It helps that real estate remains the most popular long-term asset class (at 27 percent) among investors, according to Bankrate.com. A recent survey by Preqin, a data provider, finds that 52 percent of investors had a positive view of real estate, while 39 percent of real estate investors feel their expectations had been exceeded in terms of capital returns.
Real estate crowdfunding websites are proliferating, and for good reason. Accredited investors (who meet financial criteria, such as minimum thresholds in net worth and personal income) can pool their smaller sums of capital (such as $1,000 and $5,000 investments) to purchase large properties. Technology is enabling the retail crowd to get in the game, and to start leveraging their capital much sooner than they otherwise would have.
Real estate crowdfunding is the fastest growing segment within the crowdfunding industry, according to San Diego-based DiversyFund. A company spokesman said that when retail investors partner with such platforms, their time spent on finding real estate investment opportunities can be cut in half. That’s because platforms can streamline paperwork, provide access to deal flow, process payments, and help conduct due diligence.
But those who may need access to their cash should exercise some caution. Crowdfunding can limit an investor’s liquidity, given the lack of a secondary market—think stock market—that facilitates the quick selling of their asset. And perhaps that’s the direction the real estate crowdfunding industry will take in the next few years: provide a secondary, trading, and/or securitized market that allows small investors to exit more quickly.
The concept is similar to REITs, where investors combine smaller capital resources to buy a portfolio of properties. Industry observers estimate the U.S. real market at $11 trillion, and crowdsourcing.org estimates crowdsourcing investors to place $2.5 billion into the real estate market this year, up from $1 billion in 2015.
Technology is bringing the entrepreneurial spirit to real estate. Crowdfunding platforms are helping large and micro investors to leverage the power of compounded returns much sooner. These emerging platforms also help investors to spread the word through social media about appealing opportunities to other potential retail investors, such as family and friends.
