Sharestates’ Real Estate Loan Risk Matrix Explainined

Want to know exactly what factors go into determining the risk of a Sharestates deal? This determined risk helps to create an estimated percent for your gross annual ROI (return of investment); making the Risk Matrix one of the most important tools we use.

Underwriting a Real Estate Crowdfunding Deal

The Risk Matrix is applied to each and every Sharestates Real Estate Property. This matrix helps us to determine a grade for the property which will provide us with the estimated return that is given to the investors.

First, let’s look at the Risk Matrix (best viewed in desktop):

As you can see on the left side of the matrix, there are nine categories from which we gather risk points. Assessment in each category will yield a risk point value. The sum of points in all nine categories will render the letter grade that you see in the risk rating section of the investment project summary.

Here’s an example. If a project sponsor has
  1. A credit score of 680 (0 points)
  2. Completed 8 previous projects in similar markets (1 point)
  3. A track record of $200 million (1 point)
  4. Our personal guarantee (hint: all of our approved borrowers will have our personal guarantee) (-1 point)

And if the property is…

  1. A value-add (2 points)
  2. In first lien (-1 point)
  3. A high occupancy (1 point)
  4. An LTV of 37% (1 point)
  5. Located in an Urban Market (1 point)

Then this property has a total of 5 points.

We can see that 5 points will give us a grade of A+. The baseline interest starts at 8%. There is 0% adjustment. If you were to invest in this property, your estimated gross annual ROI will be 8%. The higher the risk associated with the investment property, the higher your estimated ROI will be.