Wednesday, December 16, 2015

Crowdfunding and Real Estate

 

How Crowdfunding is Reshaping the Real Estate Sector


Crowdfunding is no longer the only buzzword in the world of investment - it has recently diversified in exciting new ways. Real estate crowdfunding is one of the latest industry trends, even though it is still in its early developmental phase.

How it used to be


Before crowdfunding emerged, private real estate investments heavily relied on networking. Investors were sourced from a tight network of connected people, more or less like an exclusive country club. It was all about who you know. The reason for this is because of the Securities Act of 1933, a rule that stated that private investments could not be marketed in public. Once an investor was sourced from this limited source, there was yet another stumbling block - funding. Not all parties interested in real estate investment could afford the considerable funding required. Minimum investment thresholds could easily run into the six figure range. These factors shut the average investor out of the real estate market. It was not only bad news for investors, but also meant that real estate companies had limited access to capital. 

How it all changed with crowdfunding

In 2012 an act called Jumpstart our Business Startups was passed. The act made it possible for small businesses and startups to raise funds and advertise their business offerings in a more public way - crowdfunding being an ideal platform for this new approach. This change in dynamic has not only seriously benefitted investors; it created a shift in the real estate industry as a whole. The swift growth has also brought the wide-ranging benefits of crowdfunding to the market and effectively raised millions in a short space of time. 

Not just a trend


Through crowdfunding real estate businesses no longer have to rely on connections to source hundreds of thousands for a single deal; they can now access large amounts of money from a wider range of sources, from all over the world. With crowdfunding the global real estate sector got smaller, more effective - and friendlier.