What began as a struggling artist’s means of funding their creative projects has blossomed into a standalone industry. Crowdfunding has evolved rapidly over the last few years, intensifying year after year into a multi-billion dollar industry.
Today, this tool for amassing investor dollars for different projects has spread to practically every industry and real estate is no different. For the real estate industry, crowdfunding may end up completely changing the way that real estate investing is done.
Where Did the Idea of Real Estate Crowdfunding Come From?
When people think of crowdfunding, Kickstarter is often thought of as the grandfather of it all. Actually, a British rock group came up with the idea of online crowdfunding to support their tour through online donations back in 1997.
Just a few years later in 2000, Artistshare followed the same model by supporting a jazz artist’s album. That project raised $130K by offering downloads and credits for a fee but its success started a trend.
Eight years later, Indiegogo began supporting artistic projects by soliciting funds online. One year later, Kickstarter began its rise to the top of the crowdfunding industry. Other crowdfunding sites like GoFundMe and Crowdrise began to support projects outside of the arts from humanitarian endeavors to business ventures.
More than a third of Kickstarters projects have been successful over the last eight years, raising nearly $2 billion dollars from close to 10 million donors and investors. By taking a fee for their platform services, crowdfunding sites have begun amassing enormous wealth.
Evidence of crowdfunding amazing growth is that it is now under the auspices of the SEC. Five years ago back in 2012, the so-called crowdfunding bill was signed into law by President Obama, legitimizing online investment platforms. That in turn opened the flood gates for real estate crowdfunding sites to come online, which as of May 2016 numbered 125.
Before the JOBS Act, SEC rules mandated that investors in real estate trusts must be accredited as well as meet high wealth qualifications, like having at least a million dollars in net worth or earning at least $200K-$300K per year.
Crowdfunding sites are now able to offer investment opportunities into REITs and REIFs with entry as low as $100. Returns are also amazing for investors of crowdsourced real estate projects. For example, Fundrise, one of the first players in real estate crowdfunding produced 13% ROI in 2015 for investors.
Real Estate Crowdfunding in the Years to Come
Last year, real estate crowdfunding sites topped the $3 billion mark and crowdfunding overall is expected to grow into a $300 billion industry in less than a decade. Fewer than 10% of Americans are accredited investors yet make up 70% of the wealthiest individuals in the U.S.
Now that average investors have the chance to take advantage of real estate crowdfunding, expect many more crowdfunding sites to embrace the average individual investor by lowering the barrier to entry. Fundrise and others have already begun diversifying eREIT investment options for both amateur and professional investors.
Expect crowdfunding in 2017 and beyond to extend, as most online services have, mobile. Fintech apps that allow you to manage your investments on-the-go are the next horizon in real estate investment platform services.
An Alternative Option for Real Estate Investors
You could argue that because money had to be raised from donors in order to assemble the Statue of Liberty, it was one of the first crowdsourced projects in the U.S. Only 160K donors contributed what amounted to $250K then but today, Lady Liberty is valued at over$6.5 billion dollars.
What projects of today will be tomorrow Statues of Liberty? Its happening all of the time. Large online REITs that amass thousands of investors of all stripes who are trying to seize on smart and innovative ideas could be the start of just such a project with a small investment of only $1,000 now.
Finding the right investments depends on the platform you choose. The proliferation of real estate crowdfunding sites can leave new investors overwhelmed. When searching for a qualified real estate investment platform, make sure that the origination volume is high and that the pool of investors provides access to lucrative deal flows.
As an online marketplace, Sharestates is among the largest online investment platforms with entry as low as $1,000. Investors are given access to real estate investments that produce a minimum of 10% returns and as high as 20%. More importantly, all investments are thoroughly vetted using Sharestates 34 point risk assessment system.