How does due diligence work with crowdfunding? How do you determine whether or not the portal is really a Ponzi scheme, willing to take your money and run? And how do you check out the investments themselves, without using up all the profit on expensive appraisals? Learn how to vet crowdfunding portals and the investments they list with this informative yet brief presentation.

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2. 1 Due Diligence Problems
Due Diligence for Crowdfunding
You understand what due diligence means:
check enough of the facts to make sure you're
not getting scammed.
But how does due diligence work with
crowdfunding? How do you determine whether
or not the portal is really a Ponzi scheme, willing
to take your money and run?
And how do you check out the investments
themselves, without using up all the profit on
expensive appraisals?

3. 1 There are 2 types of crowdfunding portals
Due Diligence for Crowdfunding
There are 2 types of crowdfunding portals:
Donation Crowdfunding, and Equity/Debt for a
profit.
Although there are rules that have been
proposed for regulating the industry, such as
requiring registry with the SEC and FINRA,
these have not yet been finalized.
Some companies that have chosen to voluntarily
register with FINRA; this would seem to indicate
a higher level of trustworthiness.
TIP:
You can check whether
or not a portal is
registered with FINRA
here.

4. 2 Does the portal utilize 506(c) or 506(b)?
Due Diligence for Crowdfunding
These two designations differ significantly.
506 (c) allows crowdfunding companies to raise
funds through a private placement offering, and
to advertise. This is something that wasn't
possible previously without full SEC filing such
as an IPO.
506(c) issuers are not allowed to rely on self-
accreditation. By law, brokers are not allowed to
sell to you unless you make over $200,000 a
year in income or have over $1 million in liquid
net worth.
506(c) issuers must have a way to verify this
(some use Veri-tax); 506(b) issuers have the
investor signs documents that “self-certify."

5. 3 Research the portal.
Due Diligence for Crowdfunding
Google the owners, former employees -
basically find anything and everything you can
find on them.
You also want to make sure they are well-
funded, for example, with venture capital
backing, since that means they have some
accountability.
Also, make sure they work with a broker-dealer.
Although there are very few portals that can do
this, it's still the best choice if you want to
choose a reputable company.

6. 4 Research their fees.
Due Diligence for Crowdfunding
Find out what the portal charges.
Sometimes these are easy to find. Often,
however, companies make it difficult to find out
all the various fees they have. You might have to
call them.
You might choose to veto a portal just because
of the steepness of their fees.
One portal, for example, charges a 2.25%
annual fee. Practically that can eat up as much
as 30% of a cash-on-cash return.

7. 5 Find out how the deal is structured.
Due Diligence for Crowdfunding
Determining exactly how the deal is structured
lowers the risk. If there is a middle-man, for
example, the risk is higher.
Does the portal allow you to invest directly with
the developer? Or do they creat an LLC, and
then invest into the project.
Each of these makes a difference.

8. 5 You'll still need to do regular due
diligence.
Due Diligence for Crowdfunding
Even though these are crowdfunding portals, the
essentials of vetting commercial income
properties still hold true.
That means that you'll need to check out
proforma, the location, the market conditions,
figure out the expected occupancy, etc.
Cash on cash returns are the best measurement
of profitabiliity. IRR is a good bonus for the
future, but not one that should determine
whether or not you do the deal.
It's icing on the cake: it's a future outcome that
you can't really guess.

9. 6 Crowdfunding portals may make things
easier - but don't be a lazy investor.
Due Diligence for Crowdfunding
Crowdfunding is ideal a way that investors of all types can get
into investment.
It's a great way of leveling out the playing field and putting
more into the hands of individual investors.
However, it only goes so far. Crowdfunding owners don't have
crystal balls that can predict or guarentee the success of a
particular project.
Be responsible, and think of them as the name implies: as a
"portal" their job is to facilitate access between you and
developers. They give you access - a "door" so to speak- but
you still have to get through the door on your own two feet.

10. Questions?
HOW TO DECIDE WHETHER OR NOT A COMMERCIAL PROPERTY IS PROFITABLE
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