Myth 6: The crowdfunding mechanism matters more than the underlying fundamentals.
Though crowdfunding is relatively new, the providers seem to vet sponsors just as much as traditional capital sources do.Jake Seid of Auction.com says the crowdfunding provider needs to have certainty in the operator to sell the asset to investors.
“The [amount of] transparency you have on the operator’s track record is a powerful thing for a lot of people,” he says. “It helps share alignments between operator and crowdfunding investor.”
Rodrigo Niño, CEO of Prodigy Network, too, emphasizes the importance of the operator. “I think it’s operator dependent, not just real estate dependent,” he says. “Crowdfunding is not about buying that apartment building. It’s about partnering with an operator who is going to run that apartment building.”
Niño is aware that any single crowdfunding failure could reflect poorly on the entire model. But, ultimately, success or failure depends on more than just the structure of the deal.
“A big misconception is that the model itself can generate good return,” he says. “The model is nothing. The underlying assets have to get a good yield.”
Myth 1:
Crowdfunding is an entirely different way to finance real estate.
Myth 2:
Crowdfunding brings together thousands of investors.
Myth 4:
Crowdfunding will provide an immediate jolt across all asset types of apartments.
Myth 5:
You can only crowdfund through established online providers.
Myth 6:
The crowdfunding mechanism matters more than the underlying fundamentals.
