Although real estate crowdfunding is still relatively new, it’s already proven itself and found favor with investors of every stripe. Still, if we can take out our crystal ball for a moment, there’s a lot more coming in the next 10 years.
Crowdfunding Will Dominate Real Estate Investing
When the JOBS Act passed two years ago, people didn’t think real estate investing would be involved. Then, many people thought it wouldn’t really take off like it has. After all, REITs (Real Estate Investor Trust) had been around for decades. While they certainly revolutionized the industry when they first debuted, many didn’t grasp how crowdfunding would improve much on the formula.
Of course, now we know otherwise. Last year, real estate crowdfunding was responsible for over $1 billion of the global real estate market. This year, experts are thinking that final number will be north of $2.5 billion.
What this means is that crowdfunding is growing exponentially, even though it’s still a form of real estate investment most people don’t even know about. In the coming years, expect that to change. Expect that more and more people will prefer crowdfunding real estate investments over putting their money in stocks. Slowly, but surely, this type of investing is going to continue growing until it eclipses traditional versions of real estate investing.
It Will Grow to Include Every Type of Property
Right now, real estate crowdfunding can be used for just about every kind of property. However, the majority of those it’s been applied to have been single-family homes and apartment buildings, as well as modest-sized office buildings.
This still speaks volumes about the power and potential of real estate crowdfunding. In 10 years, though, we’ll look back to see that major commercial ventures were financed through this method.
We already have some examples of this prediction coming true. The new Hard Rock Hotel that is going up in Palm Springs relied on crowdfunding to some degree. This is being seen all over the world too. While some of this may be for the sake of free press, it’s likely that those who experience the benefits of crowdfunding once will be back for more in the future.
Just like large corporations largely depend on big investors to fund their operations, look for real estate ventures to start doing something very similar. However, within 10 years, the latter example will be more like the former in that large real estate firms will have much smaller investors below them.
Expect Real Estate Investment Firms That Specialize in Crowdfunding
Right now, we have over 100 platforms that make real estate crowdfunding possible for investors all over the globe. This number is growing and will probably exceed 150 by the end of 2015.
While new real estate crowdfunding platforms will come and go, it’s likely that we can also expect whole investment firms dedicated to this specific form of investing. You’ll have specialists who either make their recommendations to clients or simply take a customer’s money and invest for them. The difference is that you will be able to play for as little as $1,000.
To that end, legislation will need to be passed to get rid of the last requirements regarding accredited investors. The JOBS Act did a good job of making investing easier for all parties involved, but far too much emphasis is still being placed on the importance of having an accredited investor work as a middleman. If the last 10 years have taught us anything, it should be that that unnecessary kind of regulation does more harm than good (if any good at all).
With the popularity of real estate crowdfunding growing, within 10 years, it should be an option open to just about anyone, not just those interested in deals that fall under $5 million. While there will always be some kind of regulation involved, getting rid of the accreditation credential will mean a whole new investing industry.
Crowdfunding Will Create Better Communities
This is a somewhat contentious take, but there’s reason to believe that real estate crowdfunding will actually create better communities. Right now, gentrification has become a hot-button issue throughout the world. A community becomes “bad” driving rent prices down. A new, young middleclass comes in and takes advantage of those low rent prices and, after not too long, the area starts to see new, trendy businesses to cater to this market.
Along with this growth, though, rent prices go back up and continue until a lot of the former residents can’t afford them anymore and leave. This generally doesn’t sit well with them, but gentrification is a natural process with no real resolution in sight.
Crowdfunding may provide a solution though. Those residents who have lived in an area all their lives can have a chance in helping it keep an attractive reputation. If doing so does drive rent prices up, they’ll actually end up benefiting from returns on their investment.
Also, it’s been argued time and time again that “bad” neighborhoods get that way because residents don’t feel any connection to it. Whether they’re justified or not in that thinking is irrelevant. The argued conclusion is that this disconnection leads to the area falling apart and residents merely watching as it happens.
Thanks to the capital available from real estate crowdfunding, these residents can have a very meaningful relationship to their neighborhoods which will provide them a tidy profit and an incentive for taking care of it.
Foreign Investment Will Be Like Steroids for this Market
The crazy thing about real estate crowdfunding is that we haven’t even seen how far it can go. We’re not even close to that point yet. Wait until foreign investors begin playing a bigger role. SEC Regulation S could open the doors to foreign investors very soon, which would only help the market expand and grow even more.
Fortunately, you have plenty of time to get in at the bottom floor of the opportunity represented by real estate crowdfunding. While nothing is guaranteed and you want to be smart about where you put your money, this is an amazing time to be an investor.
Matthew Sullivan
@mattsullivanco
