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The Evolution of Real Estate Crowdfunding

By Ben Shepardson | June 7, 2018

As a concept, crowdfunding began as a way to bring entrepreneurs and large networks of ordinary people together. It uses social media and dedicated websites to create entrepreneurial opportunities that weren't easily accessible before.  Crowdfunding accomplished this in a very simple manner. It created opportunities for entrepreneurs to raise vast amounts of money without the aid of venture capitalists.

Crowdfunding concept on keyboard button 3D rendering

In short, crowdfunding allowed anyone with a little money to invest in a new company. The success of early crowdfunding sites like Kickstarter and Indiegogo spawned many imitators. At one time, crowdfunding was only used for specific types of investment projects.  Fortunately, this has changed in recent years.  One way it's changed is by expanding into the real estate market.

Read on to discover how this investment revolution came about and what to expect from it in the coming years.

The Crowdfunding Revolution Hits the Real Estate Market

Once, investments in large-scale real estate developments were only available for those who held private equity in Real Estate Investment Trusts.  These trusts allowed for minimal amounts of shared real estate investment.  But it wasn't until the 2010's that the market truly opened up to the average person.

Following the example set by sites like Kickstarter, one of the first sites to focus on mass scale real estate investment was Fundrise.  This platform helped average people invest in real estate projects that were once only open to huge corporate entities.

How It Works

Other pioneering platforms in real estate  were The Prodigy Network, iFunding, and Realty Mogul. And while each of these platforms offers a different investment experience, real estate crowdfunding generally works in the following way.

Using advanced networking technology, these platforms can dramatically reduce the costs of finding the best real estate deals for the small investor. Upon finding these 'diamonds in the rough,' these collectives allow individuals to invest in them for as little as a few hundred dollars.

Investors can choose from a wide variety of investment projects. These include single family homes, condominiums, and manufacturing buildings. Typically, the internet platform funds the deals in advance, a practice that allows participants to begin earning interest at the start of their investment term.

5 Top Crowdfunding Sites for 2018

As you can see, these platforms allow small investors to get their foot in the door of the real estate business.  Just as importantly, they can enter with a minimum of risk. In addition to Fundrise, here are 4 more of the top real estate crowdfunding platforms for 2018:

While each of these platforms functions in very different ways, each of them have a similar express mission.  They combine investment capital from thousands of average people to earn profits for themselves and their clients.

The Future of Real Estate Crowdfunding

In 2015, investors dumped close to 2.5 billion dollars into real estate crowdfunding projects, with some investing as little as $100.  And other eye-popping stats suggest the biggest numbers are yet to come.  Total real estate crowdfunding was expected to reach 5.5 billion dollars by the end of 2017, with certain projections indicating a total investment of 93 billion dollars by the end of 2025.

While nothing in either the tech or the investment worlds is every guaranteed, these numbers suggest that real estate crowdfunding will be viable for a long time and is certainly worth looking into.

Ben Shepardson is a Realty Biz News Contributing Writer and has a long track record of success in online marketing and web development. While pursuing a bachelor’s degree in Computer Information Systems, he worked doing enterprise-level SEO and started an online business offering web development services to small business customers.
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