Most people think of crowdfunding as a way to fund innovative products and projects on sites such as IndieGoGo or Kickstarter, but it’s fast being regarded as a good way for individual investors to become part of a much larger project that would otherwise be out of reach. An article in Forbes.com points out that real estate is a very good example.
It’s estimated that by 2025 the crowdfunding real estate industry will be worth more than $300 billion. One of the reasons for this prediction is that it provides individual investors the opportunity to participate in large real estate deals even if they only have a small amount of capital to invest. Just a few years ago things were very different as crowdfunding had yet to gain traction. In 2010 the crowdfunding industry was worth $880 million but is now worth $34.4 billion which is an incredible rate of growth.
In spite of this, the article does add a note of caution as there are risks associated with real estate projects funded through crowdfunding. The article points out that over 100 different real estate crowdfunding platforms were carefully evaluated but out of these only a few were found to be effective, credible and trustworthy.
But the reason for the significant growth in real estate crowdfunding is due to Congress passing a new act in 2012 which allowed small businesses and start-ups to openly market their private investments to the public. For some companies, this has been extremely successful and the article cites Origin Investments as a good example. This is a private equity real estate company that has raised more than $130 million for a fund which is the largest to date raised by a single real estate crowdfunding platform in the US. This was Origins third fund and the two previous funds were very successful with both being projected to generate more than 25% in annualized net returns.
With these types of funds, individual investors can now choose from a large range of real estate deals. Crowdfunding tends to attract more accredited investors more quickly, allowing large amounts of money to be raised with a very short time period. These funds give investors access to high-quality commercial real estate properties and allow them to take advantage of larger investment vehicles that were previously have been prohibitively expensive due to the liquidity required for participation.