Limitations on Funding for Development Proposals

2 min read

Limitations on Funding for Development Proposals

What are our limitations on funding?

Many times we get inquiries about what types of deals EquityRoots.com funds. We fund a variety of deals: opportunistic turnarounds, acquisitions, new developments. However, we do have some qualifying criteria to ensure that our hotel investors have the highest quality crowdfunding projects available to them. All projects must be franchised with one of the big three brands. This includes Marriott, Hilton, and IHG. Why is it that we are only picking these three? It’s not to say that other properties and other franchises do not make money or are that they are poor investments. These properties do have the potential to perform well and earn returns, but the three big brands that EquityRoots has identified have proven track records of customer service, brand standards, and a sense of predictability that corporate travelers have come to expect. It’s the hotel brands that we feel comfortable investing behind and sharing to our hotel investors on our hotel crowdfunding platform. They have strong brand support that includes a robust central reservation system working to fill your guest rooms each night.

EquityRoots.com also likes to look at the type of transaction. New development hotel projects from the ground up tend to have longer planning times and disposition periods, but they also tend to draw in higher revenue than a comparable pre-existing hotel upon stabilization.  It’s no secret that new hotels often become market leaders, but hotel investors must endure 18-24 months of deferred returns during planning and construction.

Alternatively, existing asset acquisitions are also an attractive proposition because you’re ready to recognize a return on your hotel investment the day after closing.  Existing stabilized assets also allow hotel investors to see exactly the income that they’re buying, whereas new development deals are based on projections.

 

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Are there any dollar amount limits on funding?

In short – no. Traditionally, potential real estate investor bases are often limited by their location. EquityRoots’ platform allows sponsors to reach a larger investor base, using technology to enhance how they source capital. A Hampton Inn in New York City will have no problems raising capital online. It’s strong brand and larger sized market will allow this project to draw not only local investors in New York, but also investors from outside New York State. Our technology department focuses on effective quality search algorithms to make sure that investment opportunities are available to local investors. Interested hotel investors that may be researching how and where to invest in hotels online may find themselves directed to EquityRoots.com’s platform. You don’t have to live near an asset to perform due diligence and invest. With that said, we would expect the New York City Hampton Inn would raise quite a bit more capital than a La Quinta Inn in Albuquerque, New Mexico.

Looking beyond the deal itself

Oftentimes, the sponsor behind a hotel crowdfunding deal matters just as much as the merits and location of the deal itself. Although we don’t set funding limits, we often push project sponsors to contribute at least 50% equity, requiring them to share a significant stake in the success of the project.  This way, both passive hotel investors and project sponsors both share a mutual, financially backed interest in the success of the deal. Other factors matter too, and we look at each submitted project holistically before presenting the hotel crowdfunding opportunity to our hotel investors. In general, the better the flag, brand, sponsor, and market size – typically improve the outcome on the capital raise.

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Hotel Crowdfunding vs REIT Investments

4 min read

Hotel Crowdfunding vs. REIT Investments — Investing Tools for the 21st Century

The 21st century has brought about quite a few developments in the real estate industry. As with most industries, technology has played a huge role in propelling the real estate industry forward. Two have jumped to the forefront within the real-estate industry: Crowdfunding and Real Estate Investment Trusts (REITs).  These two innovations – particularly as they relate to hotel crowdfunding, are alternatives to the traditional investing methods. Now, many investors wonder how to best utilize hotel crowdfunding and REITs for their investment or capital raising needs.

What’s so Special about Crowdfunding for Hotels?

With the passing of the Jumpstart Our Business Startups Act of 2012 (JOBS Act), online platforms such as EquityRoots can now solicit the sale of real estate backed securities to prospective investors by registering Form D with the SEC—the Security and Exchange Commission, or qualifying for an exemption. When using general solicitation, all purchasers of the public offering (in this case hotel assets) must have accredited investor status. The JOBS Act has also paved way for non-accredited investors to participate.  More recently, and under newer offering types like Title IV Regulation A+, unaccredited investors can participate under certain limitations.  This opens up the possibility for online platforms to extend investment opportunities to everyone, not just accredited investors anymore.

Under these circumstances, hotels are a great asset class to crowdfund because of its existing large and loyal customer bases associated with each of the top Hotel chains such as Marriot, IHG, Hyatt and Hilton.  In most cases, commercial real estate like hotels yield investors a greater rate of return than residential real estate investments.  Equity crowdfunding investments can easily exceed the typical returns from residential real estate, often seeing a rate of return above 20% when factoring 5-year holding periods and including the disposition proceeds.  The cash flow performance of hotel assets can also impress investors, especially when the development is backed by a strong reservation system and strong brand.  Crowdfunding is not limited to equity, you can also crowdfund a mortgage or a business loan.

 

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What’s the infatuation with REIT(s)?

Real Estate Investment Trusts (REITs) didn’t start to matriculate in the investment marketplace until the 1960s—when Congress introduced this investing tool into the U.S. economy. What is a REIT? By definition, it is a corporation that owns and operates income producing real estate. More specifically, it joins the capital of several investors and investors earn a share of the income produced, yielding a 8.8% rate of return averaged over the last 10 years.

A REIT offers investment flexibility at a reasonable entry price. REIT(s) can invest in multiple asset classes such as retail, residential, healthcare, offices. and for each of these asset classes, investors can earn a share of the income produced. Many people find REIT(s) an attractive investment because of it’s liquidity, meaning you can wake up and sell it if you need the cash.  Be weary, certain REIT’s often have restrictions on when and how much you can sell.

Conclusion & Comparison

After comparing the two investment tools, it’s clear that each has their pros and cons. A REIT’s ability to earn a reasonable rate of return and the liquid nature of the investment may be a good fit for some people. But for the savvier investor that can decipher between good/bad markets and good/bad flags, they have multiple options on what they can invest into.  It is not uncommon for online investors to yield a higher rate of return through a variety of equity and debt instruments via crowdfunding, and outperform their REIT counterparts.  Real estate and hotel crowdfunding may allow people to diversify their portfolio by personal preferences that are strategically better than a giant pool of assets accumulated over time.

The same cannot be said of REIT(s).  Essentially, a REIT is a pool of multiple properties that you are investing into.  Sometimes the REIT picks good apples and sometimes it picks bad apples, and sometimes the good ones go bad over time, you’re essentially investing into the average. REIT(s) do not allow the investor to pick and choose which investment type they would like to fund, whereas crowdfunding gives control back to the investor and allows them to choose investments that may be most suitable for them, sorting by debt, equity, brand, flag, geographic market, hold period, etc.

Remember, that all investments come with risk.  Investing is inherently taking on some form of risk for a potential reward.  And although people have 24/7 internet access to crowdfunding platforms, they should consult an attorney or financial advisor prior to investing.  Crowdfunding platforms like www.equityroots.com enable its online investors to easily share due-diligence documents and investment contracts with their attorney prior to investing.  Past performance is never a guarantee of the future.

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Hotel Investments Vs. Multi-Family & Fix-and-Flips

3 min read

Are Hotels a Better Investment Than Multi-Family or Fix-and-Flip?

There’s no shortage of opportunities to invest in real estate—so why zero in on hotels, in particular? It’s a question we get asked regularly here at EquityRoots. Truthfully, of all the myriad ways to add real estate to your investment portfolio, hotels are among the least commonly discussed. Why is it, then, that we would offer our investors the opportunity to enter so specific a niche?

Before we answer that, we’ll offer the disclaimer that yes, there are many people out there who make money off of multi-family properties, fix-and-flips, and other real estate opportunities. By no means are we suggesting that these ventures cannot be fruitful. All we are saying is that, if you put all the pros and cons on the ledger and really think it over, you just might find yourself agreeing with us that hotel investments are uniquely promising and distinctly advantageous.

Real Estate Investment 101

To understand what makes hotel investment so loaded with potential, you’ve first got to understand some of the basics of real estate investment. Let’s break it down to the simplest possible level—the most basic concept of real estate investment. When you buy a home, an apartment building, or a hotel—property of any kind, really—you have to understand that it’s not going to make any money just sitting there empty. To generate a profit, any real estate investment is going to have to have tenants. You’ve got to have warm, rent-paying bodies in the building for it to be a moneymaker.

So now, consider the rent-generating potential of a hotel versus other forms of investment. With a hotel, you’re generating rent money night by night. With most anything else, you’re talking about a month-to-month or even year-to-year lease.

It boils down to simple mathematics, then: With a multi-family unit, you may generate $1,200 per month. With a hotel, it may be $69 per room per night. Now, in some cases, the hotel may not come out on top—and there are other factors to consider, such as hotel maintenance expenses. But if the hotel’s in a good market, it’s got good management, and it’s associated with a good brand, we’re willing to suggest that much of the time, hotel investment is going to be uniquely lucrative.

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The Logistics of Running a Hotel

We mentioned that there are some hotel maintenance expenses to take into consideration, and indeed there are. For instance, you’ll have to have someone come in and clean the rooms and provide other upkeep services, which naturally eats into the hotel’s overall profit margin.

But even operationally, hotels offer some unique perks over other real estate projects. For example, with a hotel, there’s no concern over delinquencies or renters who simply won’t pay their fair share. You also don’t have to face the worry of your property being vacant for a long stretch of time; again, assuming the hotel has a good market, a good leadership team, and a recognizable brand, you can feel confident that there are going to be tourists and travelers paying for rooms.

Investing with EquityRoots

But all of this underscores the big reason why hotel investment is, comparatively, a fairly seamless and accessible investment: When you invest through a platform like EquityRoots, you’re not actually signing up to run the hotel. You’re investing in an experienced hotel management team with a peerless track record and a trustworthy flag on its pole. In fact, EquityRoots has sufficient clout in the hotel industry that we can gain access to The Big 3—Marriott, Hilton, and IHG.

Those brands aren’t available to just anyone—not even investors with huge wads of money or a few years of actual hotel experience. They only trust their coveted name recognition to truly seasoned, expert hoteliers—and EquityRoots is proud to be on that list.

The bottom line: An investment with EquityRoots is smart. We know the hotel business. We choose promising markets and ensure that our hotels are well-run and that they offer brand recognition. All the pieces are in place for a robust, fruitful real estate investment.

Learn more about it by contacting EquityRoots today!

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Intrastate Crowdfunding, a Game-Changer?

Intrastate Crowdfunding, a Game-Changer?

The state of Illinois recently proposed a bill for intrastate crowdfunding. The intrastate crowdfunding law proposes the ability for unaccredited investors to participate in offerings that have a physical presence in the same jurisdiction where all investors are domiciled. For example, the intrastate crowdfunding law would allow all non-accredited investors that live or reside in Illinois to invest into a hotel crowdfunding project that is also located in Illinois.

So what’s the catch? All investors must be from Illinois. Not a single investor can reside out of state. Albeit, limitations in place— intrastate crowdfunding might be a solution for non-accredited investors that are often denied from investing into businesses. Despite being financially savvy and stable, many non-accredited investors are often prevented from investing under 506(c) public offerings. Many States are tired of waiting on the Federal Government and the SEC to finalize rules that would allow more unaccredited investors to participate, hence States have independently taken action into their own hands with State sponsored legislation.

House Bill 3429, regarding intrastate crowdfunding, in Illinois was well received by local business owners and entrepreneurs. The bill balances the needs of investors with the needs of businesses looking to raise capital. If and when the intrastate crowdfunding law becomes effective, EquityRoots.com will be on the verge of being able to allow non-accredited investors to participate in intrastate offerings. Equity crowdfunding could possibly be a workable source of capital and game-changer for Illinois small businesses and entrepreneurs. Check out the article published at crowdfundinsider.com for more information on the proposed bills regarding intrastate crowdfunding.

 

EquityRoots - Hotel Real Estate Investments Platform

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The Truth Behind Crowdfunding

Equityroots, Equityroots Inc., Blog, The Truth Behind Crowdfunding

What is Crowdfunding?

Just recently, it seems like there has been vibrant excitement surrounding the concept of “crowdfunding” in the real estate market. Crowdfunding is on its way to upset the status quo in real estate finance, allowing savvy investors of all sizes to pool capital and participate in the investment marketplace alongside institutional investors. Crowdfunding is considered to be an advantageous, innovative, and cutting-edge practice amongst real estate professionals. However, crowdfunding has yet to stamp its footprint in mainstream America, or for that matter towards the crème de la crème of the real estate community.

Crowdfunding is the window into democratizing the investment marketplace, allowing everyday-people a chance to invest into larger assets that are thriving like franchised hotels and resorts. Let’s face it, middle class America doesn’t have a $2-3 million equity check to write. Should they be denied from earning the same returns that wealthy individuals earn in highly rewarding real estate assets? What if smaller investors were allowed to put their beans into a deal right next to the big guys and take a fractional interest in the project?

Crowdfunding aims to level the playing field, allowing people to invest that would otherwise not be able to. Critics still question whether both, the real estate market and crowdfunding market, can create a new and prosperous path for investors, both domestically and internationally, by leveraging profits from U.S. real estate investments. Well, the truth is “crowdfunding” has answered all the uncertainties and silenced the critics. Crowdfunding takes advantage of and continues to make use of the accessibility of the Internet, and the vast networks that stay connected through the technology medium. With tools like social media, it’s quite easy to discuss a new business plan while simultaneously building support and attracting investors.

EquityRoots - Hotel Real Estate Investments Platform

Where Does the Law Stand on Crowdfunding?

The Jumpstart Our Business Startups (JOBS) Act of 2012 remains the catalyst for allowing “crowdfunding” to prosper via the Internet. Absent this recent legislation, there was neither the ability to promote nor the ability to solicit investors to make investments for real estate assets. Specifically, Regulation D, Rule 506 placed heavy restrictions on fundraising efforts—namely preventing third parties from advertising private investment opportunities. However, an exemption to securities registration, Rule 506(c) allows real estate developers to raise money and to advertise private investment opportunities to accredited investors (those with a net-worth of at least $1 million USD) under certain circumstances. As a result, the JOBS Act (a.k.a. Title II) gave crowdfunding platforms access to large pools of potential investors via the Internet. Today investors have direct access to a private selection of real estate offerings, where they can browse deals and make informed decisions from the comfort of their living room.

What is the Potential of Crowdfunding?

Even though “crowdfunding” has been around for a couple years, it has just scratched the surface in terms of reaching its full potential. Currently, crowdfunding platforms tend to target mostly wealthy accredited investors. However, there is endless potential to increase entrepreneurship by expanding the pool of investors beyond the traditional circle of owners and venture capitalists with newer legislation like Regulation A+ in place. Ideally, there should be a platform where all private offerings are open to the general public, including non-accredited investors.

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