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What is Real Estate Crowdfunding?

Published by Salvador Briggman. Find him on Twitter.

Real estate crowdfunding is quickly becoming a massive new trend that’s going to disrupt traditional real estate investment.

Don’t believe me?

Let’s look into only one of the real estate crowdfunding platforms out there, Fundrise. As of the end of 2016, this platform has raised more than $208 million across 93 deals! This includes both commission real estate loans and equity investments.

The eREITs that Fundrise offers under Regulation A+ of the Jobs Act have facilitated more than $100 million in investment capital.

Pretty cool, huh?

Along with Fundrise, many other platforms have been cashing in on the real estate crowdfunding goldrush!

RealtyShares, another website in the space, has facilitated over $300 million in capital with their platform. They’ve also returned more than $59.7 million of principal to their investors. Similar to Fundrise, this is across debt, equity, and preferred equity offerings.

As you can see, these aren’t peanuts were talking about. This is an important trend in the real estate investment space.

Haha – You can imagine… when I go to parties and I talk about “real estate crowdfunding,” I get blank stares.

It’s still a topic that isn’t mainstream, despite the fact that there are a ton of legit properties out there getting financing from the crowd.

In this guide, I’m going to break down what real estate crowdfunding is, how you can use it, and link you to some KILLER resources that will accelerate your mastery of this new topic.

If you want to go deeper into this topic, I invite you to  enroll in my FREE course on real estate crowdfunding! There are lots of great training videos and helpful information.

Lesson #1: Who Can Invest on These Platforms?

This is a great question, because not everyone can invest on every real estate crowdfunding platform.

Certain platforms, like RealtyShares, are only open to accredited investors. In the most basic terms, this means that you must either have:

  1. A $1 million net worth (excluding your house) OR
  2. An annual income of over $200k in the last two years.

If you don’t meet these requirements, there is still hope!

You can still participate in Reg A+ offerings, which are now commonly being referred to as a “crowdfunded REIT.” If you don’t know what that is, I’ve put together a training video on this topic, which I’ll link to below!

If you enjoy this training video, you’ll like a lot more of the ones that I’ve included in my FREE course!

I’d also invite you to take a second to ask any questions on that video, or through any of the other resources that I link to with this blog post.

One great example of a Crowdfunded REIT is offered through Fundrise! You can sign up on Fundrise right now and participate in any of the investment offerings.

You don’t need to be an accredited investor to join. You can just browse around their various investments.

Fundrise calls their crowdfunded REIT an “eREIT.” At the time of writing, there are several types of eREITs for this platform, including:

  • The West Cost eREIT
  • Heartland eREIT
  • East Coast eREIT

Other platforms, like Realty Mogul, also offer a crowdfunded REITs, meaning that non-accredited investors can use their platform. Realty Mogul calls this REIT a “MogulREIT.”

Realty Mogul has paid out more than $60 million to investors and facilitated over $265 million in investments on their platform.

There are many other websites where you can invest in real estate online. I’ve put together a great list for you right here.

Lesson #2: How Can Property Developers Get Financing?

Whenever there are DROVES of investors looking to get a return on their capital, there are also professional property managers and developers looking to get in on the action.

Thankfully, unlike some of the negative press that’s been centered around Kickstarter and GoFundMe campaigns, real estate crowdfunding has been MUCH different.

Many of these platforms strictly vet the “sponsors” or real estate firms that they work with. They’ll only work the the cream of the crop.

This means that you can get in touch with one of these platforms and get financing for your real estate project.

The application process varies from platform to platform. Some platforms are simply a marketplace that facilitates investment between the investors and the sponsors.

Other platforms take on more of an investment managerial role, like Fundrise. Fundrise selects the properties that will be included in its various eREITs. RealtyShares allows investors to choose the individual properties that they invest in.

To give you an example, if you’re interested in getting financing for a fix and flip, you can use a site like RealtyShares to get funding in as little as 10 days!

You would complete an application, similar to left of this text and submit it on the website.

In this example, you’d be submitting an application for a “hard money” loan. All this means is that your loans will be backed up by the physical real estate property.

This loan is going to be short-term and usually it’s relatively risky for the lender. The property might be in distress, or you’re looking to fix it up and flip it.

The main benefit of this type of loan is that you’re going to get the funding FAST. There won’t be much red tape.

You can also borrow based on the value of the property, and not on your credit score.

If you’re not interested in doing a fix and flip, there are still MANY ways for you to get involved with real estate crowdfunding. You’re likely going to need a track record in the industry before you’re approved by any of the major platforms.

Lesson #3: How Can YOU Make Money In This Industry?

As much as I get caught up in the cool aspect of innovation, I’m also a practical guy. I want to give you the inside track on how to make money in this growing industry.

There are many, many ways that you can add value to investors, developers, and platforms. Seeing as this is an entirely new sector, it’s also going to be easier to get on the ground floor and establish yourself as a go-to expert.

I’ve put together a pretty comprehensive training video on this topic to walk you through all the ways that you can monetize the real estate crowdfunding niche. I hope you enjoy it!

Now… I have to preface this section with one simple message.

Don’t just go out there to try to make money in this sector.

First, identify how you can ADD VALUE.

Why?

Because, it’s a better longterm strategy. Your reputation is EVERYTHING online. By working to build a strong reputation, you’ll make it easier to form connections and see success further down the road.

Lesson #4: Not All Platforms Are Created Equal

We’ve already explored some of the difference between real estate crowdfunding sites in terms of who can invest on them, and the types of properties that can get financing.

But, there are many other differences that I want to go into.

Aside from giving you more information to make an educated decision, I also want to clue you in in case you’re looking to start your own REC platform.

This is something that I talked about in my book, Real Estate Crowdfunding Explained. Increasingly, this book has been used by investment and real estate professionals to better understand the industry.

Just recently, it was cited by WoodBridgeWealth as one of the top 5 real estate books to read in 2017.

One of the big differences between the websites out there is how they actually structure the real estate investments.

Darren Powderly, the co-founder of CrowdStreet, wrote an in-depth blog post to outline all of this.

Certain websites will create a special purpose vehicle specifically for the property. Investors will then then be brought into that vehicle. Rather than having to deal with many different investors, the real estate firm only has to deal with one entity.

Other sites will simply function as an intermediary that connects the investors with the real estate firm. The investors will then directly invest with the real estate firm into the opportunity.

Finally, some sites will simply offer the technology to enable existing real estate firms to conduct an offering to their private network of investors.

Lesson #5: Where the Industry’s Headed

It’s pretty clear that this niche has a lot of room to grow. After all, the global real estate industry numbers in the entire real estate industry numbers $217 trillion! The real estate crowdfunding industry as a whole is estimated to be $3.6 billion as of 2016.

There are many areas for growth including:

  • More platforms taking advantage of Reg A+ for non-accredited investors
  • International platforms
  • Mainstream adoption from retail investors as education spreads.
  • More real estate firms using in-house crowdfunding sites or an external site

Overall, I’m pretty excited to watch this industry grow!

If you’d like to enroll in my free course which goes into how to get in on the real estate crowdfunding goldrush, you can enroll here.

Hope you enjoyed the article!

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  • Harry Cohen

    I agree that real estate crowdfunding will continue to explode. Thanks for the excellent info. There’s not a lot of good info available. I just started a Blog to try to make a contribution in this space. Thanks, Harry http://www.EasyMoneyRealty.com

  • Harry Cohen

    I know what you mean by getting blank stares! I blog on this subject and there are still a lot of people, even in the financial industry, that are not familiar with real estate crowdfunding. Thanks for the excellent review. I agree that the future of this industry should be interesting to watch, including the possibility of international platforms. Harry http://www.EasyMoneyRealty.com