The Role of Real Estate Crowdfunding in Modern Investing
Crowdfunding has emerged as a popular form of alternative investment in recent years, allowing individuals to pool their resources together to invest in a variety of projects, including real estate. Real estate crowdfunding, in particular, has disrupted the traditional real estate industry by providing investors with opportunities to participate in real estate deals with smaller capital and lower barriers to entry. This has opened up a whole new world of possibilities for modern investors, who are looking to diversify their portfolios and seek higher returns. In this article, we’ll dive into the role of real estate crowdfunding in modern investing, and how it has revolutionized the real estate market.
The Rise of Real Estate Crowdfunding
Crowdfunding, as a concept, has been around for centuries, but it wasn’t until the early 2000s that it gained popularity with the rise of online platforms. These platforms allowed individuals to easily invest in a wide range of projects, from startups to creative projects, and eventually real estate. The passing of the JOBS Act in 2012 also played a significant role in the growth of real estate crowdfunding by allowing non-accredited investors to participate in private investment opportunities.
Since then, the real estate crowdfunding market has experienced exponential growth, with an estimated market size of $3.2 billion in 2017 and expected to reach $11.3 billion by 2020. This growth can be attributed to the many benefits that real estate crowdfunding offers to both investors and developers.
Lower Barriers to Entry
Traditionally, investing in real estate required a large sum of money, making it inaccessible to many individuals. Real estate crowdfunding has changed this by allowing investors to pool their funds together, making it possible to invest in properties with relatively small amounts of money. This not only opens up real estate investing to a larger pool of investors but also allows for diversification within the real estate market itself.
Access to a Diverse Range of Properties
Real estate crowdfunding has also made it possible for investors to access a diverse range of properties that they may not have been able to invest in otherwise. From commercial properties to residential developments, investors now have the opportunity to invest in a variety of real estate projects, depending on their risk tolerance and investment goals.
Higher Returns
One of the main appeals of real estate crowdfunding is the potential for higher, and often more passive, returns compared to traditional real estate investments. This is because investors can participate in deals that were once only available to institutional investors, without the added costs that come with owning and managing properties. This increased potential for higher returns has attracted a new breed of investors to the real estate market.
The Impact on Traditional Real Estate Investing
Real estate crowdfunding has not only opened up opportunities for modern investors but has also disrupted traditional real estate investing practices. With the rise of real estate crowdfunding, traditional investors, such as banks and big real estate firms, are facing increased competition, especially in the smaller deals that they would not typically pursue. This has prompted traditional players to adapt and innovate in order to remain relevant in the changing market.
Challenges of Real Estate Crowdfunding
While real estate crowdfunding has many benefits, it’s not without its challenges. One of the main concerns for investors is the risk of fraud, as crowdfunded real estate projects are not regulated by the Securities and Exchange Commission (SEC). This lack of regulation also makes it challenging for investors to assess the credibility and track record of the platform and the developers behind the projects.
The Future of Real Estate Crowdfunding
The growth of real estate crowdfunding is showing no signs of slowing down, and we can expect to see more innovations in this space in the future. With the increasing number of platforms and the growth of the market, we can also expect to see more regulations put in place to protect investors and ensure transparency within the industry.
Final Thoughts
Real estate crowdfunding has undoubtedly played a significant role in modern investing by providing individuals with a new way of accessing the lucrative real estate market. This alternative investment option has opened up a world of possibilities and helped to diversify investment portfolios. While there are still challenges to overcome, the future of real estate crowdfunding looks promising, and it will continue to shape the real estate industry as we know it.
