How To Succeed With Real Estate Crowdfunding
What is crowdfunding?
Crowdfunding is an approach to funding a project or business venture with small amounts of capital from a large group of people. Often referred to as an alternative investment, it utilizes the power of networking and technology to expand the pool of investors to strengthen the fundraising effort of a business. In the past two years since the Securities and Exchange Committee (SEC) approved Title II of the Jumpstart Our Business Startups Act (JOBS Act) and loosened the restrictions for accredited investors, crowdfunding has become a popular way for investors to diversify their portfolios and for borrowers to raise capital quickly.
What is real estate crowdfunding?
Real estate crowdfunding is a rapidly growing avenue for investors to add real estate to their portfolio. The process allows for a large number of investors, each with a small amount of capital, to collectively invest in real estate opportunities. With this relatively new process, investors are now able to diversity their portfolio with an asset class that historically has not been correlated with the equity market, allowing them to balance their risk across multiple classes. While the process is currently restricted to accredited investors with a net worth over $1 million, the laws may be changing with the upcoming commencement of Title III of the JOBS Act which could open up the opportunity to non-accredited investors in some scenarios, no longer restricting certain real estate investments to accredited investors.
Why is real estate crowdfunding important?
Real estate crowdfunding has opened up an entirely new world for investors of all financial backgrounds and for borrowers who need to raise capital for projects quickly, where in the recent past, neither option was available. The niche industry raised over $1 billion in 2014 and that number is expected to almost triple by the end of 2015. (Source?) Crowdfunding has changed real estate for every player in the game and the following are reasons why real estate crowdfunding is important.
- It allows access to residential, commercial, retail and mixed-use property investments previously restricted to accredited investors only.
- With vetted opportunities brought directly to the investor, they are able to focus on selecting exactly which real estate projects match up best with their financial goals.
- The opportunity for a lower buy-in, sometimes starting at $5,000, helps to connect projects to investors who care about what they are investing in.
- With the power of small contributions, it brings a more diverse group of investors to the table.
- Borrower’s opportunities are put directly in front of accredited investors so they have quicker access to capital. This allows borrowers to secure deals quickly, leading to more projects available to investors.
- Project borrowers can share their ideas, rather than just their need for money to investors, in turn helping them to fund their projects with investors that have a shared passion.
Important factors to consider when selecting a real estate crowdfunding platform
Two of the most fundamental characteristics to look for in a real estate crowdfunding platform are security and credibility. There are now more than 70 platforms to choose from, and there are a variety of factors to consider before selecting which one is right for you.
- Make sure to explore the platform’s team to see if there is a collection of substantial real estate experience and expertise.
- Established. Stick with an established platform. Real estate crowdfunding hasn’t been around for that long and it may be best to steer clear of platforms that are relatively new to the space.
- Track record. Look at their proven track record of deals and opportunities. Examine whether there is evidence of projects that have generated returns.
- Make sure the platform provides a transparent process. If the process is not clear, and fairly simple, it may be an indicator of additional disorganization.
- Accurate information. Legitimate real estate crowdfunding platforms should be able to provide expert, and up-do-date, information including data on current market trends to help you understand the market and your investment possibilities.
- Vetted opportunities. The platform you choose should be able to offer you detailed profiles on all of their available, pre-vetted, opportunities that include a breakdown of the risk factors and return profile.
- Customer service. While the crowdfunding industry is built on the foundation of the Internet, customer service in all forms should be timely and professional. Whether you prefer communication via phone, email or online chat, make sure your platform excels in all of these areas to assure that you have the support you need, when you need it.
- Diverse opportunities. Whether you are shopping for tangible items or real estate investment opportunities, it is good to check out the inventory first. Make sure your platform choice has a diverse amount of opportunities to choose from that fit your portfolio needs.
How does RealtyShares compare to other platforms?
RealtyShares is one among dozens of other real estate crowdfunding platforms. However, we are one of the first established and have a lot of experience. We offer investors vetted opportunities, that have been carefully selected with only 5 percent of deal applications making it to our platform. We are a one-stop, tech-enabled, personalized platform for investors and borrowers. They are able to sign up in 5 simple steps, supply signatures electronically, transfer funds and monitor projects via our live dashboard with customer service readily available to assist. RealtyShares is a highly transparent platform that aims at helping investors connect with the opportunity that best fits their goals.
Important things to remember about real estate crowdfunding
While opportunities presented on established platforms are pre-vetted for investors, it is important to remember that real estate crowdfunding, like any investment, still requires a level of due diligence and involves risk. First and foremost, it is important when making any investment that it matches up with your financial goals and expectations. The more information you can gather, such as property profiles, the minimum required to invest and any fees or taxes involved, the better prepared you will be to invest your money.
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