Investment in real estate has become easier with numerous innovative platforms that connect property owners/developers with property investors. Companies like Reality Shares, R2 offer rigorous research before any deal goes live opening new dividend growth opportunities to investors and their advisers.
The process normally goes through 5 steps.
Step 1: Sponsor evaluation
As a first step the sponsor approaches the realtor and provides real estate opportunity for capital raise. Before further considering the project, the realtor evaluates the real estate’s or so called “sponsor’s” prior experience and track record to decide whether the project meets the standards to be included in the platform. The realtor performs background check/credit checks as well as checks track record and assesses regional familiarity.
Step 2: Asset evaluation
The asset is analyzed with respect to risks and added value. Some realtors, like Realty Shares focus on certain sectors of industry, in this case, on value-added, middle market opportunities. The asset type and the business plan are evaluated with the focus on return potential. The realtors also analyze tenant profile and assess the leverage potential. An important factor here is that the sponsor provides at least 7-10% of the equity.
Step 3: Underwriting the deal
The business plan and market demographics are further analyzed to reach an in-depth understanding about risk/return profile of the opportunity. Institutional level analysis is performed and own financial models are developed focusing on the “acceptable level of risk”.
Step 4. Transaction negotiation
At this level, a team of professionals reviews the legal terms of the transaction and negotiates on behalf of the investors. Operating agreements are drafted and applicable documentation is developed and collected.
Step 5. Compliance approval
The information is reviewed by an authorized broker-dealer to make sure that the data is balanced, fair and discloses applicable risks. All the documents are also reviewed by the internal team to ensure that the information is presented accurately.
Finally, the investment opportunity is published to the websites and investors are notified about the offering.