Interview with Ian Ippolito, Founder of Real Estate Crowdfunding Review
How should someone think about which option is best for them (eg. Debt, equity, P2P)? There are several ways to invest in real estate, and the main choices are between debt and equity. If you invest in debt, you are loaning money. If you invest in equity, you are becoming a business partner and get a share of the profits. Debt tends to be safer because debtholders get paid before equity holders. However, with less risk there is less reward: there is no potential for over performance, because the debt holder simply gets the promised yield. On the other hand, equity is more risky because expected profits may never come. But at the same time, if the deal goes well equity holders can make significantly more than what was promised initially. So there is more risk but potentially more reward. What is the current state of the industry – ie. there has been an explosion of players at both the national and local level? Yes, it seems like every week there’s a new real estate crowdfunding site that pops up. However, there’s also a lot of pressure in 2016 that wasn’t there in 2015. Many of the VC funded companies are having trouble getting new rounds of financing due to the recent problems with other fintech companies such as Lendingclub (financial improprieties, mass layoffs), Prosper (mass layoffs) etc. So yes, I believe there’s going to be quite a bit of consolidation, as well as some weaker players dropping out. There are both national and local players because of the way the law works. Some local states allow crowdfunding, while others don’t. So most of the VC funded companies are going the national route. But other companies are trying the local state route. The problem for them is that it seems it will be a long time before a majority of the states allow it, so that is an impediment to scaling to a large size (if that’s their goal). Some of the local players are content to sit in a small niche, and if that works for them financially then I think they will end up fine. How important is the actual technology platform and who is doing that well? I feel that the majority of sites do the core/essential technology well. There are a few sites that do a nice job with some of the extras (such as the yearly return calculator on Acquire Real Estate and the auto investing feature on Peerstreet), but no one company has an overwhelming advantage on technology. In fact, I wouldn’t be surprised to see the technology becoming a commodity in the next few years, as everyone copies the best features from other people. I believe that it’s the non-technology portions (due diligence and the ability to source an adequate volume of deals), which are the key differentiators. Source: Disrupt Property
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