Real Estate Crowdfunding

Investing in real estate has usually been the bastion of the extremely wealthy. After all, it takes a lot of capital to build a skyscraper. But the explosion of crowdfunding’s popularity along with the lifting of restrictions on real estate development marketing is now giving a much wider pool of investors the chance to diversify.

Until 2013, SEC regulations kept real estate developed from marketing their investment opportunities using “general solicitation” or advertising. The implementation of the JOBS Act has lifted those restrictions and opened the door for crowdfunded real estate development, meaning a much broader pool of investors now have the opportunity to get into the real estate game.

1.) How Do They Work?

Crowdfunding, generally speaking, is a way of spreading the risk – and the rewards – of an investment over a larger pool of people. For a creative project, 5000 people might contribute $10 to have their favorite musician record a new album. In return for providing some of the initial funds, they would get a copy of that album.

However, when it comes to crowdfunded real estate investment, it is a little different. Real estate investors are looking for a return on their investment, not just an mp3. Crowdfunding real estate sites sell investments in small chunks, which are much more accessible to an average investor than an entire building or development would be. An investor may contribute $5000, for example, to purchase an empty building. The funds then go into renovating and leasing out the building, at which time the investor will receive an agreed upon percentage of rents and revenue.

Related: Crowdfunding Real Estate: How to Raise Money through the Crowd

2.) Are They a Good Investment?

It is impossible to answer definitively …read more