Why Crowdfunding May Be the Future of Real Estate


[Editor’s note: This is a guest post from RealtyMogul.com. RealtyMogul.com is a Silver Sponsor at LendIt USA 2016, which will take place on April 11-12, 2016, in San Francisco. At LendIt, representatives from RealtyMogul.com will be speaking on multiple topics including investment opportunities in commercial real estate and real estate credit underwriting.]

Crowdfunding is making real estate deals better, faster and cheaper. Here’s why.

Real estate is a popular alternative investment in the eyes of many investors. It offers a way to diversify your portfolio beyond stocks and bonds. The cash flow from multifamily rentals or commercial properties potentially hedges against inflation and market volatility. Millions of Americans love the idea of owning a tangible asset that you can touch with your own two hands and has intrinsic value.

Real estate has long been an attractive investment to those who can afford it. Traditionally, commercial real estate investment opportunities have been available only to those with deep pockets and access to deal flow. Most individual accredited investors don’t have the investment capacity to create a portfolio of deals that could take months or years to put together.

Today, crowdfunding platforms like RealtyMogul.com make it possible for individual investors to access commercial real estate deals for as little as a $10,000 investment. In the process, these platforms are changing the real estate investment market for the better, creating superior deal flow for investors and offering additional liquidity to developers.

Why Crowdfunding?

Sites like Kickstarter provide backers with the satisfaction of funding a project that might otherwise not garner support, while services like Lending Club and AngelList offer investors the opportunity to earn real investment returns.  Investment crowdfunding platforms use technology to connect real estate sponsors with prospective investors online. Investors can choose between traditional equity investments, preferred equity, and debt investments.

Crowdfunding isn’t just a passing fad.   According to some experts, global crowdfunding investments rose from $6 billion to $34.4 billion between 2013 and 2015, and is expected to account for more funding than venture capital in 2016.

That’s because crowdfunding technology offers some serious benefits. It can directly connect investors to borrowers in real-time, making funding more efficient.  On the equity side, investors can browse different investment opportunities posted by borrowers.  The platform does the rest, dramatically reducing the time both parties typically spend making deals happen.

Crowdfunding has the potential to make it cheaper for borrowers to obtain financing, while offering investors a higher return than many other real estate investments.  Borrowers don’t need to rely on expensive middlemen and institutions to raise capital. Crowdfunding connects more sources of capital to deals more quickly, by allowing investors to pool smaller investments than would typically be accepted by a sponsor.

Imagine the impact as crowdfunding gains traction in the U.S. real estate market, which is worth nearly $40 trillion.

The Benefits of Crowdfunded Real Estate Investment

Real estate crowdfunding is the next step in the logical evolution of the real estate investment industry. When individuals can pool money to invest in a property through equity or debt, everybody has the potential to win.

Investors gain exposure to deals that were previously inaccessible and which offer attractive benefits compared to stocks and bonds. Furthermore, they do it with low minimums. Typically, investors needed a minimum of $50,000 to $100,000 to participate in a commercial real estate deal. With crowdfunding, investors need a tenth of that — or less!  Borrowers receive faster access to capital and can close their financing in less time than it takes working through traditional channels.

Real estate crowdfunding platforms are also designed to offer a user experience that modern consumers have come to expect from cutting-edge tech companies.  Millennials are 10 times more likely to use peer-to-peer platforms than previous generations, and the best platforms offer investors powerful online dashboards to see all their investments in one place, track performance, and evaluate new deals.

The diversification potential of crowdfunded real estate is significant. Because of the lower minimums, investors can invest in more deals, across different property types, with different risk profiles, across varied geographic regions. They may also invest in debt investments securitized with real estate, funding mortgage loans on properties instead of investing in the equity of the properties themselves.

Crowdfunding is gaining support worldwide, too. Crowdfunding in Asia grew 320 percent in 2014. European and North American markets grew over 140 percent, according to DealIndex.

As crowdfunding’s appeal grows, the ability to crowdfund investments in real estate will too, which promises a bright future for the industry.

The host of this blog, LendIt, is the largest conference series dedicated to connecting the global online lending community. Our conferences bring together the leading lending platforms, investors, and service providers in our industry for unparalleled educational, networking, and business development opportunities. LendIt hosts three conferences annually: our flagship conference LendIt USA as well as LendIt Europe in London and LendIt China in Shanghai. Visit our home page to register for the next event and to subscribe to our newsletter.