When it comes to the way that business operates in the United States, there has perhaps been no more disruptive development than crowdfunding. This new method of raising capital, whether it’s for a project, a business or real estate, has completely remade the ways in which people seek out investors. In just a few short years, crowdfunding has grown over ten fold in the economic activity that it generates, and this economic activity is only expected to grow in the years to come.
Like any other emerging technology, though, crowdfunding is continually evolving before our very eyes. Just a few years ago, the idea of using this method to raise capital for real estate investments would’ve been unthinkable. Now, it’s commonplace.
Because of developments like real estate crowdfunding, analysts are eagerly anticipating the things that will happen over the years to come. We decided to take a look at what they’re saying about crowdfunding overall, and to look with them toward the future.
Democratization of Investing
As most people understand it, crowdfunding as a whole is represented by brands like Kickstarter, IndieGoGo, and GoFundMe. To be sure, these platforms have provided an excellent way for entrepreneurs, artists and others to gather the funds necessary to pursue their various projects. However, these projects are not based upon the investment model. Rather, they’re based upon the idea of transacting an initial investment for some kind of reward later on down the line, whether it is a copy of a band’s new album, a prototype of a product, or something else entirely.
More and more, though, the crowdfunding model is being applied to financial products. The most recognizable example of this is real estate crowd funding, which gives individual investors the chance to become involved directly with the real estate market. As regulations shift over time – something we’ll be exploring later – it’s likely the crowdfunding will be used to facilitate investment in other financial products. This is particularly exciting, because it will open the door to so many people who have previously been unable to become involved with investing.
Individuals Doing It For Themselves
If the Internet has taught us one thing, it’s that the gatekeepers of emerging technologies and software cannot expect themselves to hold they keys to the kingdom for long. Crowdfunding in and of itself is an example of this. Whereas in the past the world of investing has been closed off to the majority of people, crowdfunding has opened the door to a greater array of investors.
In the same way that crowdfunding has disrupted the world of investing, though, so too will crowdfunding become disrupted itself. Over the years to come, experts believe that more and more businesses and individuals will host their crowdfunding campaigns themselves, rather than going through an established platform. There have, in fact, already been some examples of this.
It is unlikely, though, that this will become the case with real estate crowdfunding. Given the significance of the investments being made and the reliability of the platform upon which they’re made, individual investors are likely to stick to the platforms that they trust.
A Point of Concern
The growth of economic activity created by crowdfunding is truly staggering, and with things only expected to accelerate in the years to come, there is a risk. Make no mistake; the Internet is full of fraudsters. While, for the most part, they’ve been unable to ply their trade on crowdfunding platforms, as the industry expands, the risk of fraudulent players getting their skin in the game grows. There’s simply too much money moving around for this not to become an issue.
However, while some experts worry about fraud taking root in crowdfunding, there may not be as much cause for concern as they suggest. For one, many crowdfunding platforms thoroughly vet the projects that they host, ensuring that they are keeping everything above board with their would-be and actual investors. With respect to real estate crowdfunding and our platform specifically, every investment opportunity is thoroughly vetted before it’s presented to potential investors. While that band you send money to on Kickstarter may not actually be using that money to cut an album, you can be assured of the legitimacy and viability of the investment opportunities that we present to you.
October is the Month to Watch
With respect to real estate crowdfunding specifically, October of 2015 is poised to be a very big month, indeed. As the industry stands today, real estate crowdfunding is, for the most part, only available to accredited investors. There are a few states that allow non-accredited investors to get involved, but those investors are confined to opportunities that exist within the states that they live.
The reason that October could be an exciting month is because this might very well change significantly. Currently, the Securities and Exchange Commission (SEC) is examining the provisions of the JOBS Act, which facilitated the growth of the real estate crowdfunding market to begin with. At issue will be the regulations that control what kinds of investors can become involved with real estate crowdfunding and things like it. If the SEC moves in the way that many would like it to, real estate investing will be open to far more people than it has ever been open to before.
Of course, as with all government agencies, don’t hold your breath. While the SEC has stated that they would like to finalize their rules about the JOBS Act by October, they’re already years behind to begin with. Still, there’s reason for optimism, and we’re excited to see how things develop.
Expect the Unexpected
As the past few years have proven, things in this Internet-connected world can change quickly and dramatically. While the above seem like the developments we’re most likely to see over the years to come, there are plenty of other things that can (and probably will happen). So, be sure you keep your ears to the ground, and listen for the latest rumblings in the crowdfunding world.