Crowdfund Review Methodology - Ideal REI

Crowdfund Review Methodology

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Here at IdealREI, we have taken a different approach to rankings. We do not assign an arbitrary ranking based on how much the we “like” it, or based upon how much the site/service is willing to pay us to review it.

Instead, we have established a set of criteria that is mandatory in order to receive a rating. Once the basics are met, we use a second set of criteria to evaluate them.

We then search their websites for the answers to our list of criteria. If their website lacks the information, we will search the internet, news, or press releases as well as contact the company directly if all else fails.

Determining the number of stars

We currently have over 80 crowdfunding platforms on our tracking list. Because of the large number, we have decided to use the company’s position on our list to determine the number of stars it will receive.

Here is the breakdown:

Stars Percentage of Companies
5 stars 5%
4.5 stars 5%
4 stars 5%
3.5 stars 10%
3 stars 10%
2.5 stars 15%
2 stars 15%
1.5 stars 15%
1 stars 20%

Another way to look at it – only the top 5% receive a 5-star rating and only the top 15% receive 4-stars or better (4, 4.5, or 5).

Also, since we are ranking companies based on their overall position, we can objectively change the rankings and ratings any time the information changes. Should a smaller company change the way they operate, we can quickly adjust their score and move their position on the list.

Since there are roughly 80 crowdfunding sites that we know about, you can expect to see the following amount in each category

  • 5-stars – 4 sites
  • 4.5-stars – 4 sites
  • 4-stars – 4 sites
  • 3.5 stars – 8 sites
  • 3-stars – 8 sites
  • under 3 stars – roughly 52

Though we will track the position of every site that we can find, we prioritize our full review for the top companies and we probably won’t ever write full reviews for anything under 3 stars.

More about our criteria

All ‘approved’ crowdfunding sites reach a basic level of functionality. This includes having a functional site with no noticeably fake investments. Also, it should have at least one open investment and be focused exclusively on real estate. Finally, all the information we are looking for should be readily available on the website or be given to us relatively quickly upon request.

Sites that meet this basic level are then graded on 11 different criteria.

  1. Availability – It’s expected that people in all states can invest. We are in the process of phasing this category out because we simply aren’t going to consider websites that are available to a small number of states.
  2. Prefunding – If deals are prefunded by the platform then they are accepting risk. If investors don’t like the deal then the platform is stuck with it, which likely increases the level of scrutiny they put on each deal.
  3. Fees – This is on a sliding scale, lower is better.
  4. Minimum investment – The lower the investment minimums the more points the platform receives.
  5. Co-investing – It is beneficial when the crowdfunding site invests in the deals alongside the investors. Just like prefunding the deal, when the platform has to risk its own money, then its interests align more closely with the investors and they will provide more scrutiny and a higher level of due diligence.
  6. Bankruptcy protection – Does the platform have a plan in place should they go bankrupt? This is being removed because we won’t be considering platforms that don’t have this.
  7. VC funding – Has the crowdfunding company received venture capital funding? If VCs are willing to bet their money then it is more likely to survive than a company they shun. Also, VCs usually provide some expertise and advice to help the companies grow and thrive.
  8. Non-accredit investors – The spirit of crowdfunding is to make it available to all. We understand the regulatory environment is very restrictive toward this, but sites that have some investing options for non-accredited investors are given some bonus points.
  9. Diverse property types – Does the platform have investments in multiple types of property such as commercial, residential, retail, hotels etc. Not only is it important for an individual to diversify across property types, but a platform that also has diverse offerings is more likely to survive the next economic downturn.
  10. Equity – Does the crowdfund site offer equity investments? This is being merged with #9.
  11. Debt – Does the site offer crowdfunded debt investments? This is being merged with #9.

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