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How to shop for marketplace investing
Are you looking for an easy and convenient way to diversify your investment portfolio? Or are you getting ready to break into investing for the first time? Finding the right marketplace investing company can help. But how do you know which marketplace platform is the right one for you? What factors should you consider when you compare marketplace investing companies?
Here's what you need to know.
What is a marketplace investing company?
A marketplace investing company provides an online platform where users can invest their money into an asset class (or classes) to earn returns.
These platforms make it easier for smaller investors to directly invest in a range of asset classes, from consumer credit to commercial real estate projects. Plus, they make investing convenient and easy.
How to compare marketplace investing companies
When you compare marketplace investing companies, consider the following factors:
- Accounting rate of returns (ARR).
- Minimum investment limits.
- Investor fees.
- Investor requirements.
- Investment types.
- Investment vetting by the marketplace platform.
Let's break down why those factors are so important.
These are some of the questions you should ask before choosing a marketplace investing company.
What is the average accounting rate of return (ARR) of the marketplace investment platform?
A company's average rate of return (ARR) indicates how much you can expect to earn, on average, per year from an investment. You can calculate a company's ARR by dividing its average annual net profit by its average investment.
For example, say you invested $5,000 in 2015, $10,000 in 2016, and $15,000 in 2017. The average investment over the three-year period would be $10,000. Now say you earned a net return of $250 in 2015, $500 in 2016, and $750 in 2017. The average net return would be $500 over the three years.
To get the ARR, you would divide the average net return ($500) by the average investment ($10,000) which equals .05. ARRs are expressed as percentages, so this company would have an ARR of 5%.
The higher ARR a marketplace investment offers, the more money you can make. Most marketplace investing platforms' ARRs range from 5% to 10%.
What is the marketplace's minimum investment?
Every marketplace investing platform has a minimum investment requirement. In other words, in order to become an investor on a platform, you must invest the minimum amount or more in your initial investment. Minimums range from $25 up to $250,000.
This factor is important, as you'll need to find a platform which aligns with the amount you want to invest.
What are the platform's investor fees?
Investor fees are the percentage of your earnings that you have to pay the investment platform. They often range from 0.5% to 1%. These eat into your profit margin, so you should look for a marketplace investment platform that offers the services you need but has the lowest possible fees.
Most investment platforms restrict who can invest to some degree. For example, they may only allow U.S. investors or accredited investors. Additionally, some will allow you to invest using funds from your retirement accounts, while others won't. Check the restrictions to find out which platforms you will be eligible to use.
What investment types does the marketplace offer?
Marketplace platforms vary in which asset classes they offer. For instance, Lending Club lets you invest in consumer credit, while EquityMultiple offers commercial real estate investment opportunities, and Roofstock offers investments in the single-family rental (SFR) sector.Depending on your situation, current investment portfolio, and background, you may prefer one asset class over another.
Does the marketplace vett the investments on its platform?
Before you invest in any asset, you need to know that it is a sound and legitimate investment. That's why marketplace platforms must properly vet their assets before presenting them to you.
For example, a marketplace investment platform that deasl in real estate should have a vetting process that includes:
- Hiring a reputable firm to inspect the property.
- Provide an estimate of the cost of any major repairs required.
- A review of the title report.
- A valuation analysis.
- If a rental property:
- Provide a review and summary of the lease terms.
- Include a a review of the tenant's payment history.
Before committing to a particular marketplace investing platform, make sure that it has a vetting process in place to ensure that its users' investments are sound.
What are the marketplace's returns
It's important to learn how returns work with a given platform. Find out what triggers a return, how often returns are likely to occur, how much returns are, etc. The amount and frequency of a return varies between marketplace investing platforms.
For example, some platforms provide returns on a monthly basis from the rental cash flow on your investment properties. Others come quarterly or annually. Make sure that your chosen lender's return schedule suits your needs.
What do the marketplace investing reviews say about the company
Lastly, it's always a good idea to read reviews from other investors who have used the platform in the past. Look for platforms with mostly positive feedback. And beware of any repetitive negative complaints. If they appear often, they are issues you are likely to face.
By shopping around and considering all of these factors, you will be on the path to finding the right fit.
Find the best marketplace investing platform and start earning
Ready to get started? Check out the industry-leading marketplace investing platforms below. You will find ARRs, minimum investment amounts, investor fees, and real unbiased reviews from past investors. Compare platforms side-by-side and find the best one for your needs.