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Real estate crowdfunding platforms have seen a lot of growth in the last few years. This growth partly came as a response to the Jumpstart Our Business Startups Act of 2012, which loosened the rules around general solicitation and online investing. Accredited investors with an annual income of over $200,000 or net worth over $1 million can now participate in equity investments offered on crowdfunding platforms. As The Wall Street Journal notes:
“The returns are appealing to individual investors like Lance Miller, a 56-year-old retiree in Newport Coast, Calif., who sold his recruiting business to a private-equity firm in 2007. Since February, he has invested about $1.2 million in real estate through seven different platforms including Innovational Funding LLC’s iFunding, RealCrowd Inc., Realty Mogul Co., Patch of Land Inc. and Fundrise LLC, placing bets that range from $10,000 to $105,000.”
The real estate crowdfunding market is expected to grow even more once non-accredited investors are allowed to put amounts as little as $100 into the real estate projects of their choosing. Some platforms like Fundrise and Groundfloor are already using state laws to allow for these types of investments.
Estimates for 2015
A National Real Estate Investor article outlined some predictions for 2015 made by RealCrowd co-founders Adam Hooper and Roman Rosario. They suggest that the net worth of investors taking part in real estate crowdfunding has been rising and will keep doing so:
“Well-heeled investors, some of whom have previously participated in real estate syndications and some of whom have not, continue to migrate to online real estate investing. As an example, the current average net worth of investors on the RealCrowd.com platform is just under $9 million. By this time next year, the firm expects the figure to top $10 million.”
The partners also predict that the diversity of online investors would grow, seeing as 74% of their investors are between the ages of 25 and 49 (many of whom are women). Overall, they estimate that commercial real estate crowdfunding will bring in approximately $250 million, tripling the capital they raised in 2014.
Others have also noticed the presence of wealthier investors entering the real estate crowdfunding market. According to Investopedia, Markley Roderick (lawyer and moderator of the “Innovations in Real Estate: Crowdfund Investing” conference in April 2014) explained:
“If only a small percentage of them invest only a small amount of their assets in real estate, the market will be trillions of dollars.”
Although estimates vary, one thing is for sure – the real estate crowdfunding market is not done growing yet.
Platforms
Real estate crowdfunding has been growing on a global scale, with platforms now being started in places like Egypt, Asia, and the Middle East. Singapore-based real estate crowdfunding platform, CoAssets, recently raised S$1 million (US $733,000) in a series ‘A’ funding round. The company is now valued at S$13 million (US $9.53 million).
A post by Times Realty News outlined some basic information from 7 of the top real estate crowdfunding websites. Fundrise, Groundbreaker, and iFunding claimed to have risk/default rates of zero, while the other four did not make that information available. Minimum investment values on the platforms mentioned range from $100 – $100,000.
An important thing to watch when it comes to real estate crowdfunding is often the platforms themselves. Before investing users should do due diligence to ensure that the founders of these companies have the experience required to make sure the business is run properly. Many real estate crowdfunding platforms are testing new business models, and some worry might that they might not hold up to higher demand.
There are over 70 real estate crowdfunding platforms in the US but only a select few that stand out (like those on our top 10 list). Seek out platforms that pride themselves on transparency and are realistic about the risks of investing.
Conclusion
As you can see, real estate crowdfunding has already seen a lot of success and there is still more to come. An infographic featured in a post by Entrepreneur shows that there are approximately 258,000 active accredited investors but when non-accredited investors (anyone over the age of 18) are allowed to participate in online investing that number could jump to 233.7 million!
For more information on real estate crowdfunding check out the CrowdCrux Podcast, Real Estate Crowdfunding 101.
What is your opinion on real estate crowdfunding?
