Since gaining popularity in 2013, crowdfunding is a resource that many have become familiar with. Used on a smaller scale by those seeking financial help for unexpected emergencies, crowdfunding became a nationally known phenomenon through the collaboration of GoFundMe and social media platforms.
What you may not be familiar with, however, is crowdfunding’s increasing traction among real estate investors.
In fact, Times Realty News called real estate crowdfunding “one of the most successful niches in the fast-growing U.S. crowdfunding industry” in their 2016 Real Estate Crowdfunding report.
To put this into perspective, real estate crowdfunding raised $1 billion in 2014 and $2.5 billion in 2015, increasing 150% with no end in sight.
Real estate crowdfunding functions the same way that typical crowdfunding does; where multiple investors are pooling funds toward a common goal.
Patch of Land, one of the 140 recognized real estate crowdfunding platforms, describes itself as a “lending marketplace that matches accredited and institutional investors seeking high-yield, short-term, asset-collateralized investments to borrowers seeking more timely and consistent sources of funding for rehabbing properties across America.”
Like Intrust Funding, Patch of Land strives to resolve the slow speed and inefficiency that borrowers have become all-too familiar with when asking for funds for their real estate projects.
In 2015, crowdfunding was opened to non-accredited investors when the Securities Exchange Commission (SEC) approved equity crowdfunding rules under the Jumpstart Our Business Startups (JOBS) Act. Because of this Act, real estate investors can expect to see an increase in capital raised through crowdfunding and an added protection to reduce the risks associated with group funding methods.
At Intrust Funding, we know that real estate developers need fast cash to successfully secure their projects. To compete with hard money lenders, some real estate crowdfunding platforms have added the ability to pre-fund projects.
This new strategy, coupled with the increased process automation that online real estate crowdfunding offers will make property acquisition that much faster, and hopefully more successful!
From an investment standpoint, real estate crowdfunding allows for a new level of flexibility that hasn’t existed before.
Due to the platform’s design, investors are no longer restricted to investing in one project at a time and can now disperse their dollars amongst several projects and real estate companies. Not only does this allow for diversified investments, it also cuts some of the risks of traditional investing.
Although this alternate method of investing is still new, its ease and relatively low level of financial responsibility allow for crowdfunding to remain an attractive option.
On top of that, David Drake of LDJ Capital has projected that “at least 400 hard money lenders will get into the real estate crowdfunding space in 2016” to stay competitive.
Massolutions, a research and advisory firm, has conservatively predicted that real estate crowdfunding will raise $3.5 billion this year. With crowdfunding’s lack of global barriers and automated future, the annual yield of capital has become increasingly difficult to predict
*Created for Intrust Funding