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What are the benefits to the RE Developer of Crowdfunding?

Started by Dave, September 20, 2018, 07:24:00 AM

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Dave

What are the benefits for the developer of funding a deal through Crowdfunding?
What is their incentive to take on the extra work associated with taking and managing relatively small amounts of money from multiple sources rather than a large sum from one source?

I asked my banker, a guy I've been working with through my business for about 15 years, what the motivation behind crowdfunding a deal might be for a developer and he said two things.

1.) He said to me, remember a bank isn't your partner nor do they want to be. That's not their business at this time. A long time ago, one could have had a relationship more closely resembling something akin to a partnership, but now a bank views you as simply a customer to make as much money on with as little risk to them as possible. Most likely their bank isn't interested in this loan.

2.) His off the cuff opinion, without any research into crowdfunding or the type of deals offered, was that they must be more on the risky side where borrowing funds from a mainstream source would be cost prohibitive.

I then asked my accountant, who I view in general as a PIA and is one of those guys who is afraid to offer any type of opinion on anything, lest he may be "held responsible" in the future.
Example:
"Hey Jeff, what's the weather outside?"
"I really couldn't say, you know it all depends and it could change rapidly and I don't pretend to be an advisor of any sort, really you need to find a specialist in that area"
"Thank you for your help as usual, Jeff"
My PIA accountant just said, make sure you get a K-1 form and bring it to me. He was no help as usual.

I then asked a friend in commercial real estate what he thought, and predictably, anything that cuts him out of a deal, he is against. He said, "I wouldn't do it, you'll lose all your money. Hey, how about I run a report on small apartment buildings for sale. What's your budget?"

So, has anyone got any ideas what may be the motivation of the developer behind these offerings?

(I suppose I'm doing this backwards as I've already invested in two deals and only now have thought to try and understand the deal from the other side.)

hyperobjeckt

I had the same question, so I created a borrower profile on groundfloor to see what their sales pitch is like...

Take a look for yourself, it mostly looks like the selling points are "faster & easier to get approved than a bank": https://www.groundfloor.us/borrowers

Quote from: Dave on September 20, 2018, 07:24:00 AM
2.) His off the cuff opinion, without any research into crowdfunding or the type of deals offered, was that they must be more on the risky side where borrowing funds from a mainstream source would be cost prohibitive.
This is the vibe I get too. I don't know much about RE loans, though.

Dave


Sam

 Traditional banks have a very low tolerance for risk. Therefore, they won't learn to real estate developers, and if they do, they will charge higher interest rates. The bank has the main bread and butter business of  making may be a 1% or 2% margin on deposits.

For more innovative and risk taking banks, check out Silicon Valley Bank. I think the ticker is SVB. That bank stock has been on fire.
Regards,

Sam