Real estate crowdfunding is the pooling of multiple investors’ money for projects related to the sale or improvement of land or buildings.
Sharestates is one of the leading platforms of this kind in the U.S. It focuses on raising debt investment for real estate projects, through its Shareline correspondent lending solution as well as a direct lending model.
Still, crowdfunding — for real estate investment or any other commercial purpose — can apply anywhere on the capital stack. That’s why Sharestates’ sister company, Syndicate Profile, offers equity investment opportunities.
Crowdfunding is the practice of getting a large group of people to finance a project by using a website or other online tool to solicit funds.
Wordspy dates the first use of “crowdfunding” to 2006, but the concept goes far back into history. Because of this, subscription services, charitable donation drives and war bond issues all share similar traits to crowdfunding and clearly pre-date the internet.
A recent Technavio report estimates crowdfunding raised $43.5 billion in 2017 and is growing at a 17% annual growth rate.
Evolution of real estate crowdfunding
Real estate investment trusts (REITs) served the same purpose and long pre-date crowdfunding. Crowdfunding platforms now offer such advantages as a lower buy-in for retail investors and greater transparency into the underlying properties.
While it’s true that crowdfunding is a Web-native application, there’s more to it than technology. The law had to catch up with the hardware and network protocols. In the U.S., the Jumpstart Our Business Startups (JOBS) Act of 2012 fueled crowdfunding’s growth. The JOBS Act allows small businesses to solicit funds more publicly than they legally could for decades.
To learn more about real estate crowdfunding, click here for the glossary entry.