Frontiers in Crowdfunding: When Real Estate Investing Goes Digital

Frontiers in Crowdfunding - Real estate business

If you had an idea for a videogame, for novel jewellery or a gadget that you just knew that everyone would love, where would you get funding to turn it into a viable business?


You could work hard to get businesses or investors interested, of course, but you would also need to give up some of your rights over the idea and over management of the business in return for investment. To many startup entrepreneurs with hit ideas to promote today, the alternative seems much more attractive — they turn to crowdfunding sites like Kickstarter.

Oculus Rift is the marquee name in the world of crowdfunding. The company raised £2 million in 2012 from nearly 10,000 investors, making back about 150 times that sum when the company was purchased by Facebook for $2 billion. In the case of Oculus Rift, it wasn’t legal for crowdfunding businesses to return profits to their investors. Things are different now. It’s much easier for small investors to make a killing on tiny crowdfunding investments. It is this change that makes crowdfunding viable when it comes to the real estate investment business. Obtaining funds from hundreds of small investors is the newest and most disruptive ideas in the real estate business.

Crowdfunding in real estate investing

The bar for initial investment tends to be as high as tens of millions for real estate. Regular crowdfunding sites that are set up to put up projects under a couple of million, then, tend to not be well suited to real estate investment plans. It is for this reason that real estate tends to get a very small share of the £8 billion crowdfunding market at the moment.

Things have shown signs of change over the past couple of years. Several crowdfunding sites dedicated to real estate have come up, and they are beginning to make their presence felt. Realty Mogul, currently one of the best-known names, for instance, was able to raise £1 million for the Hard Rock Hotel Palm Springs. With services such as these, crowdfunding is beginning to raise £100 million each year for real estate investments.

How do you find crowdfunding opportunities for real estate?

As a new and unfamiliar concept, real estate crowdfunding has few real established names at this point. Most successful investors attempt to identify dependable crowdfunding sites by researching their founders and managers for a track record in finance-related projects. In most cases, though, such research tends to not be entirely necessary; crowdfunding platforms usually put a lot of work into finding reliable managers. Once you get on a good site, you can be sure of well-researched investment possibilities. Most investments that come to crowdfunding sites tend to be high-debt properties that offer a high level of returns for moderate to high risk levels.

So how do you invest in crowdfunding real estate?

A number of popular names exist in the world of real estate crowdfunding, with new ones coming up all the time. Fundrise, Prodigy Network and Real Crowd are some of the best-recognized names at this point. Each one holds in excess of 50,000 investors. Getting in, you need an income level of about £1 million, and a yearly income of at least £100,000. Depending on the platform, you’ll need to invest at least £10,000.

Many platforms, though, are beginning to open up to modest investments no greater than £100. There are dozens of sites around, though, and it’s important to make sure that you do make a good choice. You should look for a company with deep links to the finance and real estate industries (more info here).

Crowdfunded real estate investments turn out to be far more profitable than real estate investment trusts (the other way to invest in major real estate projects). With REITs, investors never end up owning the property purchased with their funds. With crowdfunding, though, investors actually have their names listed on the documents for every piece of property invested in. It’s a far more profitable proposition.

What kind of profits?

Depending on the kind of property invested in, returns can be anywhere between 10% and 20% in annualized return. Many prominent investments have been much more successful. A certain amount of risk does exist, course. However, crowdfunded investments allow investors to get in on the property market on any continent. It isn’t hard to find a place that is currently experiencing great growth somewhere in the world.

Lydia O’Brien has been involved in a several crowdfunding projects and likes to share her insights on this relatively new addition to our investment options with an online audience. She writes on a regular basis for a number of B2B and investment websites.

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