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What Crowdfunding Could Mean for Real Estate

Real Estate crowdfunding isn’t lacking for a number of things at the moment. It’s not lacking for platforms, with some 150 currently available through the world (more than half of those are based in the United States) and many estimating that 10 are probably created every month. Investors aren’t in short supply either, which is obviously one of the reasons real estate crowdfunding is so popular. Then there’s press. Every week, more and more articles are being published about what is happening in the industry. What about the future of the industry though? Crowdfunding has been around long enough that we can look to the past to discuss what’s coming down the pike.

Not Every Investment Makes It

There are two very important things crowdfunding can teach us about how investments work. First, there’s the simple fact that you need to exercise due diligence before committing a single penny. This is often very obvious with traditional crowdfunding, of course. Most people know that a campaign to create a video about learning to speak a dead language like Latin probably won’t be raking in the profits.

Unfortunately, it might not always be this obvious when it comes to real estate investments. Now that we’re out from under the recession, it’s easy to start thinking about property again as an asset that’s always in demand.

Don’t make this mistake. You still need to do your research. Look into the actual real estate, but also dig into whom you’ll be investing through.

Second, you have to realize that the money being there is no guarantee either. Just because you and other investors pool your funds together successfully doesn’t mean you’ve just secured years of income for yourself.

Although, debt-based deals are the less risky of the two, they can still fall through and you can still be left with nothing. Keep this in mind.

Knowledge Is Necessary

Alright, we won’t belabor the point much further, but sufficed to say, you have to educate yourself a bit if you want to make it in the world of real estate crowdfunding.

However, you can do yourself an absolutely huge favor by only investing through real estate crowdfunding platforms whose management actually understand the market and have a reputable background in real estate.

What’s happened over the years with crowdfunding is that a lot of people had good ideas, but no clue what they were doing. As a result, their prototypes never made it to production or they did, but something like scalability became an issue. Some inventors made terrible marketers or businessmen and people never got the intended upshot of their investment.

Someone may have a seemingly great property for you to invest in, but who’s going to be managing the deal? If it’s something like a strip mall, poor management could completely ruin the investment despite an amazing property and location.

Quality Platforms Are Essential

As we mentioned at the beginning, the industry isn’t hurting for platforms. We’re well on our way to seeing 200 by the end of 2015. Still, other forms of crowdfunding have shown that you can’t just pick any platform for finding your deals. You want ones that will do a good job vetting investments and ensuring that deals are accurately described.

Look to Invest in Investors

Like we talked about earlier, sometimes the problem with a crowdfunding campaign isn’t the investment in question, but the people trying to push it. The same thing is something that can happen in real estate crowdfunding and something you can expect to see more and more of in the future as this industry grows.

What you’ll probably want to begin doing is looking for platforms that bring quality deals to the table. What you don’t want to do is start from scratch every time you wish to invest and look for brand new deals. Pay attention to the people who know what they’re doing and spend on any premiums that will win you a part of their new deals.

Figuring out who is worth your money will take some time, but it’s worth it if you want to make real estate crowdfunding a long-term strategy.

It May Cost More

Crowdfunding hasn’t necessarily made life easy for those who are trying to launch a product or startup. You still have to do rounds with VCs or at least produce compelling content to bring online.

However, there’s no argument that things are a lot better than they used to be. Those who create these products and companies often get to maintain much more control and accept better offers.

As an investor in real estate, crowdfunding is probably your best friend at the moment. After all, most of us couldn’t afford to put skin in the game without this vehicle. That being said, expect that this friend of ours may grow more and more distant as time goes on. This is simply because it’s about to be getting a lot more attention. The more investors who discover crowdfunding for real estate deals, the more the people who pitch them can ask for bigger premiums to let you play.

That’s not the end of the world, by any means, but something you’ll definitely want to consider in your long-term strategy. If you’ve yet to start investing, you probably want to begin now while it’s still extremely affordable to do so.

There’s no doubt that crowdfunding has been a market disrupter and made countless companies and products possible that would have otherwise never gotten off the ground. Now, we’re seeing what it can do for the real estate industry, though we already have some exciting ideas.

Matthew Sullivan

@thecrowdventure

Image by Shutterstock

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