the crowdfunding platform’s internal marketplace, without the need to sell the property. Making your ability to get your money out, easier. More liquid.
Diversification
Crowdfunding investors can distribute their capital across an array of property types and sectors. That’s investment theory 101. Spread risk out strategically, across a diversified range of properties. Instead of putting equity into a residential rental investment.
Invest across a basket of residential, commercial, and retail properties. Each with their own economic and tactical opportunities.
The Cons – Why not to real estate crowdfund?
Fees
Where direct real estate investment puts you in the driver’s seat. Indirect crowdfunded investment leaves you, the retail investor, reliant on the platform you’re investing through, to manage your investment and the property. They’re putting this deal together from beginning to end. And they’re going to charge a fee.
Whether they charge a stack of them; like a sourcing fee, an admin fee, an early-exit fee, or a carry… Or they roll their remuneration into a single, seemingly innocuous ‘Administrative’ fee. The platform you’re investing through is clipping a slice of your investment for themselves, before you see a penny.
Illiquidity
Promoting crowdfunded real estate platforms on the basis of their liquidity sounds nice in theory. You’ll be told you can sell your shares in the company that owns the property, fast. And get your money out with little administrative hassle. But read the fine print.
There might be a minimum lock-in period during which you can’t exit your capital.
It’s not uncommon for a crowdfunding platform to demand the right of first refusal to buy your shares. Not a bad thing, but it won’t pay full value for them.
Often the platform will give themselves the authority to approve (or reject) any buyer for your shares that you might find on the secondary market.
Any one of these conditions, creates illiquidity. So read up on your chosen platform’s T&C’s. Know your rights.
The Unspoken Upside
Here’s the dirty little secret that crowdfunding platforms don’t want you to hear.
Before it can offer a property to its crowd of investors, a platform needs to source and secure it.
To do that, the platform either buys the property outright and flips it to the crowd. Or locks in the right to buy it at a price, then secures the crowd funding for it, at a higher price.
In both cases there’s a markup. A delta, between the price the platform secures the property for, and the price it pitches it to its crowd at.
That difference is an upfront upside, that the platform keeps for itself. It’s an immediate profit that’s coming out of your investment’s bottom line. An ethical crowdfunding platform should declare the property’s true acquisition price, source a deal for its crowd at no profit, and justifiably charge a sourcing fee for its troubles.
Beware of any platform that does not declare the true purchase price of its properties to its crowd. Especially if they’re also charging a sourcing fee. Big red flag. š„
The Waterfall
Remember that deal on London’s Oxford Street that I invested in years back? The one that promised a 13% IRR? Guess what ended up happening with it.
The distribution of returns didn’t play out as the platform had proposed in their pitch.
The pitch was based on a rental income uplift to be gained, from a lease renewal that was due during the investment holding period. That renewal ran into trouble. Negotiations between the property manager and tenant dragged out. Lawyers got involved. Legal fees skyrocketed. The platform didn’t distribute dividends as they’d promised. After 4 years, what was supposed to have been an IRR of 13% ended up closer to 7%.
This despite all the ‘professional’ opinions (from lawyers, property professionals etc..) that the pitch had cited at the start.
The sting in the tail is that when you’re a retail investor, sh*t falls down. It’s not the platform that’s at the bottom of the totem pole. It’s you.
The platform’s banked its upfront upside. It’s been paid all its administrative fees. All it’s got to lose is its carry fee. That’s the fee they get if things go as well as, or even better than planned. Think of it like a performance bonus.
The platform’s banked its upfront upside. It’s been paid all its administrative fees. All it’s got to lose is its carry fee. That’s the fee they get if things go as well as, or even better than planned. Think of it like a performance bonus.
But let’s face it. Things don’t always go to plan. And when it hits the fan, the only one losing…is you. Because here’s the thing about being an indirect, retail investor. You’re too small to matter. In the cascading waterfall of profit distribution, you’re last in the queue.
Let’s Wrap This Up
So, is real estate crowdfunding a good investment?
If you want to diversify your portfolio. Get in on property deals you otherwise can’t access. Put smalls sums of capital to work. Then sure. Give it a go.
BUT…read up. Know who you’re investing through and the conditions of your investment. Be aware that the platform you’re investing through is carrying little or no risk on the trade. And that they will make more profit from your money, than you will.
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Every business person knows that feeling of putting time into negotiating deals. The art of convincing a counterparty. The excitement of getting a deal to its final stage. The elation of success. The celebration.
But success isn’t always the outcome. In fact, more often than not, deals fall flat in a heap of disappointment and wasted time.
And this one negotiatingtactic that many people mistakenly use, is almost always guaranteed to throw their deal from the outset.
AI-driven writing tools are becoming a widespread phenomenon.
An AI writing assistant is software that automates the writing of one or more phases in the process of generating content for marketing purposes. AI writing assistants help with ideation, structure and even tone and style, giving marketers more time to focus on their unique skills and to brainstorm new ideas.
Due to its wide range of capabilities, an AI writing assistant can potentially make marketers’ jobs easier: It can generate content at scale while also making sure that every post has the right tone and structure according to client specifications. In addition, it can also take care of error-prone tasks such as copy editing
Many copywriters are now using AI writers to create content because software can identify the best structure and vocabulary to use, which can be a time-consuming process for copywriters. It also helps them with writerās block by giving them new ideas on what they should write about.
AI writers are also much cheaper than human copywriters and can generate content at scale. This is thanks to their ability to learn from large sets of data and perform efficiently.
How to find the right AI assistant for your needs
So how do you know which one AI assistant is right for your business? To start, you want to think about what kind of content you need. Do you need data-rich articles with keyword-rich titles that can rank well on search engines? If so, then an automated content creator that specializes in SEO is ideal.
Alternatively, if you’re looking for something more creative and less technical, then an AI writing assistant that specializes in creative writing or emotive content may be perfect for your needs.
There are also AI assistants that specialize in designing infographics or editing video scripts.
The importance of AI in various industries
The emergence of AI has changed the way we do business. It does away with the need for human intervention in many cases, which means that there is no need for staffing and management of huge teams to handle customer service issues. For example, AI-assisted call centers can manage support tickets with accuracy and speed without requiring human labor all day long.
We will start seeing more jobs being replaced by AI as it becomes more advanced, so it’s important now to look at how AI can be used for better productivity.
Ways AI can supercharge your productivity
The way you use AI is going to depend on what your business is and what you plan to do with it. When you’re starting a startup or a company, AI can be incredibly useful. It can provide you with insights into who your target audience is and how they’re going to react to certain changes in your product or service offerings.
To work on a project, you need to have a good idea of what you want to do. In some cases, this may be as simple as just listing all of your ideas and then going from there. In other cases, it may be more difficult. That is where AI can come in ā ā the software will help you find the best idea for your project and help you with your workflow.
In reality, AI is already impacting businesses today. The main question is not what AI can do for a business, but rather how a business can leverage AI to improve customer experience and increase profitability. AI assistants are on the rise and they have been used for a variety of tasks from content generating to automatic translation. As more companies start using these technologies, they will change the way we work and live.
This column does not necessarily reflect the opinion of OVERWRITE.ai and its owners.
This story has been published from an online news feed without modifications to the text. Only the headline and has been changed.
overwrite.ai is an artificially intelligent content creator helping real estate agents write unique, search optimised property descriptions that sell homes.
For informative and light-hearted news and views on the world of real estate, follow overwrite.ai on Instagram and LinkedIn, and keep up-to-date with our weekly NewsBites blog.
What does it take to become a top real estate agent?
There’s no denying the profession is relentless; with extreme working hours, emotional roller-coasters, short-weekends, and no guaranteed income. Estate agents must be prepared, sometimes through no fault of their own, for deals to crumble at the last minute.
So, itās no exaggeration that many of the worldās top brokers eat, sleep and breathe real estate.
