Peer to peer (P2P) real estate investing has emerged as an innovative way for investors to access the real estate market. It connects investors directly with real estate developers or operators looking to raise funds for projects. This eliminates intermediaries like banks or mortgage lenders. One example of a successful P2P real estate investing platform is RealCrowd. It provides a case study on the strategies used in this form of real estate investing.
RealCrowd capitalizes on technology and data to identify promising projects
RealCrowd leverages technology like machine learning algorithms to analyze hundreds of real estate projects and identify the most promising ones meeting its investment criteria. It also taps on data and analytics to develop proprietary risk-scoring models to screen deals. Such use of technology and data allows it to select the top 5% of deals out of all the projects it reviews.
RealCrowd focuses on commercial real estate projects with stable cash flows
The platform mainly funds commercial properties like office buildings, retail spaces, multifamily apartments and industrial warehouses. Such assets tend to have long-term leases with stable rental income streams, making them lower risk investments. RealCrowd avoids speculative projects with uncertain cash flows.
Investors can build a diversified portfolio with low investment amounts
RealCrowd offers investments in different property types, geographic locations and risk-return profiles. With minimum investments as low as $5,000, retail investors can spread their capital across multiple deals to mitigate risk. This allows for easy diversification unlike direct real estate investing which requires huge capital outlays.
Rigorous due diligence is conducted on sponsors and deals
RealCrowd screens real estate developers and operators (sponsors) based on track record, financial strength and transparency. Its investment committee conducts due diligence on each deal including stress testing assumptions and speaking to references. Such strict evaluation provides an extra layer of protection for investors.
Investors earn passive income and capital appreciation
Typical hold periods for investments range from 3 to 7 years. During this time, investors receive periodic cash distributions derived from rental income generated by the properties. Upon sale or refinancing of assets at the end of the term, they also get returns from capital appreciation and equity buildup.
In summary, RealCrowd serves as a good case study of P2P real estate investing strategies like leveraging technology, targeting stable commercial assets, enabling diversification and undertaking rigorous due diligence to generate passive income and capital growth for investors.