Options for investors to fund real estate investments continues growing. Crowdfunding is becoming one of the most popular. Some investors have gone with real estate investment trusts (REITs). And while you can select REITs that specialize in particular types of real estate, there are fund managers that decide on specific properties to invest in. When it comes to crowdfunding, you, as the individual investor, are able to pick and choose the exact project that you want to invest in.
Alternatively, you are able to submit your own project to request that other investors join you in funding it. Crowdfunding enables individual investors to retain much more control. Crowdfunding has become a viable alternative to bank financing. Banks are beginning to see a decline in major depositors that are tired of seeing negligible or negative returns on their savings. Some major investors are beginning to manage their assets through crowdfunding.
Many investors find crowdfunding appealing because it enables smaller investors to invest in larger, previously institutional sized and quality properties. It is also a passive form of real estate investing because individual investors don't have to deal tenant problems or be responsible for keeping properties up to code.
It's estimated there are now more than 150 global crowdfunding platforms. That is triple what there were a few years ago. The platforms vary greatly but it's common to require investors to commit to a minimum $10,000 investment. These investments are often partnered with 50% traditional financing to complete the deal.
Selequity is a recent entry into the crowdfunding market. To date, this funding is specializing in commercial properties that include a neighborhood retail center in St. Louis, MO, an atrium office building in Dallas, TX, and an industrial complex also in St. Louis, MO. While each is separately funded, the combine value of the properties is about $38 million.
Selequity now has an alliance with Virtual Realty Enterprises, LLC (VRE). VRE is a commercial real estate investing and operating company with more than $500 million in assets. VRE's investments include promissory notes for hotels, apartment buildings, nursing homes, shopping centers, land acquisition and development, warehouses, office buildings and marinas. Ideal loan size is $3 million to $15 million.
Frustratingly, crowdfunding is still limited by the SEC to accredited investors. The major requirements of an accredited investor is an individual must have an annual income of at least $200,000 or a joint income of $300,000 for the past two years or have an individual or joint net worth of at least $1 million.
Congress passed what is known as the JOBS Act in 2012. It is expected to open up crowdfunding to all investors but has had a torturous time having regulations written by the SEC. In April of this year, SEC chairwoman, Mary Jo White stated "On the JOBS Act side, adoption of final crowdfunding rules is our last major rulemaking to complete, which is also a priority for 2015.”
Real estate crowdfunding was estimated to be a $10 billion business in 2014 compared to $2.7 billion in 2012 and $5.1 billion in 2013. Opening it up to average investors is sure to see this investment market grow even more substantially.
Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.