Crowdfunded Real Estate – Is it a Good Deal?

Crowdfunded Real Estate

Did you catch the latest episode of Shark Tank (Jan. 30/2015)?

Did you notice the pitch for a crowdfunded real estate company? The Sharks shut him down and accused it of being a scam. But is it?

Crowd funding and the internet now make it very convenient for people with a small amount of money and knowledge to get their piece of the property pie.

However, let’s look at some facts about the real estate industry and see the opportunities crowd-funded real estate really presents.

The industry which surrounds the financing of property is stuck in its ways and doesn’t like to change unless its forced to. It’s the underlying structure (the underwriting, if you will) that’s the foundation from which all property deals are built.

So, how exactly does traditional real estate investing work?

Well, at it’s core, the real estate industry is segmented and very inefficient. Investors have very few ways in which to access private real estate or the money necessary to buy it.

Most real estate investing deals come through word of mouth. The “old boys network” if you will. Of course, there are some women in that network but absolutely everyone privy to those deals has a lot of money.

Unfortunately, most investors don’t have $50,000 to $100,000 to put into just one property. This would prevent diversification.

So, how does the crowdfunding model apply to a real estate deal?

Most companies that offer crowdfunded real estate deals will have a website set up for potential investors to browse details on properties available for investing. Once a potential investor decides to invest the minimum required amount is usually between $1000 and $10,000.

Is crowdfunding particularly good for real estate investing? If so, why?

One of the main things crowdfunding does is eliminate most of the barriers and problems generally involved with traditional real estate investing.

However, you are also exposed to greater risk and less transparency of the real estate deal. The small investor in particular needs to be cautious with crowd funded deals.

Real estate investing is a time consuming endeavor. It’s expensive and requires skill and knowledge of the local property market. Do your due diligence thoroughly. If you don’t get your questions answered… don’t invest.

So, unless you’re willing to drop $100,000 into a single property and then actively manage and operate it, most properties are not a viable investment possibility for most people.

However, most crowdfunding platforms offer access that’s not always possible with traditional deals. It also greatly reduces the time and money requirements needed to invest in larger, traditionally funded deals.

Is crowdfunding the future of real estate financing and investing?

The real estate industry has a reputation of being slow to adapt to new technology. This has contributed to the fragmented, cumbersome and inefficient nature of dealings within the industry. That trend is changing.

However, we’re now seeing real estate become more adept at integrating technology into its transaction process.

As a result, we’ll continue to see greater efficiency, more transparency and much greater access in the real estate and finance industries. Crowdfunding will play a big part in that.

Recently,there have been interesting amendments passed and discussed within the JOBS Act in regard to crowding funding and real estate investment in general.

There is a monumental change happening within the real estate industry right now. It’s goal is to not only protect consumers but make buying property more accessible as well.


Call Bob Anselmo at: 516-850-1399

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