Why RealtyShares Only Wants the Best Sponsors
Real estate crowdfunding is responsible for creating some much-needed disruption in the commercial and residential arenas by making it easier for sponsors and investors to connect. As a platform that specializes in fostering those connections, the quality of the sponsors we work with is of utmost importance here at RealtyShares. To that end, we thought we’d have our Director of Investments Mark Masterson shed some light on what fuels our decision-making and why we’re highly selective when it comes to choosing the kinds of projects that we offer to our investors.
I’ve been lucky enough to watch RealtyShares evolve from a grand vision to one of the leading real estate crowdfunding marketplaces. As we’ve grown, the one thing that hasn’t changed is our devotion to putting the best projects possible on the marketplace for our investor community to review.
With more than 1,200 sponsor applications flooding in each month, a refined vetting process is crucial to what we do. That process begins with our expert team, which screens each and every proposal we receive in a way that’s streamlined and efficient, yet also exceptionally thorough. At RealtyShares, we take care to put specific safeguards and controls in place in order to ensure that only the best deals make it onto our platform.
During the vetting process, our team focuses on three specific criteria at the outset. First, we look at the sponsor’s track record to determine whether they’ve done any projects in the past similar to the one they’re proposing. If a sponsor has five or 10 successfully completed projects under their belt, for instance, that speaks to their experience and skill in sourcing profitable investments.
Next, we complete a credit check to ensure that there’s nothing in the sponsor’s background that could create a legal conflict, such as a felony or fraud conviction or any allegations of fraud. We’re also taking a close look at their overall creditworthiness in terms of their credit history, credit score and financial background. We strive to establish a sponsor’s credibility, reliability and trustworthiness based on their personal, professional and financial relationships.
Finally, we also want to be clear about how a sponsor operates and whether they can meet their financial obligations. Many of our loans are personally guaranteed so we want reassurance that if a project doesn’t pan out, the sponsor has adequate cash reserves to cover any shortcomings that may result.
Narrowing it down even further
If a sponsor is able to meet these preliminary requirements, our team takes an even deeper look into the project. One of the key questions we ask is, does the deal align with the sponsor’s previous history? If, for example, a sponsor comes to us with a proposal for a $10 million residential construction project but their experience is limited to fix and flip projects in the $300K-$400K range, that’s likely not something we would choose to move forward with because it doesn’t match their prior record. When a project does reflect a sponsor’s expertise, our team then views it in the context of the broader market. We’re considering the timeline involved and the duration of the project to determine whether a deal is comparable to market rate assumptions and compatible with the market in which they are operating. In short, the economic story needs to be attractive for a deal to gain traction on our platform.
What makes RealtyShares different
One thing we can’t stress enough to both our sponsors and investors is the fact that RealtyShares is not a listing platform. With other crowdfunding companies, anyone has the ability to post a project. We, on the other hand, are curating each and every deal that’s presented to us before it’s made available to our investors. Our reputation is on the line in every deal we do and we take that very seriously in our approach to vetting. Our investors are relying on us to complete the necessary due diligence so that deals are as transparent as possible. Real estate crowdfunding is a relatively new space and building trust is an essential component to our long-term survival.
On average, our investors are participating in deals eight times per year and we want them to continue choosing our platform over the competition. With that in mind, we’re committed to holding ourselves to a strict fiduciary standard with regard to our stakeholders. Working to pinpoint sponsors who are able to offer the highest-quality deals is at the heart of that and it’s why we continue to be recognized as a premier online marketplace for real estate investing.
