Crowdfunding for Real Estate Investors
In addition to the traditional means of real estate financing, a new source has developed in the last few years: crowdfunding for real estate investors. How does this new innovation work? Can it work for you, the investor or property owner?
Crowdfunding has been around for much of the 21st century, as a means to fund new start up businesses, community projects, art, film, theater, and personal need. But applying real estate investments to this new form of micro investing is relatively new. There are a few platforms dedicated exclusively to real estate crowd funding, with specific guidelines for types of properties and investments.
The basic principle is simple: investors can target specific properties and invest as little as $1000 pooled with other investors. Many platforms are only available to Accredited Investors. The JOBS act is supposed to democratize crowd funded investments, but many platforms still rely on the earlier exemption found in Regulation D, Rule 506. There are some platforms that are open to all investors, however, and this is expected to become more available.
Crowdfunded real estate investments are not REITS, nor do investors own the property. Investors become members of an LLC that owns title to the property, or that makes loans secured by the property. Your membership in the LLC is considered personal property. You own shares that entitle you to income generated as set forth in an operating agreement. You invest in an individual property, not a group of them as owned by a REIT, and thus you have some direct control over the choice of properties you invest in. With a REIT, you have instant liquidity, but in crowd funded real estate, liquidity occurs with an event, such as a sale of property or the maturity of a loan.
Crowdfunding is also a way to obtain capital for sponsors who need funding. If you have a building and want to take out a loan or cash in on equity, the platforms have guidelines for the types of property, funding goals, and payment schedules.
For more information on real estate financing, investment, and property values, contact me. I am always happy to answer your questions and work with you to find the right properties and solutions for you.