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Current Challenges and Opportunities with Real Estate Crowdfunding

Real estate crowdfunding has taken the world of investments by storm and there’s no reason to think it’s going to let up any time soon. However, if you’re interested in getting involved in this exciting world, you’d be smart to consider both the current opportunities and challenges it involves.

There Is So Much Variety

Just because it’s properties you’re investing in doesn’t mean you don’t have a lot of options to choose for your money. First of all, there are debt-based and equity-based opportunities, each of which represents countless properties you could put your money into.

Then there are actually the properties themselves. You could invest in hotels, strip malls, apartment complexes, residential homes and more. Some of you may actually have backgrounds that will make it easier for you to know where your money should go. Others will want to spend some time developing a specialty, just like any good investor would.

Not Every Deal Pays Off

This shouldn’t come as a huge surprise. Just like any investment, not every real estate crowdfunding deal is going to play out like you were hoping. That’s a great reminder that you should never invest what you can’t afford to lose.

Still, real estate crowdfunding is so exciting that some people may be letting it get to their heads. Just because the money is there for a deal—where it may not have been in the past—doesn’t mean that the investment is worth it. You must scrutinize these deals just as much as you would before putting money into a company or commodity. Don’t let your emotions get the best of you by making poor investments.

The Industry Is Getting Huge

Obviously, this new type of investing has blown the ceiling off the real estate industry and not a moment too soon. Our economy could really use this kind of opportunity right now and few industries could be said to need it more than real estate.

That’s far from the only impact this type of investing is having, though. You also have to look at the platforms that are popping up to help meet demand – there are already more than 100 of them. As a whole, the market has more than tripled since this time last year and it doesn’t appear to be slowing down. Keep in mind, too, that we’re still waiting for some very important legislation to pass in this country.

In the meantime, though, it’s inspiring that so many companies and countless jobs have been created and things are only getting started. With these new businesses also come new opportunities to invest your money. We haven’t come anywhere close to really seeing just how big of an effect this industry is going to have on the world’s economies.

You Still Need Accredited Investors

Speaking of which, for the moment, you still need accredited investors to pull the trigger on a deal. Until the JOBs Act is passed in its entirety, don’t expect this to change.

Depending on whether or not you’re an accredited investor, this is either a huge opportunity or an annoying problem. For accredited investors, a pretty great revenue stream has just come along out of the blue.

While those of us who don’t meet the requirements for an accredited investor still have a great new way to make money, many see this as pointless bureaucracy. Obviously, a lot of accredited investors lost their shirts over the past seven years, so the argument that they’re needed for the sake of oversight comes across as a bit weak.

Access Has Never Been Cheaper

Never has access to the real estate market been so affordable. Obviously, this makes for quite the opportunity. People may have to go through accredited investors, but it’s better than nothing.

On top of that, along with being able to make investments for as little as $100, many people are getting a first-rate education in real estate they otherwise wouldn’t have. While you could pretty easily go online and invest in a property you know nothing about, most people have been pretty smart about doing their due diligence.

Compare this to people who just hand their money to an investor and hope for the best on the stock marker. Real estate crowdfunding is churning out savvy investors who are only getting better.

No Secondary Market

With no secondary market, the real estate crowdfunding industry necessarily lacks a certain degree of liquidity, something most investors are keen on. This most likely won’t be changing anytime soon, though this market has certainly shown an affinity for ingenuity.

Also, most investors understand this fundamental lack and are prepared for the risk. It’s not like small-time investors have a comparable option that could give them a 15% return on their money in a relatively short period of time.

Investors Have More Control

As we brought up above, investors in real estate crowdfunding are getting a unique opportunity to actually learn about the industry they’re putting their money into. It gets better than that, though, because now they actually have an opportunity to affect what happens to that money too.

If you invest in Apple right now, you’re not actually buying your way to any say in the company’s future (unless you’re buying a lot of shares, an expensive proposition). All you can do is watch the market and sell as soon as you see the stock going south.

Thanks to the way real estate crowdfunding works, though, investors actually get to have input on their investment, which is one more reason so many of them are going out of their way to learn as much about the industry as possible.

While there are definitely challenges involved with trying to profit from real estate crowdfunding, hopefully, the above makes clear that it’s worth looking into. As long as you treat your investments with the seriousness they deserve, you shouldn’t have to worry about any unwanted surprises. Instead, take your time, do your research and work on a specialty so that real estate crowdfunding can become as profitable for you as it has been for other investors.

Matthew Sullivan

@thecrowdventure

Image by Shutterstock

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