For over 25 years, our sister company The Motley Fool's purpose has been to "Make the World Smarter, Happier, and Richer." We have done this as both a voice to empower investors and an advocate to lift the veil of opacity Wall Street hid behind for decades. At Millionacres, we intend to carry on that mission in the world of real estate investing.
With the advent of crowdfunding, due in large part to the JOBS Act of 2012 and the rise of real estate crowdfunding, we saw an opportunity to bring that same voice of empowerment and transparency to what has historically been one of the more gated asset classes out there: commercial real estate.
One of the ways we do this is by rating and reviewing crowdfunding platforms. Sponsors of deals in multifamily, industrial, office, and other categories have raised money from both accredited and non-accredited investors through these platforms. We provide ratings as a way of helping potential investors understand the possible risks and benefits of each platform.
These reviews were also designed to reflect our values. Offering investments to individuals means making them available to everyone in a transparent, easy-to-understand way and ensuring the interests of the sponsor and platform are as closely aligned as possible with that of the investor.
With that in mind, we have created a 100-point rating methodology based on 14 criteria. Here's how that score breaks down:
- Bankruptcy protection (10 points): We rate on several factors here, but primarily how at-risk any investments made through a platform would be if that platform were to fail. The best platforms are structured so each deal is completely independent, meaning there's almost zero risk to the underlying real estate asset. We also consider the implications on your investment for things such as performance reporting, tax documents, and dividend payments, rating each platform based on how integrated it is with each deal and sponsor and what the short- and long-term risks would be if the platform were to fail.
- Deal flow (10 points): We rated each platform based on the variety of deal types and project lengths offered and whether it presented a consistent quantity of deals on its marketplace. In general, the more volume and variety featured, the more potential investors a platform is relevant to, so long as the platform also has a track record for practicing thorough due diligence. What's more, we considered how deals performed compared to their targeted return, how many deals lost money, and the average and median rates of return for all fully realized offerings.
- Deal transparency (5 points): While the top platforms all practice relatively robust due diligence, investors should consider this only the initial layer of filtering and take responsibility to further vet any deals before investing. With this in mind, our ratings for deal transparency are aimed at rewarding the platforms that make it easy to review deals and find relevant information about each prospective project. This includes how much information they make public about the returns generated by fully realized deals on their platform. Even some of the most popular won't make this information public, but the few that do get extra recognition for their transparency.
- Fund diversification (5 points): While a significant number of offerings on the top platforms are standalone real estate projects, there is high demand for diversified real estate investments. We scored and rated each platform based on the depth of its offerings in the area, how accessible it is to investors at varying levels of capital, and the fees it charges for the products it offers.
- Due diligence (10 points): How -- and how well -- does the platform vet sponsors and real estate offerings? Does it have a process and a track record that indicates thorough vetting prevents higher-risk real estate offerings from being featured in its marketplace? How do its business model and compensation align -- or conflict -- with its role to screen deals and sponsors?
- Ease of use (10 points): It is important for platforms to provide investors with the information to make a sound investment decision, but that information needs to be easily accessible, and the ability to invest in deals should be user-friendly. We take a look at what it takes to sign up for an account, how to explore and make investments on the site, and how an individual can track their investment.
- Fees and commissions (10 points): Since real estate projects can be complex and expensive, there are several aspects to this. The first is how the platform itself makes money; some charge fees to investors, while others charge sponsors to list their offerings and facilitate investments. Moreover, real estate projects often have construction costs, real estate management fees, and other expenses that sponsors charge directly to investors. Our goal is to rate each platform based on a combination of the fees investors will be charged by the platform itself and the transparency on all the fees for each real estate offering. The easier it is to find and understand what you'll pay -- either out of pocket or in back-end fees -- the better a platform's rating.
- Investment minimums (5 points): While $10,000 for a single investment may not be that much for the old guard of real estate, it can be a monumental amount of money for first-time investors. Making investing available for everyone means low minimums so those just getting started can invest without having to put all their financial future into a single deal.
- Investor resources (10 points): We rated each platform based on how easy it makes it for investors to access information about deals in the marketplace and manage investments they've made through the platform. The best platforms have high-quality deal pages that make it simple to find relevant information quickly and investor dashboards that save investors and sponsors time and effort when communicating throughout a real estate project investment.
- Leadership (5 points): For years, we have viewed leadership as one of the most important qualities in a business. So we take a look at the experience of the team in charge of the platform because the decisions they make can impact your investment.
- Availability of non-accredited offerings (5 points): The pool of investors that don't meet the qualifications to be an accredited investor is massive, and we believe that the spirit of these rule changes was to make investing in real estate available to everyone. We are favorable to those companies going the extra mile to offer investments to those that aren't accredited investors, and we wanted our scores to reflect that.
- Platform financials (5 points): A harder area to rate since most platforms are privately held and keep this information close to the vest, we rated each based on cash flows, revenue growth, debt, assets, and other balance sheet information as it was made available.
- Skin in the game (5 points): Incentive structures matter. There have been far too many companies out there with measures of success and incentives that don't line up with those of the investors providing capital. So we rated companies on how closely their business outcomes align with those of their investors. We also consider a platform that invests alongside its investors in deals as a true sign of a platform with the investor's best interests in mind.
- X-factors (5 points): No real estate crowdfunding platform that we've found so far is "one size fits all." On the contrary, we have found that most platforms have at least one thing that they do very well, and many have multiple things they are excellent at. And if you're someone who that particular X-factor helps, we want to make sure to call it out as appropriate and give each platform credit. Things that we considered big X-factor benefits are the availability of opportunity zone funds and 1031 exchange-eligible deals.
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