Hyper-local knowledge provides edge to real estate crowdfunding
With an ever-growing stable of real estate crowdfunding platforms crowding the marketplace, it can be tempting to get caught up in the latest widget or gadget to get noticed.
In reality, the traits that levitate one office over another in traditional real estate – hyper-local knowledge and experience in a specific region – are just as important in the new world of equity and real estate crowdfunding.
Marshall Saunders is one of the founders of SaundersDailey, a new platform offering people the opportunity to invest in community-minded, income-producing real estate in the Minneapolis-St. Paul region.
That is a an area Mr. Saunders knows well. He was a residential real estate agent for 10 years. When he purchased 50 percent of Remax Results, it was the third largest brokerage in Minnesota. Six years later it was the largest Remax agency in the world.
Mr. Saunders said the concept of SaundersDailey is simple. They buy apartment buildings, syndicate the deals to investors and create an avenue where the normal investor can participate in large real estate projects.
“In the past, only high-net-worth individuals could participate in real estate,” Mr. Saunders said. “While our investors are still accredited, they may only be able to bring $10,000, $40,000 or $60,000 to a deal. That limited them to purchasing a single family home and renting it.
Mr. Saunders was involved in syndication a decade ago with people he knew, but that was before the JOBS Act.
“But we were hemmed in, we couldn’t broadly advertise,” he explained. “Then the JOBS Act appeared and we could do this on a larger scale. We could now use the internet to do it.”
SaundersDailey combines the internet’s wide reach with decades of knowledge the four partners have gleaned over decades of working in Minneapolis-St. Paul real estate, Mr. Saunders said.
“We know each area street by street.”
Real estate platforms offering opportunities across the country or around the world are unlikely to start with that knowledge base, Mr. Saunders said.
A person with local knowledge can look at a property on a specific street and compare rates with a nearby property on a busy street, knowing the two are a short distance apart, he added.
Within a single zip code in Minneapolis there are properties worth $125,000 a few minutes away from lakefront properties worth $2 million, Mr. Saunders explained.
“Hyperlocal knowledge of an area is so key to real estate,” he said. “It is the biggest factor in proper investing.”
If those properties are thousands of miles away, an investor cannot perform their own due diligence, Mr. Saunders said. But if that property is on the way home from work, one can view the area, talk to contacts and have additional knowledge before making a decision.
Mr. Saunders said the Minneapolis-St. Paul market is tight right now, making it all the more important to invest with people who have the local contacts to know who is retiring or planning to sell before the properties even go on the market. He added he personally knows 900 real estate agents in the area. In some cases, property owners decided to sell only after being approached by SaundersDailey.
Additional benefits come when you invest locally, Mr. Saunders explained. He described a neighborhood consisting of many 1930’s-era apartment blocks. A check of the tax rolls showed the majority of them were owned by REIT’s on investors from Arizona or Florida.
“When those properties produce profit, it is often spent out of state,” Mr. Saunders said. “But if it stays in the area, it is spent at local stores and restaurants.”
“It is self-fertilizing and helps the area.”
While many real estate crowdfunding platforms are seemingly focused on deal flow, Mr. Saunders believes that is a flawed way to judge success. A proper way is to spend more time vetting deals and only allowing those exceeding standards to be listed.
They will also offer realistic returns. Some platforms may have a hard time delivering on their promises, especially if the market turns, he suggests.
“We may be on the boring side, because we are offering realistic returns which may not be as flashy as some.”
Mr. Saunders added SaundersDailey only posts opportunities they feel good enough about backing themselves. The company has 10 percent carried interest in every property.
“We don’t make money if the investors don’t make money.”
SaundersDailey does not charge commissions or take any other fees from investors, he added. Others are welcome to submit their properties for consideration on SaundersDailey, but they will be strictly vetted before being posted to the public, he added.
Count Mr. Saunders in the camp of those who believe real estate may be one of the first crowdfunding areas to be tested by market fluctuations, simply because real estate is such a cyclical market in comparison to others areas.
Because the market is solid now, it is the right time to unveil SaundersDailey, Mr. Saunders explained, as it allows them to recruit investors and get a solid track record in place.
Leadership quality is tested when the inevitable down periods occur.
“And that is when we nail it,” Mr. Saunders said.
“We buy more cheaper properties when they become available.”
Because of their long relationships with investors and their experience in the region, investors can be more confident of SaundersDailey expertise during the more trying periods, Mr. Saunders reasoned.
He added they will focus on C level properties, because tenants living in such properties tend to stay there. When the next market correction takes place, rents at the A and B levels will drop by as much as 20 percent, making them more attractive for people looking to move up. At roughly $850 per month for a two bedroom apartment, C level apartments will remain far enough below the higher levels to deter people from moving on up.
Many people living in these apartments are hard-working people employed at the airport, in construction, and at hotels. Many are from Minneapolis-St. Paul’s growing immigrant community.
“They want good, solid, safe places to live, which are close to public transportation,” Mr. Saunders said. “