Real Estate Crowdfunding
Real estate crowdfunding has been a hot trend in commercial real estate as of late. The internet has brought the power of real estate investing to everyone with a low buy in rate, and not many headaches involved as what would typically be involved in real estate investing. The power of crowdfunding, specifically in the real estate sector, has taken off over the past few years and has a very promising future. Just about any ordinary person can invest in a large property that is worth millions. This type of power was previously only held by large corporations and big companies.
Crowdfunding isn’t just for real estate as it has seen victories across multiple areas, including product inventions, movies, and worthy causes. Within the real estate sector, crowdfunding has seen a variety of property types funded through the phenomenon. Originating back in 2012, the real estate crowdfunding industry has seen a large number of crowdfunding platforms related to real estate take off. While some have risen to quick success, others have been slower to take off. Fundrise, Prodigy Network, and Realty Mogul are just a few of the long list of real estate crowdfunding sites that have taken off. Private companies are now able to seek investors through an internet based approach allowing for streamlined business. Millions of dollars have been raised for a variety of properties allowing others, not just the wealthy, to own a piece of commercial real estate.
The Real Estate Investment Trust Act, better known as REIT, was passed by Congress and allows for small investors to join forces in order to invest in income-producing properties. Furthermore, the Jumpstart Our Business Startups Act (JOBS) passed in 2012 allows for companies to raise money from accredited investors. An accredited investor can be defined as someone that makes a minimum of $200,000 per year or has a net worth of at least $1 million. In order to operate legally, by law a crowdfunding site must register with the United States Securities and Exchange Commission (SEC).
Internet-based crowdfunding portals do have minimum investment amounts ranging from $100 up to $1 million. Each deal is pre-vetted by the individual crowdfunding company’s standards. Fees will vary from one real estate crowdfunding site to the next as well as documentation of the investments and contracts. Commercial real estate crowdfunding allows for transparency in the industry as investors demand it, as well as efficiency and good return rates on investment typically. Investors taking part in real estate crowdfunding are looking for accountability of the company and developer to provide time-sensitive updates and other reporting mechanisms. Investors will complete their own due diligence on a deal but also expect the crowdfunding platform to provide the bulk of the necessary information related to each deal.
In essence, the real estate crowdfunding industry combines technology with real estate to create an online platform where investors and developers can meet up to fund projects across the country. Despite the success of crowdfunding platforms, currently only about 3 percent of Americans participate in it and real estate crowdfunding doesn’t offer liquidity like other popular forms of investing as there is currently not a secondary market for crowdfunding investment.
Real estate crowdfunding serves as a new source of capital through online services vetting deals and providing them to accredited investors. Real estate crowdfunding companies all vary based on a variety of variables such as fees, geographic locations of investments, types of investments, etc. The real estate crowdfunding industry has been able to carve out a niche in the commercial real estate arena and furthermore provide a disruption in the status quo of typical real estate investing means. Based on a philosophy of collecting funds from many small investors, crowdfunding has seen a large variety of successes, not the least of which is in the real estate sector.