Crowdfunding: How It Applies to the Real Estate Market

Crowdfunding is the concept of funding a project by obtaining small amounts of money from a large number of people. It usually happens over the Internet, and social media often plays an important role in a crowdfunded project’s success.

Real estate crowdfunding applies the concept of crowdfunding to the real estate market.

Equity Crowdfunding and Congress

In the past, the only way for investors to invest in commercial real estate development was through private equity firms or real estate investment trusts. This limited the ability of many people to invest in real estate development.

In 2012, Congress passed the Jumpstart Our Business Startups (JOBS) Act. This act laid the groundwork for equity crowdfunding. Equity crowdfunding gives people an opportunity to invest in early-stage private companies in exchange for equity in those companies.

The JOBS Act gives young companies more ways to raise capital. It gives them the ability to crowdfund and allows them to raise up to $50,000,000. Not only has this new funding option resulted in opportunities for new businesses, but it’s resulted in new opportunities for investors as well.

While crowdfunding wasn’t the reason the JOBS Act was passed, it’s the portion that’s received the most growth since the act’s inception. Since 2012, over 100 real estate crowdfunding sites have been developed.

One of these crowdfunding sites, Fundrise, a company started in 2010, completed one of the first crowdfunded real estate purchases in the United States. It raised $325,000 from 175 investors and purchased real estate on the H Street Corridor of Washington D.C. in 2012.

The company has since facilitated over $15,000,000 of investments involving over 1000 people. Fundrise reviews indicate it’s an innovative company that offers people a smart, simple way to invest.

Benefits of Investing in Real Estate Crowdfunding Offers

There are risks involved with real estate crowdfunding offers, as there are with any investment. You could lose some or all of your money. However, real estate crowdfunding offers unique benefits that are hard to find elsewhere. The vast majority of these crowdfunded projects are young start-ups. Investing in them gives you the chance to be a part of the company’s early journey which can increase your feelings of involvement and engagement.

Real estate crowdfunding offers an interesting and easy way to diversify your portfolio. Private real estate returns typically aren’t overly sensitive to short-term market volatility. This can provide you with peace of mind, especially during times of upheaval in the stock market.

You don’t need a huge amount of money to start investing. Before real estate crowdfunding emerged, investors often needed tens of thousands of dollars to invest in real estate. This is no longer the case; minimum investment amounts vary by company, but some will let you start investing with as little as $1000.

Takeaway 

Crowdfunded real estate projects give average-income individuals the ability to invest their money in large, often lucrative, commercial real estate projects. This was once something only wealthy people and well-established companies could do. The concept is still in its infancy and should offer investors many opportunities in the future.

Read More: 

1. Guide to Buying a Home with a Small Budget
2. 6 Things That First-Time Property Buyers Need to Know When Buying Homes