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Real Estate Crowdfunding: The Alternative Investment Option

So many factors have been driving the evolution of the world’s financial infrastructure since the economic debacle of 2007-2009. Traditional investment vehicles have been demonstrably unstable. Some of the financial giants that managed (and mismanaged) billions of dollars of investments were deemed “too big to fail”; they required US federal government bailout money to maintain their businesses. Real estate crowdfunding has developed as an investment solution for those investors who are skeptical about alternative investments.

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Real Estate Crowdfunding as an Alternative Financial Opportunity

The idea that a business has become “too big to fail” — so large and ingrained in the economy that a government will provide assistance to prevent its failure — accepts the notion that tolerance for corruption and even criminal activity is preferable to suffering through the consequences of actually righting the wrongs that caused the failures in the first place. No wonder investors are moving away from “traditional” investment ideology.

Investing in alternative financial opportunities has been made infinitely simpler because of the internet and its capacity to connect all levels of investors with all levels of opportunity. According to a recent McKinsey report financial institutions with assets of over $10 billion have extended their portfolio by as much as 30% into “alternative investments”.

Three possible reasons:

  1. The public equity market has been having a great run, but there are rumors that a correction is expected in the not-too-distant future.
  2.  The fixed income market has been suffering from a low yield for quite a while.
  3. Another possible factor: corporate management fees sometimes erode ROI to a nominal amount. Investors are seeking alternative assets that offer stability, a high yield, and low if any, fees.

Real Estate Crowdfunding Offers Intriguing Options for Alternative Investment Vehicles

So how to decide what to do? Asking the right questions is key. Alternative investments are typically newer on the market, and don’t have extensive public recognition. Investors investigating these options should forgo the “How’s it doing this year?” question, and instead ask, “why is it where it is today, as compared to last year? The year before that?” Another helpful note might be inquiring about the potential for liquidity of the asset. Many investors have suffered losses because they couldn’t access resources held in non-liquid financial tools.

Before, entrepreneurs would approach personal resources or banks to secure capitalization for new ideas and businesses. With real estate crowdfunding, entrepreneurs can raise capital from a group of investors online. When the funding goal is reached, the funding is released, and commencement of the project can begin. Crowdfunding can raise money more quickly in many cases because the project need only appeal to the individual investors, and not be required to go through the rigors of a financial institution feasibility study.

Lower Investment Thresholds with Real Estate Crowdfunding

Real estate lends itself especially well to this style of investment. Traditionally, real estate investments required great sums of money and a significant period of time for the project to develop a revenue stream. Each of these aspects kept smaller investors out of the market because they could not afford to put that much capital and time into one asset. With crowdfunding, platforms can post numerous real estate projects, with a set funding goal stated. Investors can contribute as little as $1000, and can track the progress of the funding, and later the project, on their laptop or mobile device. The process doesn’t require the intense oversight typical to most real estate investments, and investors generally receive monthly distributions based on their percentage of ownership.

Crowdfunding is on the desk of the US Securities and Exchange Commission (SEC) as well. The 2012″Jumpstart Our Business Startups” Act (JOBS) established the foundation for a regulatory structure for small businesses and startups to access capital through a crowdfunding source. The rules also eliminate the necessity for internet-based investment platforms that sell these securities to register with the SEC as brokers.

Considering the legitimate concerns with traditional investments, crowdfunding is now recognized as a legitimate portal for millions of investors to harness the power of their discretionary income. Real estate has always offered reliable investment stability. Together, crowdfunding and real estate offer incredible investment potential. Click here to see what deals are available for investment on Sharestates, or feel free to contact us at anytime.

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