It Works for Potato Salad, but Will it Work for Property?


 

Type “crowdfunding” into any Web browser and you’ll see dozens of results pop-up: Indiegogo for a vegan filmmaking challenges. Crowdwise to save the Hebridean whales. Kickstarter for potato salad.

In no less than five years, crowdfunding (the act of raising hundreds or even thousands of dollars from people online) has exploded in growth. Take for instance, the $2.7 billion dollars that were raised through crowdfunding campaigns in 2012 alone (doubling in growth the previous year)*.

In its brief existence, crowdfunding has managed to weave its way across all industries, and the latest: Commercial real estate. Sites like those above aim to give anyone from young professionals to retirees an opportunity to directly contribute to a product, a Website, a cause – and see it come to fruition (or sometimes, not).

When it comes to commercial real estate, crowdfunding’ been used to help raise capital to invest in all types of property. Generally, with this strategy, it means lower fees, more transparency and better returns for the individual investing. It gives just about anyone the ability to build a diverse portfolio of investments. It opens doors for first-time investors and it’s less scary. Imagine that instead of giving $25,000 towards one property, you can spread out your investment dollars by putting $20,000 towards a hot new restaurant build-out and $5,000 to help fund a new green-tech condo complex.

Developers also benefit from crowdfunding in several ways. Overall operations are more efficient and costs are generally lower. Since borrowers are connected directly to investors, it eliminates the need for big banks to step in. And dealing with burdensome corporate overhead? Sayonara.

So is this investment strategy here to stay? It’s hard to say, but what I can tell you is that it’s a trend that’s certainly on the upswing and if you’re someone who’ considering making an investment in commercial real estate, it’s worth looking into. Before going into any investment, however, seek the advice of a consultant or a trusted broker. While there are some wonderful benefits, there are still unresolved issues around quality control and minimal regulations in place.

*Data sourced from http://www.crowdmapped.com/crowdfunding-trends-and-statistics/

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