The crowd-funding industry has grown to be over $5.1 billion worldwide in 2013 and expected to double annually, but Scott Armstrong asks is power to the people actually turning into profits?
DURISE is the first company to introduce real estate crowd-funding to the GCC and Middle East, launching its services online to all real estate investors in the region, and also to those further afield wanting to invest in the region’s property market through crowd-funding.
The company’s current offering is Old Town Island at the Souq al Bahar (Al Tajer) and investors can own a part of this offering starting from $5,000 by means of crowdfunding.
The concept behind real estate crowd-funding investment is simple – a group of investors raise a sum of money to buy a specific property. Then a third party, such as DURISE, manages the property funded on behalf of the crowd. This gives real estate investors, in theory, the chance to diversify their portfolios and reduce their risks.
Waleed Esbaitah, founder of DURISE, took on some tough questions for Benchmark.
Q. To the uneducated, crowd-funding might seem like a ‘get rich quick scheme’? Tell us how your proposition is different.
That is very far from the truth, crowdfunding is not a scheme, instead, crowdfunding opens up markets that were locked up to corporations and the wealthy. Now, through this innovative method, anyone can take part in investments throughout various industries, be it real estate, startups, oil & gas, healthcare and many more. There is certainly money to be made in real estate, depending on how much you invest and the risks you are willing to take the returns can be exponential. High risk – high returns.. low risk – low returns, it all depends on your risk appetite, capital vested and diversifying your portfolio.
Q. Who regulates you, how can investors know their cash is safe?
We are regulated as a real estate brokerage and property management company locally, but the crowdfunding activity takes place overseas for ease of transactions. With time, we will add an escrow method, where your money is held by a reputable financial institution in the interim to reassure our investors. Also, we will be able to issue a fixed deposit on the invested amount, so even if the investment does not reach it’s full potential, you would have made a return on your investment better than what most banks can offer. After our first round of fundraising for our company, we will initiate the procedure to become regulated as a DIFC fund.
Q. You currently have two investment properties, explain how investors actually make their money if they commit cash to the projects?
Correct, we have two investments, one is live and one is yet to launch. Investors pledge their investment, and if the total amount required to buy the property is reached, we will register the property. Investors make their returns exactly as they would with an individual investment in real estate, 1. from disbursements in rental income. 2. from the capital gain at the end of the investment term. The overall return is known as the ROI (return on investment) and the annual return is known as the yield. Our calculated figures are estimations, educated ones, yet when it comes to investing in finance and real estate nothing is ever guaranteed.
Q. How did you pick those two projects to be your launch properties? What makes them especially attractive to investors?
Our objective was to select one property which would provide a strong annual yield and another property which is in high demand for its prime location. With The first being the queue point unit, which provides 6.8% annual yield and part of a growing community. The other one, Index tower at the DIFC is an iconic address amongst the finance sector in Dubai, partially due it’s close proximity to the financial center and Downtown Dubai. Due to the high demand for end user purchase, the Index unit does not offer as much in terms of an annual yield, but we anticipate a higher capital gain.
Q. Can someone in reality become a property magnate through crowdfunding?
From a first time investor to become a property magnate through crowdfunding, is a tall order. That being said, the crowdfunding model for real estate is meant to simplify the investment process, yet still benefiting from all the available tactics that the seasoned investors use. Therefore, if you invest a significant amount in every project on our portal and other portals around the world, you are bound to have exponential growth. One thing to note though, we aim to offer safer investments, ones that have a measured uncertainty level. Investing on your own is different since you have to assess your own risk tolerance. Most of the real estate magnates have made their wealth mainly from taking extreme risks, which is why they become extremely successful overnight. But a steady 20-30% growth, which is exponential year on year, will have the same effect 20-40 years down the road. $1 today, 20% in a year is $1.2, but a further 20% on that is $1.44, and $1.728 the year after that. That’s what we call exponential growth. Infact, one of the wealthiest people on earth, warren buffet, made his wealth in a similar fashion, not by expecting his wealth to multiply over night by using a specific trick, it requires patience.
Q. Property in Dubai can be a rollercoaster, with stories of incredible success and utter failure, what safeguards do you have in place?
As mentioned, we provide our investors with a variety of investment opportunities, some are high-risk with potential high returns, and some will offer low risk with minimal capital gain. By not putting all your eggs in one basket, you reduce the risk and safe guard your investments.
Our properties are vetted and analyzed by our team and a third party valuation company, Cavendish Maxwell. We don’t take just any property, we go through a comprehensive process in order to select the most viable properties. Again, nothing is guaranteed, but by using our sources and our network, you have access to opportunities which are normally only presented to a select few.
Q. Persuading the public to embrace online retail has proven difficult enough in the Gulf region, what convinces you that they’ll go for online real estate purchases.
We often hear people complain about the real estate industry, where they have had negative experiences investing a lot of time and effort, to end up with no results. We take away that pain and make it more convenient, as it is all done through our online portal. Certainly, people will be hesitant to buy real estate online. Yet it is our job to prove ourselves, be transparent and educate the market. When we do our job right, we will win the trust of the public and they will start to understand the added value that we bring.
Q. What are the risks involved for the investor?
As with any investment, there are powers beyond our and your control that influence the real estate market and the outcome of your investment. However, we always make sure to provide a full-on study on each of the properties and are very selective in doing so. This way, before stepping into any investment you have a clear understanding of the potential risks and returns involved.
The other factor is up to fate and timing.
Q. Do the investors ever get to spend time in the property they’ve sunk money into.
The term sinking money is a bit heavy, investing is a good thing and beneficial when done right.
Our concept is not focused on end-users, if you want to live in the property you invested in through our platform you will have to pay rent like any other tenant moving in. This is part of our business model, as we are financially driven and have to safeguard the returns to all of the investors.
Q. Why is crowdfunding a large project preferable to just buying a single property outright?
Not everyone is in the position to buy 100% of a single property or have access to promising opportunities. By using the power of the crowd and pool with peers you are capable of investing in properties that generate good returns without putting all your savings or get a loan.
It is not always the size of the project that guarantees high returns, sometimes it is a much better selection for instance, to be receiving rental income from 10 different single properties. However, it is common knowledge that real estate developments bring high returns in a short time span. We are planning to offer green field opportunities to our investors in the near future.
Q. Tell us more about yourselves, what has been your journey to launching durise.com?
During my time in Washington DC pursuing a degree in finance at The George Washington University, I coincidently came across Fundrise, a company that is well known in the real estate crowdfunding marketspace worldwide. I loved their take on crowdfunding, which was helping a building from being foreclosed, taking the business with it as well. Which is why they opened up their portal to just about everyone, to chip in as little as $100 to become owners in the property.
Q. Where did the idea come from to launch this new business?
During my time in the States, I was working for a real estate asset management company and that coupled with my time here in Dubai where I worked for an asset management company, I immediately knew there was a fit in this industry.
Q. You already have some investors, typically who are they? Where are they?
The interest shown so far, is from a wide range of individuals with different financial, cultural and professional backgrounds. There have been investors coming in from the UK, The Netherlands, Spain and Kuwait, just to name a few
We have a lot of interest from professionals who work in the finance and real estate industry, they often have experience investing in real estate and understand how they can benefit from our portal.
Q, Last pitch? Anything you can say to convince me to sign on the dotted line?
Your savings sitting in the bank are earning you less than 0.5%, so let’s consider that in the past year, you have kept $10,000 in your savings account and made $10,100.25 in 2 years. In that same time, 2 tickets in our first property, would have generated an annual return of $680 on the same $10,000 investment each year, for a total of $1,360. On top of that, a very conservative 10% annual price increase would have gained you another $2,100. In the same amount of time, you could either make $3,460 or make $100.25. Take into account, that with inflation being 3% or over, you are in fact losing purchasing power with your money. If that is not enough to convince anyone to invest I don’t know what will.