According to MarketWatch, real estate is the fastest growing segment in crowdfunding. In fact, it is expected that real estate crowdfunding (RECF) will create $500 billion or more in funding and generate $3.2 trillion in value each year by 2020. Furthermore, RECF will create more than 2 million new jobs by 2020. From 2009 to 2014, the industry grew by 1,000 percent.
3 Reasons the Real Estate Crowdfunding Ecosystem is Getting Bigger and Better
There are several reasons why this growth is happening. I believe it will lead to real estate crowdfunding becoming the norm in real estate investing within the next 10 years.
1. First, technology makes delivery of services more cost-effective and efficient, and it makes those services more affordable for the consumer. Before RECF, developers and borrowers had fewer choices in where to go for a loan or to obtain real estate funding. Thanks to the JOBS Act of 2013, the economics of funding real estate has changed. Technology itself is making real estate transactions easier to conduct, more transparent, and less costly.
2. Another reason RECF is replacing traditional real estate is lack of trust for the status quo. Millennials are now the largest living generation, and they don’t do things quite like their parents and grandparents did. Millennials are less trustful of banks than older generations, and fewer of them carry credit cards. In a word, Millennial attitudes toward finances in general are giving birth to entirely new ways of paying for services. This attitude is affecting just about every aspect of modern life from obtaining a student loan to buying a home.
3. The above two phenomena are leading to a proliferation of RECF platforms. In 2015, there are 140 RECF platforms in the U.S. and thousands around the globe. This increase has led to specialization among companies entering the space ranging from commercial leasing to 1031 exchanges. Both equity-based and debt-based crowdfunding are entering new and uncharted territories every day. Not only are opportunities for accredited investors getting better, but new opportunities are arising for non-accredited investors with the promise of many more to come.
What This Means for Real Estate Developers and Investors
As technology gets cheaper, easier to implement, and more ubiquitous, industries that rely on that technology will become more efficient and profitable. On the forefront of this revolution is real estate crowdfunding.
The generation that is most familiar with the technology that makes real estate crowdfunding possible are Millennials. The Millennial generation, will soon be the most economically powerful generation alive as the largest transfer of wealth in history takes place before our very eyes.
Real estate developers looking for investors can be confident that someone interested in their project is just around the corner—or one Google search away. Likewise, real estate investors looking for a project to capitalize on can find one right at their fingertips. Docusign and other document transfer technologies are remaking real estate transactions to be more efficient and transparent. Emerging technologies like the blockchain are promising to improve upon that with smart contracts and heightened transactional security. To be sure, technology is making real estate investing more accessible to more people at a better price.
I envision a time when all the documentation necessary to conduct a real estate transaction can be handled instantaneously without travel. Conducting real estate transactions through digital channels is here to stay. Thanks to real estate crowdfunding pioneers like Sharestates, it’s only going to improve until no one is doing it any other way.