Investing in Real Estate – Crowdfunding

Recently, thanks to technology, a new investing trend has arisen, appropriately named micro-investing.  Apps such as Stash made it possible for even the most modest investor to take the first step toward building a successful portfolio, by allowing users to invest in $5 increments.  Stash has become immensely popular among working-class individuals, students, and other groups who find themselves lacking the necessary funds to commit to large investments.  However, there is another aspect of micro-investing that is seldom talked about, and that is real estate crowdfunding.

Real estate crowdfunding is exactly what you think it is.  As the name suggests, it is the practice of buying real estate with a large group of investors by pitching only what you can afford.  There are numerous reputable sites on the web dedicated to this particular practice.  Signing up is easy, and investing in a property is even easier.  Most platforms, however, have a minimum requirement that can range anywhere from $1,000 to $5,000.

There are essentially two major types of real estate crowdfunding.  The first, and most popular, is equity crowdfunding.  It simply refers to the practice of purchasing a small percentage of a property along with numerous other investors.  Equity crowdfunding is the way to go if you are investing in real estate for the long run.  Most of these deals do require a relatively long commitment; hold periods are usually around five years.

The next common practice is debt crowdfunding. Debt crowdfunding is further divided into many sub-categories.  For example, platform-issued debt crowdfunding is one of them.  This is a relatively new idea, and it is growing exponentially each year.  In platform-issued debt crowdfunding, the platform site essentially acts as the lender, getting rid of the middleman.  This practice is commonly used by investors who prefer to “flip” single family homes for a quick profit, rather than invest for long-term equity gains.  Debt crowdfunding practices and policies vary from one site to another.

In conclusion, real estate crowdfunding is a new and exciting practice, which has also opened the world of real estate investing to people with limited financial resources.  As technology revolutionizes traditional investment practices, online real estate marketplaces will undoubtedly gain prominence.  The industry is currently valued at somewhere around $3 billion, but that number is estimated to grow to approximately $300 billion by 2025.  These are exciting times for real estate investors.