If you are like most people, you are constantly looking for new ways to grow your investment portfolio. For many of us, our portfolios include the options that are the lowest hanging fruit. Those options include pensions, corporate 401Ks, personal Roth IRAs and our homes. But, is the real estate crowdfunding investment strategy a good fit for you?
New Opportunities Within Real Estate Investing
With the changes that have occurred in the investment and real estate markets over the last decade, these tried and true resources are no longer the sure bet they used to be. Pensions are gradually being phased out as options or being slashed due to significant funding shortfalls. Residential real estate markets are just beginning to recover from the last bubble.
Faced with the challenges of this new environment, people are looking for new ways to enter into these markets while protecting themselves from significant risks. A real estate crowdfunding investment strategy represents a viable way for investors to add a new approach to wealth generation to their portfolios.
What is Real Estate Crowdfunding?
Not sure what real estate crowdfunding is? If you have been active on social media, you have probably been exposed to crowdfunding campaigns from Kickstarter and GoFundMe. These campaigns focus on raising money for a wide range of needs that include funding movies and raising money for people who are in need. The campaigns leverage the power of a network to extend the financial reach beyond the ability of the person who needs the money.
Real estate crowdfunding works in very much the same way. It allows investors to become one of a pool of people and companies that have provided funds to make it possible to purchase or rehab property. Instead of being limited to investing in properties that depend solely on your financial input, crowdfunding allows you to become one of many investors who come together to invest in properties that require renovation. And, rather than being limited to purchasing residential real estate and managing its renovations, crowdfunding gives you an opportunity to enter the more lucrative commercial real estate market.
Regulations Affecting Real Estate Crowdfunding
Crowdfunded real estate investment was made possible by the Jumpstart Our Business Startups Act. Passed by the SEC in 2012, the act allowed the SEC to write new rules for funding businesses that include allowing crowdsourced funding. The act removed some of the restrictions that limited how businesses are able to fund activities and made it less burdensome to secure funding.
If you are familiar with commercial real estate, then you are well aware that crowdfunding is not a new way to finance real estate investments. REITs (real estate investment trusts) have been used to finance the purchases of large portfolios of commercial properties for years. The difference between REITs and today’s crowdfunded real estate investment? Control and transparency. REIT’s do not allow you to pick individual properties to invest in, and real estate crowdfunding platforms like Sharestates makes all property information available to its investors.
Is Real Estate Crowdfunding Right for you?
In order to decide if investing in crowdfunded real estate is right for you, it is important to understand the opportunity. A few important statistics about the future or crowdfunded real estate from the 2015 Crowdfunding for Real Estate Report:
- In 2014, North America stood as the largest region by funding volume at 56 percent market share, compared with Europe at 42 percent.
- Overall since 2014, real estate crowdfunding increased by 150 percent, equaling $2.57 billion in 2015, making it one of the fastest-growing industry segments of crowd capitalism.
- Growing investor interest in crowdfunding platforms is proving crowdfunding to be a legitimate source of funds as compared to traditional banking.
As an investor considering investing in crowdfunded real estate, finding the right partner to help you on your journey is critical to your success. Contact us and let us help you get started.