Online crowdfunding has been around for a while. Using websites like Kickstarter, Indiegogo, and Tilt, individuals have been raising and investing money in products, businesses, and ideas for a few years now. It’s quite a simple concept – the crowd (people like you and me) pools money to fund ideas it likes, allowing the people who come up with these ideas to have quicker, more efficient access to capital.
It’s all about connecting the right people to the right ideas, creating a win-win situation. And the numbers don’t lie: global crowdfunding more than doubled in 2014 and then again in 2015, going from $6B to more than $34B over that period.
$34B is an impressive number to crowdfund, but imagine how the magnitude of this number changes when you bring crowdfunding into the largest asset class in the U.S., real estate, valued at almost $40 trillion dollars according to a 2014 Federal Reserve report (that’s about 1.5 times larger than the next largest class, the U.S. stock market – all of it!).
If you are an investor that believes in real estate and asset diversification, you should consider allocating a piece of your portfolio to real estate crowdfunded investments. Here’s why.
First and foremost, real estate crowdfunding gives investors the opportunity to invest in transactions they previously had no access to. Not only that, the minimum required investment amount can be as low as $5,000. Live in California and want to invest $5k in a building in Florida? You can do that online.
Historically, finding these deals and investing in them required connections and a lot of effort and time – it was basically a full-time job. With crowdfunding platforms, you no longer have to be a part of the local country club to gain access to high-quality deals, and your money works for you around the clock without the stress of hands-on management.
Ease of Use
Access is not always enough. You have to make the process easy and user-friendly. Crowdfunding platforms simplify investing and potentially offer investors a smooth and frictionless investment process. The online functionality appeals to all investor skill levels, from first-timers to veteran investors. In just a few clicks, investors can potentially access various real estate transactions across multiple property types and locations.
The best platforms have clear and transparent investor dashboards to keep a real-time pulse on investments. They vet investments, perform due diligence in-house, and provide their investors with tools to make investment decisions that are right for them.
Traditionally, pulling together portfolio-wide insights required hours of manual data aggregation and a team of analysts. On crowdfunding platforms, the ability to harvest data is potentially easier and quicker than before. Due to the availability of data, investors are able to track and analyze information, uncover trends, and make more informed decisions.
Opportunities for Every Risk Appetite
Real estate crowdfunding isn’t just for niche risk seekers. Institutional investors and individual investors alike see the value in these platforms and the streamlined access to investment opportunities. This is potentially driving mainstream adoption.
Investors have the opportunity to choose the level of risk they would like to take since crowdfunding platforms offer both debt and equity products. The power of the platform is exactly that ability to act as a one-stop-shop where investors can (again) choose what’s right for them.
Additionally, real estate potentially offers a hedge against inflation, as properties with tenant occupancy generate cash flow that rises with inflation and can potentially cushion against market crashes.
Like any investment, however, real estate carries its fair share of risk. Returns of any sort aren’t guaranteed. And there’s no assurance your principal will be preserved.
One thing is sure: real estate crowdfunding platforms are going to get crowded as a more diverse group of investors get involved. Easy access on the internet, minimal time commitment, and lower investment amounts are all potentially driving younger generations to join their parents and step up to the real estate plate.
It’s happening. Real estate crowdfunding is going mainstream. Will you be part of it?