Real estate crowdfunding is one of the fastest growing segments within the alternative lending sector, sometimes called marketplace lending or peer-to-peer lending, which is characterized by transactions occurring online.
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One of the major benefits of online real estate investing is it provides the opportunity to invest in a lucrative asset class and helps diversify an investment portfolio through short-term debt, or long-term equity. The investment yields often provide higher rates of return than other types of investments, especially bonds and certificates of deposit, while being based on a hard, tangible asset. Some investors also enjoy the ability to decide where their money is being allocated, picking their own investments, as opposed to a REIT where an investor has no choice over the investment decisions of the managers, and might feel left in the dark due to a lack of involvement. Overall, the advantages of portfolio diversification, high returns, and transparency have all helped increase the popularity of real estate crowdfunding.
Crowdfunding in real estate also provides numerous perks for developers looking for consistent and reliable access to capital, in order to fund their projects. In the past, developers had to rely heavily on traditional sources of lending, such as their local banks or hard money lenders. Today’s alternative lending methods offer developers the ability to tap into a large pool of capital stemming from thousands of investors who make up “the crowd.” Ultimately, real estate crowdfunding creates a new avenue for professional developers looking for fast and consistent capital to help fund their projects and expand their business.
Here are some of the most popular cities for real estate crowdfunding and some reasons why each of them is thriving:
Real estate crowdfunding is thriving in Jersey City due to the revitalization of New Jersey as a whole. One of the most positive aspects of Jersey City is its location and the ability for people to easily commute into metropolitan New York via car and train. Professional real estate developers are utilizing real estate crowdfunding platforms to fix and flip properties and also to remodel rental properties in Jersey City since the properties are in high demand opposed to the more expensive homes in New York.
There are many luxury and high-end real estate flip opportunities attractive to investors and real estate developers in Los Angeles. Areas like Santa Monica, Venice, and Marina del Rey and Playa Vista have together become known as “Silicon Beach” due to the rising number of tech startups and where Bay Area entrepreneurs and venture capitalists hoping to find success in a new city. This is contributing to Los Angeles’ rapid growth and high-end home sales, with the number of Southern California homes bought for $2 million or more being the highest on record in recent months. Indeed, Los Angeles proves there are crowdfunding real estate opportunities in neighborhoods with all type of income levels.
Boston is a contender for the 2024 Olympics, which is playing a long-term role in urban planning and development. Today, the median sales price for homes in Boston is $372,450. Compare that to the same period one-year ago and you will find the median home sales price decreased 23.4%, or $114,050. Currently, there are a lot of properties in Boston that are in pre-foreclosure, auction, or bank-owned. This provides a great opportunity for professional real estate developers looking to utilize the power of real estate crowdfunding to buy and hold, or fix and flip.
Government assisted programs have helped spark a revitalization movement throughout the Chicagoland area. In fact, many of the historic greystones homes are being rehabbed to give these older structures a more modern look and feel. Real estate crowdfunding is able to provide local developers with a new source of funding for these renovation projects, which is also going a long way towards increasing property values. Overall, the collective contributions have begun to change the complexion of the local neighborhoods and adding value back to the residents. Seeing as how Chicago is where popular real estate crowdfunding platforms like Patch of Land and PeerRealty got their start, it’s no surprise the Second City is one of the first to adopt this new method of peer to peer lending.
Sacramento is another location that’s benefiting from real estate crowdfunding. As sales of distressed homes have been increasing every month, there’s been a natural rise in fix and flip projects taking place in California’s capital city. Real estate crowdfunding helps in the process by getting rehabbers the funding they need in order to acquire these properties and watch their projects come to life. Sacramento's home resale inventories have also experienced a slight increase of 3 percent since May 2015, showing that there’s still a healthy supply of homes on the market.
Real estate crowdfunding platforms are making it easier for investors to participate in real estate investment opportunities – online -- anywhere in the country, allowing them to earn a lucrative return and diversifying their portfolio. In turn, they are able to provide a consistent and reliable source of capital for professional developers looking to scale and grow their businesses. Perhaps the biggest winners are the residents who live within the growing communities that real estate crowdfunding is impacting the most. Not only are the conditions of their neighborhoods improving, but they are also benefiting from a stimulated local economy. In the end, real estate crowdfunding will continue to thrive in cities throughout the nation because of the positive impact it has for everyone involved.
About the author: Jason Fritton is the CEO and co-founder of Patch of Land (POL), a crowdfunding solution for real estate financing that brings together borrowers and lenders through a simple online interface. He has been involved with crowdfunding legislation since its beginning and worked with Congressmen to lobby for the crowdfunding exemptions that were written into the 2012 JOBS Act.