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Real Estate Crowdfunding: Trends to Watch in 2018

By Laura Kohlenberger | November 10, 2017

Real estate crowdfunding is a growing industry of great interest for realtors and investors. A report on Crowdfunding for Real Estate by anticipated a $3.5 billion growth for real estate crowdfunding in 2016, and experts project that the industry will grow to over $300 billion by 2025.

Real Estate Crowdfunding

Just keep in mind that, according to Dr. Richard Swart, UC Berkeley's crowdfunding research director, "property crowdfunding is riskier than traditional investments."

According to CFX Markets, crowdfunding makes $2.5 billion of the total size of the U.S. commercial real estate market, which is $7 trillion. This indicates a huge potential for growth in the following years. Because it is a relatively young trend, crowdfunding for real estate is projected to grow in 2018, as more people learn of its potential.

What is real estate crowdfunding?

crowdfunding (noun: crowd·fund·ing \ ˈkrau̇d-ˌfən-diŋ \) is defined by the Merriam Webster dictionary as "the practice of obtaining needed funding (as for a new business) by soliciting contributions from a large number of people especially from the online community."

People use crowdfunding for a diversity of startup projects, including artistic and creative projects, social entrepreneurship projects, and so on. Similarly, crowdfunding can now also be used to secure real estate loans, residential debt investments, commercial equity investments, 1031 exchanges, and so on.

The rise of crowdfunding sites for real estate

There are already several sites specializing in crowdfunding for real estate. In 2018 these will get stronger, while others will emerge to take advantage of the growing trend. Below are some of the top real estate crowdfunding sites you could be using right now:

  • 1031 Crowdfunding is an online marketplace for 1031 exchange investments providing properties for investors seeking a 1031 exchange through a Delaware Statutory Trust (DST). You can use 1031 to purchase a beneficial interest in a variety of properties across different asset classes using DSTs. 1031 attracts both cash investors and 1031 exchange investors.
  • PeerStreet offers access to real estate loan investments. It is a marketplace where accredited investors can invest in high-quality private real estate loans. Most of their loans are short in duration (6-24 months) with LTVs typically below 75%.According to The Real-Estate Crowdfunding Review, in October 2017, the site had originated over $500M in loans. The Real-Estate Crowdfunding Review also ranks PeerStreet at the top of their 100+ Real Estate Crowdfunding Sites 2017-2018 Rankings and Reviews list.
    PeerStreet - How it works video
  • Real Crowd helps you build relationships with commercial real estate companies and invest directly in their investment opportunities. They address accredited investors who are seeking to diversify their investment portfolio with real estate. You can brows a large choice of investment offerings posted by private real estate companies in the United States. The Real-Estate Crowdfunding Review ranks them #1 for general commercial real estate equity.
  • Crowd Street is excellent for commercial real estate investing. It offers investors the opportunity to find institutional-quality offerings across the USA with as little as $1,000. Also, CRE firms can raise capital and manage investors with ease using Crowd Street's powerful interface.
  • ArborCrowd allows people to co-invest with successful real estate deal-makers in the industry and enables millions of investors to maximize their financial returns.

    ArborCrowd is unlike typical real estate crowdfunding platforms in that all its offerings so far have involved passive equity interests in apartment properties. Other platforms typically offer their investors – the crowd – opportunities to buy into preferred equity or some debt instrument, typically a second mortgage. Such investments provide cash flow from the start, making them an easier sell.

  • Sharestates offer investors direct access to real estate investments. with typical net annualized returns of 8-12%. Property owners and developers (aka sponsors) can also gain access to capital at a competitive rate, closing a deal in a fraction of the time it traditionally takes through a bank.

    "We believe everyone should be able to invest in real estate. We challenged ourselves to come up with a solution that could give everyday investors a chance to access those inaccessible real estate investments at a fraction of the investment minimum," said Allen Shayanfekr, Sharestates CEO

There are many other real estate crowdfunding sites you could choose from. The top compiled by The Real-Estate Crowdfunding Review can be instrumental in helping you pick the best. What's interesting is that this top also shows you how the industry grows, which crowdfunding sites for real estate are getting stronger, which have poor investor protections, inadequate volume, hidden fees, and much more. They also have excellent investment tutorials, news and interviews, and other useful resources.

Enter crowdfunding for prospective homeowners

Accredited investors are not the only ones who can enjoy the benefits of crowdfunding. There are already sites that offer crowdfunding for prospective homeowners and 2018 will see more.
HomeFundMe was launched by mortgage lender CMG Financial in October 2017. The site is designed to help first time home buyers, millennials with high levels of student loan debt, couples who want to build their wedding registry, and so on. HomeFundMe is the first approved crowdfunding platform designed for the down payment on a home.

"Our tagline is, 'Fund your way home.' We think homeownership still is very sensible and, done correctly, is a good idea to step forward toward wealth, stability and quality of life," said Christopher George, CEO of CMG Financial and vice chairman of the Mortgage Bankers Association.

The need of real estate crowdfunding apps

Millennials use apps more than they use desktops and laptops, therefore it makes sense for crowdfunding sites to offer an app version of their platforms. Crowdfunding sites offer mobile versions of their platforms, but apps dealing with crowdfunding for real estate are hard to find. In 2018 you can expect developers to launch crowdfunding for real estate apps as the trend grows.

Laura is a Realty Biz News contributor, and a seasoned writer specializing in travel and social media techniques.
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