The SEC, Securities and Exchange Commission, has prohibited real estate developers from using general solicitation or advertising. The JOBS Act lifted these restrictions in 2013 and the door was opened for crowdfunded real estate development. This opens up real estate investing for a much larger pool of people wanting to get some skin in the game but not having a lot of cash.
Crowdfunding spreads the risk and reward over a much larger group, and it’s already very popular for new product launches and funding micro businesses. For products, the only reward might be a free widget when it hits the market. However, for real estate it’s a very different situation. Real estate investors want a return on their invested funds, whether quickly as with a flip or over the long term from rentals.
Commercial real estate developers are beginning to give crowdfunding a try. To purchase and renovate or develop a large commercial property takes a wad of cash, and some developers are seeing opportunity in getting a small chunk from a large number of people rather than a big chunk from a few investors or lenders. In some cases it can be easier to get $5000 each from 1000 people than to get $5 million from a lender or a few major investors.
The question for the investor is whether this type of investment is worth it. Is the risk/reward ratio acceptable? The answer will vary deal-by-deal and developer-by-developer. First, why is the developer taking the crowdfunding route? If it’s because their track record isn’t good enough to attract large investors or get approval from lenders, then they probably aren’t going to be a safe investment for the crowd.
This type of investment can tie up funds for long periods of time, and it’s not like the stock market or a REIT. You can’t just sell your shares in an open market trade. There is likely to be a higher risk of losing the entire investment. It’s too early to tell if real estate crowdfunding is going to take off, but there is definitely interest and opinions on both sides.
For those who want to know more, companies like Fundrise, Prodigy Network, and RealtyMogul illustrate different ways it’s being done and different levels of participation.
There are much more crowdfunding portals for real estate than these three. If you want to learn more about the topic and different approaches to it, join us at Aspen Investment Forum ( www.AspenInvestmentForum.com) on January 6th-7th, 2014. We will have founders of six real estate platforms discussing pros and cons for real estate investors and developers. If you can't come to Aspen, send us your questions to add to the discussion.
I think this is posted in the wrong place.
Not having a goal is worse than not setting one..
http://www.deangraziosi.com/real-estate-forums/investing-journals/92139/... -
http://www.deansmedia.com/play.php?vid=266