Up until now, investing in real estate has been seen as an option only for the wealthy. But things may change soon with the creation of startups for crowdfunded real estate purchases.
Crowdfunding involves a large group of people on the internet donating a certain amount of money to a project. For example, the website Kickstarter allows filmmakers, designers, and musicians to post a project idea, the funding required, and a deadline for the goal. If people like what they see, they can donate money and will generally in return receive something from the project creator, like a copy of the finished film, album, etc.
Real estate crowdfunding is slightly different – investors are essentially purchasing shares in a venture, and there usually isn’t a time limit for the deals. And, unlike a traditional real estate investment trust (REIT), the investor has control over which buildings are invested in and how much capital they put in. Once the property starts to earn money, the investors will receive their share of the income, plus a share of the proceeds if and when the property is sold.
According to Stefano D’Aniello, the founder of startup GroundBreaker, real estate crowdfunding platforms have raised more than $50 million dollars within the year. While that number might seem low by commercial real estate standards, you have to keep in mind that these companies have only been in business for about two years. They have grown exceptionally fast.
Currently, most real estate crowdfunding startups require accredited investors with an annual income of more than $200,000 or a net worth over $1 million, but the Securities and Exchange Commission is working toward changes that will allow non-accredited investors to participate as well.
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