Is Crowdfunding the real estate deal for investors?

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Real estate investment

As discussed in my previous couple of blogs Crowdfunding appears to be riding the crest of a wave at the moment with little sign of the bubble bursting and the Non-Profit sector particularly benefiting from the boom. Another industry where Crowdfunding is proving to be a big buzzword and quickly becoming one of the fastest growing segments is the real estate sector. What was once a notoriously hard investement opportunity open only to an elite few, but providing great returns for those in the know, has been opened up to us all with dedicated Crowdfunding platforms allowing us to get a piece of the previously unattainable action. A few of the main platforms, as reported by Crowdfund insider, are:

  • Prodigy Network – Boasts largest crowdfunding project ever. Raised around $170 million from many small investors
  • Realty Mogul – Raised over $70 million for around 240 properties to date.
  • Fundrise – partnering on projects such as the World Trade Center. In February of this year, 6 institutions committed $100 million in capital to help power platform growth. Raised over $60 million for real estate projects
  • iFunding – now disrupting traditional real estate finance by offering both debt and equity for select projects. Raised its own capital by offering equity on Crowdfunder with a pre-money valuation of $20 million.
  • Money360 – Allows investment in projects under $10 million around the United States. Raised over $31 million in funded projects.
  • RealCrowd – As of March of this year has over 14,000 active users growing at an annual rate of 325%. Raised $30 million for equity in real estate as of March.
  • Patch of Land – Has raised just over $29 million in debt finance via its platform as of July 2015

Real estate Crowdfunding is well established overseas but Australia is playing catch up fewer than 10 sites, most of which are start ups, one, CrowdfundUP, says some of its opportunities will be open to retail investors but as demand explodes many more developers will seek investors through new sites.

Research by Massolution, the Crowdfunding research group, and reported by Crowdfund insider indicates:

  • Real estate crowdfunding will be a $2.5 billion industry in 2015.
  • United States commercial and industrial property will witness 250% growth in 2015
  • Real estate crowdfunding grew 156% in 2014 up to $1 billion
  • Campaigns ranging in size from less than $100,000 to over $25 million.
  • North America will retain its lead reaching $1.4 billion in funding volume, but Europe will have just broken the $1 billion threshold.
  • Real Estate Crowdfunding is expected to increase 2.5 times, equaling $2.57 billion in 2015, making it the fastest growing industry segment of crowd capitalism.

It is clear then that it is an emerging concept with great potential within the indusrty but how does it work?  Well, there are two types of real estate crowdfunding, debt and equity. Simplistically put debt crowdfunding amounts to peer to peer lending whereas equity allows investors to become shareholders and at the moment makes up 80% of the market. The info-graphic, seen below, made by realtyshares and seen on crowdfund insider, breaks down statistics and methods for both side of the story very succinctly.
      Debt v Equity Infographic

Once again we see the potential crowdfunding has to raise a lot of money and provide involvement in investments and industry that were previously out of reach for you and I but will crowdfunded real estate investment provide the financial security where other traditional methods can’t?