Real estate crowdfunding is experiencing explosive growth while investors are watching it mature into an increasingly common form of online direct real estate investment. In this chapter, we discuss the top reasons why investors are embracing crowdfunding real estate and give details on how to start with as little as $10,000. The explosive growth that is taking place in the real estate crowdfunding sector confirms why investors are more and more attracted by space.
The rapid rise of e-commerce is an example of how people are using the Internet to purchase everything from automobiles to grocery stores. People love how fast and convenient it is to be able to access information, compare choices, form closing and complete a transaction whether at home, in an office, or by the pool to their preferred beach destination. Investors now have the same type of access to institutional-grade commercial real estate offerings literally at the tip of their fingers and in real-time.
Investors no longer must focus on real estate transactions they're going through in their backyard. Moreover, the old method of real estate investment was often based on the discovery of a potential investment opportunity by word-of-mouth. This method, commonly called the "country club model", made access to property investments difficult to identify and very ineffective. Online real estate investment breaks this paradigm by revolutionizing the access and transparency of private real estate deals. Investors can now invest in any market they choose, not just in the small market they used to have access. At the same time, sponsors can now accept investors from across the country just as easily as they can from the entire city. This has aroused the interest of sponsors for the development of a national rather than regional investor base. Access to transactions that they would otherwise not know of is a frequent issue reason investors cite as an incentive to join online platforms.
Comparison and comparison of several competing investments
Now that investors have wide access to private property investment opportunities throughout the country, the next step is to evaluate them. Quality online real estate investment platforms provide comprehensive information about the offer in a format that is easy to decipher and consistent. As a result, investors now can quickly compare and compare competing offers and filter them to find a project, which corresponds to its investment criteria, as well as register to receive notifications when new offers that correspond to the investor's criteria become available.
Moreover, keep in mind that in any market, when efficiency, scalability, and choice arrive, consumers (or in this case investors) generally win, as the online real estate investment marketplace continues to grow, the quality of investment choices and conditions available to investors will inevitably continue to improve, like more investors, renter online marketplaces, and more sponsors coming into a competition to attract them.
Directly invest in commercial real estate
Online real estate investments allow investors to invest directly in commercial real estate, which means they do not purchase from a listed real estate company, which owns dozens of properties, or an investment pool that includes an assortment of different real estate companies. Instead, direct real estate investment gives investors interest in a specific property or a fund with a specific investment objective. The direct investment enables investors to choose the type of ownership, location, and operator that best suits their investment strategy and goals.
Most private real estate offerings offer the prospect of sustainable distributions of investors' cash flows which are targeted to grow during the asset holding period. Often, these distributions start at annualized rates of return of 6% to 9%, usually paid each quarter, which can achieve double-digit returns in three years and some cases even achieve such returns externally.
Lower minimum investment amounts
Online real estate investment platforms make it easier for individual investors to invest directly in real estate. In the past, the ability to invest in a private real estate supply was generally accompanied by a minimal investment amount of $100,000 or greater. Now, investors can access a supply of quality institutional properties for as little as $10,000.
Modern portfolio theory assumes that diversification is essential to achieve optimal yields while offering some protection against exposure to market risks. The relatively small minimum investment amounts enabled by online real estate investment platforms, allow retail investors, for the first time, to imitate the investment endowment model and quickly build a diversified real estate portfolio. Instead of investing $100,000 in one property and waiting for it to mature, investors now have the option of investing $10,000 or $20,000 in five or ten different properties, in transactions that vary across geographies, promoters, investment structures, asset classes, risk profiles, and holding periods.
Robust reporting platforms
Online real estate investment platforms provide dashboards that help investors manage their investments, whether it's a unique asset or a broader portfolio of real estate assets. Investors can use their dashboard for various functions, including accessing quarterly reports, storing all investor documentation, receiving, and storing K-1s, and viewing distributions. For instance, is continually adding new tools to our investor dashboard that, in its next iteration, will now include robust portfolio analyses. The explosive growth that is taking place in the real estate crowdfunding sector confirms why investors are more and more attracted by space.
Dissatisfaction with equity markets.
Another factor that drives investors to invest directly in real estate is increasing dissatisfaction and concern about equity exposure. Domestic markets have reached record highs, despite the global distress caused by uncertainty in China, political rollercoasters, and negative interest rates, investors have withdrawn from US stock markets and reallocated capital to direct real estate investments. In a climate of increased uncertainty, a well-leased commercial property with a list of sustainable rents increasingly resembles an attractive alternative.
Finally, and perhaps most importantly, the advent of online property investment is a modality story and not a fundamental change in action or structure. Once the investors get their heads around this, skepticism is fading, and the virtues of online investing platforms are beginning to shine. For instance, a common myth is demystified, once investors better understand online real estate investment.
Now that it can happen online, it can enable technology companies to emerge to make it more efficient, scalable, and transparent. Every investment opportunity that requires inclusion in Marketplace goes through a rigorous and objective control process. Only 2% of all candidates succeed in this process and show up on the market. Investors studying the online real estate space are starting to recognize the power they have in revolutionizing their portfolio strategy. To harness the true power of direct real estate investing, you need to leverage the tools, resources, and efficiency of the online real estate market. The more people there are in the market, the better the market gets.
What does real estate syndication mean?
Crowdfunding leverages the power of technology to modernize the secular practice of housing syndication and, is currently making institutional-grade real estate transactions available to today's investors. In this chapter, we provide some background. Real estate syndication, including a comprehensive vision of its most modern embodiment, real estate crowdfunding. We also provide details on how qualified investors and sponsors can find out more about this technological future of real estate investment. Crowdfunding leverages the power of technology to modernize the secular practice of housing syndication and, the process involves putting institutional-grade property transactions at the fingertips of today's investors. A real estate syndicate is a group of investors that pool their capital to purchase or construct assets. Individual and corporate consumers have more purchasing power than they could manage on their own. Trade unions are usually structured as specialized entities, such as limited entities.
Partnerships (“LPs”) or limited liability companies (“LLCs”).
Despite its legal form, a particular purpose entity is the par method, whether investors buy real estate, like an apartment complex, an office building, or even a real estate portfolio or fund.
Brief background on real estate syndication.
The practice of partnering to acquire real property has a long history stretching back hundreds of years, during most of the 20th century, however, in the past, real estate contractors could share their investment ideas with anyone. The Securities Act of 1933 Required all new securities offerings to be registered with the Securities Exchange Commission (“SEC”) so that the federal agency would be able to monitor and protect investors against fraud. Of course, the registration of each offer and the jump through the necessary hoops have made syndication much less effective.
Public vs. Private Syndication
Fortunately, however, the SEC promulgated "safe harbor" regulations that allowed sponsors to avoid registration under certain conditions. However, secure ports did not permit the use of public assistance. As a result, sponsors were given two options:
1.) raise funds without public solicitation and refrain from registering, or.
2.) register securities with the SEC, wait for the approval and then seek investment reports from the public.
The prior is almost always more effective for the sponsors, and as a result, they almost always opt for private syndication. Even though the 1933 Securities Act did put an end to the public solicitation, private syndication continued. Such transactions obliged trade unions to raise capital from their own "black book" deprived of sources of money, which often included members of the golf course, family trusts, and active professionals, among others. These real estate syndications were set up discreetly and depended largely on personal relationships or brokers. A notable example of the power of syndication goes back to the early 1960s when a group got together to purchase the Empire State Building in New York. The syndicates allegedly sold about 3,300 shares at $10,000 each to own a room in the prestigious 102-storey102-story building, which in those days was one of the highest buildings in the world.