The power of the long-term real estate investor’s mindset is building real wealth over time with minimal risk. This is done by placing reputations and relationships first because real estate investing is just as much about people, as properties, and returns.
Back in 2013, the real estate investment world transformed. The Jumpstart Our Business Startups (JOBS) Act made it possible for real estate companies to raise capital publicly, ending a decades-long ban. Instead of soliciting capital privately, funds and syndicators could market their deals publicly. Together with the internet, online crowdfunded real estate was born. It has quickly grown over the past seven years.
Crowdfunding is great, but it is missing a key ingredient – a focus on relationships. Let’s talk about the benefits to both private investing, general solicitation, and how a combination of both makes the most sense for many long-term real estate investors. If you are new to real estate investing options, check out my article on the different real estate investment types.
Private Investing
Before the JOBS Act, private investing in real estate was about who you knew and your reputation. This was great for establishing relationships and building a portfolio, if you knew the right people. If you weren’t accredited or didn’t know the right people, you had to hunt for a private equity fund, a REIT, a niche syndicate, a private trust, or working with a local real estate investor. Many people couldn’t even invest. If you could get access and find the right deals, there were a few key benefits.
Benefits:
- Meet face-to-face with entrepreneurs, other investors, syndicators, property management, and tenants
- Engage with the property and the market, hands-on
- Build a network with other like-minded investors
Today, many investors prefer either private investing, general solicitation, or a combination of both.
General Solicitation: Online or Offline
General solicitation has changed the nature of investing in real estate. Syndicates have moved online and often work through crowdfunding marketplaces. Today, real estate deals can be advertised and solicited online or offline. It is much easier to find and invest today than it was ten years ago.
Here are some of the benefits driving the huge growth in general solicitation and crowdfunding.
Benefits:
- Not based on who you know
- Lower minimum buy-in
- Easy to diversify
- Invest quickly and easily, all from home
- Large number of deals to choose from
General solicitation and the chance to meet syndicates and other investors on crowdfunding platforms is a huge plus for everyone. Okay, almost everyone. There are a few points about crowdfunding today that probably needs to change.
- Too many investment options can be overwhelming
- Less chance to get advice and guidance, increasing overall risk
- Deals marketed to ‘wow’ and attract investment from many small investors
As a long-term real estate investor, numbers two and three are problematic. I think the market is going to move away from flashier deals towards a more personalized approach.
The Best of Both Worlds
Focusing on the long-term means building relationships and cultivating a reputation. I see this time and again. When you know the people you are in business with, you create better investments. General solicitation, and crowdfunding, is starting to understand this. Crowdfunding marketplaces are slowly moving towards allowing investors to make connections with syndicators, property managers, and other investors. But this isn’t happening quickly enough. Crowdfunding needs to evolve into what it’s missing now: a personal touch and the opportunity to build relationships.
For those investing now, I recommend you place building relationships front and center in your investment philosophy. If you are investing online or through a marketplace, make sure you can reach out and personally speak with the syndicate, the property, the property management, other investors, and even the marketplace itself. This will turbocharge your investing and you’ll accomplish these three objectives:
- Better understand your investment options
- Better understand the overall investment
- Make connections with others that can turn into deals later
