Real estate crowdfunding is the pooling of multiple investors’ money for projects related to the sale or improvement of land or buildings. It can involve senior debt, common equity or any other layer in the capital stack.
Crowdfunding, as defined in this glossary, 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.
Benefits for investors and project sponsors
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.
Project sponsors might find real estate crowdfunding attractive because of lower capital costs and shorter timelines for securing funds.
Enabling real estate crowdfunding
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.