Ever since writing the Amazon guide, Real Estate Crowdfunding Explained, I’ve been following the industry closely with enthusiasm! There’s been a lot of progress this year, but in this post I want to focus on a specific emerging trend.
Can you actually finance a new investment property with real estate crowdfunding?
Can you really get reliable funds from one of these online platforms?
Can this turn into a whole new investment pipeline for your business?
Recently, RealtyShares announced that they’re seeing developers and investors return to their platform after a successful raise. They’re seeing repeat offering on their website from some of the major sponsors, saying, “Several developers have returned to RealtyShares to crowdfund additional real estate projects after their first successful fundraising attempt, citing ease of use on the platform, consistency and affordability as factors in the decision to return.”
In case you’re not familiar, RealtyShares is one of the top real estate crowdfunding platforms that I’ve included in our list here.
I’ve also done a review of the platform for investors, pointing out some of the benefits and drawbacks of this new fundraising model.
One sponsor, GJS Capital Ventures raised $111,000 with the website for a single-family home in Austin, Texas. This was their second deal with RealtyShares. Another sponsor, Olympus Developments LLC, raised $310,000 in the form of two residential fix and flip campaigns that they launched on the platform. A third sponsor, Own Home LLC secured $398,000 in funding for their second residential acquisition in Nashville, Tenn.
I think it’s only natural that we see more of this type of behavior, particularly if the developer had a good experience on the platform. After all, if technology makes it easier to conduct an offering, connect with investors, and manage the investment opportunity, then it makes sense that developers would choose to go with a more modern financing route.
So, how can you get funding?
If you’re looking to finance an investment property, there are some things that you should know before submitting your application to one of these real estate crowdfunding sites.
There are two types of funding, debt and equity. You’re either going to be taking on a loan, which is financed by investors on the platform, or you’re going to be giving away a bit of equity of the deal and deliver an ROI to investors in the form of the sale of the asset, or through dividends.
The specifics of each deal will vary from website to website. On RealtyShares, you’re allowed to raised upwards of $400,000 for residential projects (short-term, rehab, etc) or $10 million for commercial projects (Value-add, opportunistic, etc) with both equity and debt offerings.
Of course, you should expect to undergo a strict vetting process which includes background checks, credit checks, management team analysis, and more. This is not a great option if your new to real estate development. You need to have a proven track record of happy investors or successful projects.
If you’re seeking a real estate loan, the platform is going to be looking at a few different variables, like your loan-to-cost (LTC), loan-to-after-repair-value (ARV), and your operating plan for the project.
At the time of writing, you can finance the following types of properties:
- Multi-family residential
- Office-related
- Industrial
- Self-Storage
- Retail
- Hospital Facilities.
- Single-Family investment homes
To take another example, you can also use a platform like Fundrise to finance your real estate property.
Under two of the big financing programs on Fundrise, you can obtain between $1.5-25 million for an investment opportunity. This includes financing for an acquisition/bridge lending or mezzanine debt/preferred equity.
At the time of writing, you can secure funding for the following property types:
- Multifamily
- Retail
- Office
- Self storage
- Senior housing
- Industrial
- Land
According to Fundrise, “We’ve closed over 50 transactions since January 2015.” As you can see, there is a lot of options to get funding for your real estate project! By taking a few seconds to browse around and look at what’s out there, you could end up discovering a whole new investment pipelines to fuel the growth and expansion of your business.
What’s the future for this industry?
As I mentioned in my ebook, Real Estate Crowdfunding Explained, I think that the future for real estate crowdfunding is very bright! We’re seeing historic growth in this industry, with many platforms topping the $100 million in terms of funds that have been raised on through their website.
It’s very likely that we’re going to continue to see growth for the next couple of years, especially as platforms like RealtyShares develop relationships with repeat sponsors. I also think that the growth of peer to peer lending has made more and more investors comfortable with online lending. This behavior has mapped over to online real estate loans. I personally am an advocate for this new method of financing. I’m also an affiliate of RealtyShares and this post may contain affiliate links.
I hope that you enjoyed this blog post! Feel free to leave any questions down below.
