I have a strong prediction that crowdfunded REITS are what’s going to help real estate crowdfunding go mainstream.
If you haven’t heard, crowdfunded REITs are all the rage in the crowdfunding world. In fact, in the last 12 months, Fundrise has done over $70 million worth of investment through its Growth and Income eREIT.
Fundrise is putting it’s traditional real estate crowdfunding model on hold to focus on eREITs. Its old model had generated about $66.8 million worth of investment. Several new eREIT products are in the works.
Now, other real estate crowdfunding platforms are also offering crowdfunded REITs, including RealtyMogul with its MogulREIT.
So, what is a crowdfunded REIT?
I talk a lot about Real Estate Crowdfunding in my Amazon ebook, Real Estate Crowdfunding Explained. The crowdfunded REIT is a newer concept.
My article which compares Fundrise’s eREIT with a traditional REIT is a great starting point for anyone new to investing in real estate online.
Basically, you can think of a crowdfunded REIT as having many of the same properties as a traditional REIT, except it’s not publicly traded. This is called a “non-traded REIT.”
These REITS are offered as investment products to both accredited and non-accredited investors under Regulation A+ of the JOBS Act. Regulation A+ allows these platforms to solicit retail investors and raise up to $50 million in a 12 month period.
Since the REIT is not traded, that means it’s less liquid! Its price also isn’t subject to the volatility of the market.
What do you need to know as investor?
As always, there are risks involved with every investment. You must do you homework before plowing money into these new investment vehicles. Keep in mind that:
- You may pay platform fees or transaction costs
- Your investment is less liquid than a traditional REIT
- There is a longer term investment horizon
- Your platform might offer early redemption for investors
- You’ll likely pay less fees than if you were to go through a broker for a publicly traded REIT
- There are different types of crowdfunded REITS. Some focus on geography, others on asset class (debt vs. equity), etc. They’ll vary in risk and reward.
Can you invest in a crowdfunded REIT?
YES! You can! These investment products are available to non-accredited retail investors, meaning that anyone can participate.
Typically, there will of course be an investment minimum, but it’s a pretty low bar considering the real estate investing industry as a whole. At the time of writing, Realty Mogul’s minimum is $2,500, and Fundrise has a $1,000 investment minimum.
Can you offer a crowdfunded REIT?
In my Amazon ebook, Real Estate Crowdfunding Explained, I discuss what goes into starting a new Real Estate Crowdfunding platform.
You can also take advantage of Regulation A+ to offer a crowdfunded REIT option on your platform! But, it’s gonna cost you.
You can expect to pay anywhere between $300,000 – $500,000 in legal fees surrounding the Reg A+ filing, according to Amy Wan, an expert on startup and crowdfunding law.
Where is the industry going from here?
Great question! Personally, I think we’re definitely going to see more crowdfunded REITS focused on different geographic areas. I also think we’re going to see more platforms adopting this investment product.
Historically, whenever a foreign concept is familiarized in some way, it gains larger adoption in the mainstream.
To take an offbeat example, in the book Power of Habit, Charles Duhigg talks about how Americans were trained in the 1940s to eat organ meats, like kidneys, when they considered it weird, foreign, and exotic.
“At the time, organ meat wasn’t popular in America. A middle-class woman in 1940 would sooner starve than despoil her table with tongue or tripe… 200 studies were eventually published, and at their core, they all contained a similar finding: to change peoples’ diets, the exotic must be made familiar
To convince Americans to eat livers and kidneys, housewives had to know how to make the foods look, taste and smell as similar as possible to what their families expected to see on the dinner table each night…The secret to changing the American diet, the Committee on Food Habits concluded, was familiarity…
A few years after World War II ended, the Committee on Food Habits was dissolved. By then, however, organ meats had been fully integrated onto the American diet. One study indicated that offal consumption rose by 33 percent during the war. By 1955, it was up 50 percent. Kidney had become a staple at dinner.”
The conclusion is that whenever something weird is “familiarized” it tends to gain mainstream adoption.
I think that because most retail investors interested in real estate investing are familiar with REITs, they’ll likely take to crowdfunded REITS faster than traditional RECF deals.
But, what do you think?
Let me know in a comment below!
