The way in which business operates has changed dramatically over the past decade or so. One aspect of these large changes is something that’s known as crowdfunding. It’s something that you may already be familiar with, but unless you’ve had the chance to explore crowdfunding for yourself, you may not understand what it’s all about. Below, we’re going to explore crowdfunding, how it works, why it’s growing, and how real estate is an exciting frontier for this new economic mechanism.
What is Crowdfunding? How Does it Work?
Crowdfunding is actually a fairly simple concept. In the past, those who have wanted to fund various ventures – whether they are forming a company, bringing a product to market, or even recording an album – have had to rely upon traditional investors to fund their efforts. Crowdfunding is designed to disrupt and remake this traditional model.
Rather than having to get funding through traditional means – through a bank loan, for example – entrepreneurs can now open funding for their projects to the general public. Usually in exchange for some kind of reward or interest in the product or company being created, these entrepreneurs receive investments for a crowd of different people. These investments can be small or large; it all depends on the amount that the individual investor is willing to contribute.
There are a number of different crowdfunding platforms that you’re no doubt familiar with already. Kickstarter is perhaps the most popular and well known, but there are others such as IndieGoGo and GoFundMe. While these platforms allow entrepreneurs to fund their ventures, though, they are not in reality viable investment platforms. Someone who invests in one of the many ventures on these platforms typically receives some sort of “reward” for their investment and not a monetary return.
Crowdfunding is On The Rise
While crowdfunding was at first slow to catch on, it has absolutely exploded over the past several years. Between the years of 2011 and 2013, the size of the crowdfunding economy more than tripled in size from $1.5 billion to $5.1 billion. In the years to come, this growth in crowdfunding is only expected to accelerate.
There are a number of reasons for this. One of the most important is that it has opened investment opportunities to those who are non-accredited investors. A non-accredited investor is anyone who as an annual income of less than $200,000. This encompasses the overwhelming majority of Americans. Crowdfunding and the JOBS Act have allowed these non-accredited investors to put their dollars to work, whereas they were not – at least not easily – in the past.
Another reason that crowdfunding has exploded is in the way it addresses a core problem in the United States economy. As many will note, viable jobs have been hard to come by for many, especially those with specialized degrees. The crowdfunding platform essentially allows these individuals to create their own jobs. If their ventures are successful, they can in turn create jobs for other individuals. For this reason, perhaps more so than any other, crowdfunding is creating a lot of excitement in the business sector.
Real Estate: The New Frontier For Crowdfunding
Up to here, we’ve been primarily concerned with the crowdfunding platforms that you’re likely already familiar with. However, there’s one that you may have never heard of before, and it’s perhaps the most exciting sector of the crowdfunding sector. We’re talking, of course, about real estate crowdfunding.
As many know, there are a number of barriers that an individual faces when attempting to become involved in real estate investment. Chief among those is the capital required to purchase property. Simply, the majority of those in the United States who would like to become involved in real estate investment can’t because they lack the necessary capital to do so.
That is, of course, not the only barrier that these would-be investors face. The real estate market is incredibly complex, and the knowledge that an investor needs to achieve in order to get involved is quite exorbitant. So, even in cases where an individual investor may want to become involved in real estate investment they cannot, because they lack the necessary knowledge to do so.
Real estate crowdfunding changes this entirely. Working on the crowdfunding model – wherein individual investors can contribute some but not all of the investment needed to fund a project – accredited investors can now become involved in real estate investment without having to make a huge outlay of capital. Further, since these investors are working with another entity, which actually purchases and manages the property, they do not need to possess full knowledge of the real estate market.
The benefits of investing in real estate are well known, which is why so many investors are eager to add real estate to their portfolios. With real estate crowdfunding, investment in real estate is now more accessible than ever before. Aside from the benefits that this has for individual investors, it also contributes to stabilizing the real estate market overall, as there is more capital available to maintain its liquidity.
How You Can Get Involved With Real Estate Crowdfunding Today
At the moment, real estate crowdfunding is mostly limited to accredited investors. However, as the real estate crowdfunding market grows, and as it becomes more commonplace as a means of investment in real estate, you can expect that non-accredited investors will achieve access over the years to come. In fact, there are currently some real estate crowdfunding platforms that are open to non-accredited investors.
For now, our platform is limited to those who are accredited investors, and we deal with residential mortgages. Once you sign up, you can examine the number of different investment opportunities available to you, identifying those that make sense for your investment level and risk tolerance. When you find investment opportunities that are appealing to you, you can invest right through us, enjoying the benefit of adding real estate to your overall investment portfolio. The future is an exciting place in which to live, and real estate crowdfunding is a big reason for that!