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Real Estate Crowdfunding [Infographic] & Thoughts On Where The Industry Is Headed

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  • The crowdfunding market is expected to reach $34.4 billion in 2015, a staggering increase from $5 billion in 2013.
  • As 2015 draws to a close, it’s reasonable to expect that legislative changes will continue to evolve and have a tangible impact.
  • Companies and platforms that might have been instrumental in helping the fledgling industry grow might be ill-suited or lack the resources to transition to a more mature marketplace.

 

What makes crowdfunding so appealing is that investors have the opportunity to invest in bigger, institutional quality properties with relatively smaller amounts of capital. Another added benefit is that they don't need to deal directly with any potential problems associated with the tenants or the buildings, thus making it a form of passive investment. In 2014, it was reported that crowdfunding injected about $1 billion into the US real estate market. Although 2015 figures have yet to be released at the time of this writing, it is expected that crowdfunding will contribute $2.5 billion this year.

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There is no doubt that real estate crowdfunding is growing faster and bigger than anyone could have ever believed. It has become a very efficient method for backers to find many deals across the real estate spectrum. Only one question remains to be answered: is now the right time for you to get involved? As crowdfunding becomes more accepted, it’s moving into new areas. One with a lot of promise: commercial real estate, where deals under $10 million are not worth the efforts of big investors, says Dan Miller, of Crowdfund.CO. These large investors do not want to have a lot of “$1 million investments, they won’t be able to manage it.” That has left an opening for crowdfunding firms like his. Read this Knowledge@Wharton interview in which Miller explains how his firm has exploited it.



Crowdfunding - A Viable Option For Investors

 

For the accredited backer, it doesn’t always make sense to double down on a real estate investment. There can be a lot of risk involved, as evidenced by the weakness of the market in 2007-2009. When that risk needs to be mitigated, crowdfunding allows backers to pool their resources with other backers so small sums can bring back competitive returns without the same level of investment risk. REITs have been in place for several decades to provide this same level of risk easement. Backers can wind up having a diverse real estate portfolio through their combined resources so that everyone experiences a mutual success. Crowdfunding simply fast-tracks this process so the merits of each offering, project, or campaign can be instantly analyzed.

This isn’t an option for everyone. Although a portion of the JOBS Act allows for non-accredited backers to be involved in deals that are under $5 million for a minimum investment of just $100, most projects are bigger than this. Expect the need to be accredited and make a minimum investment of $10k for the foreseeable future. Yet there is still a lot of potential for the non-accredited backer that could make 2016 be the year where real estate crowdfunding explodes. It could be a way for people to finance their own real estate purchases, invest for their retirement, and a number of additional opportunities that are not currently available to the average person.

Real estate crowdfunding is here to stay. There are more than 1 billion reasons for you to consider getting involved.

Suggested Read -> Real Estate Crowdfunding - What's in it for investors? (source: Academia.edu)

What could this market provide for you in the years to come?



Five Real Estate Crowdfunding Predictions For 2015 And Beyond

 

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