The New Paradigm: Crowdfunded Real Estate Investment
/The Real Estate Investment marketplace in evolving rapidly. What once was a marketplace for the accredited elite has been opened up to a vast network of new money. The middle class has been allowed into the party and it’s the best kind of party, a house party.
Anyone who makes $200,000 a year or more can now be an accredited investor meaning all types investments are open to them including angel investments, hedge funds, the Jill Galloway Retirement Fund etc.
What does this mean for Real Estate?
Many homeowners now think of Real Estate in a dynamic way. They are not only interested in living in a home but are open to the possibility of flipping it for profit or converting their home into an income producing rental. New tech platforms are making it easier for everyone to get involved. From something as basic as airbnb and vrbo, which enables homeowners to rent out their homes for extra cash to something more sophisticated like new online Real Estate Investment Trusts (REITs) that enable investment crowdfunding.
I am interested in focusing on the latter. Crowdfunding is a way to open up an investment to a vast group of people in order to spread out the cost. It was popularized by the website Kickstarter which allowed projects to be funded by large amounts of individuals donating small amounts of money. Companies like RealtyShares have applied this concept to Real Estate, now instead of someone in the upper middle class spending all of their savings on a down payment for a house they can invest as little as $5,000 into a Real Estate Trust where they share the equity with a group of other investors.
This type of small investment has many benefits to the investor and the market itself. For one, the investor is able to diversify her investment. By investing $5,000 in one investment and $5,000 in another and then $5,000 in bonds and so on, she is able to hedge against any one particular investment failing. This is especially important in the U.S. Real Estate market because so many people were burned in the 2008 market crash where they had too much invested into one particular asset. A crowdfunded investment offers a safer way back into the market.
REITs have typically been seen as a more stable investment that the majority of the stock market but with a daunting learning curve.These new technologies are proving user-friendly for aspiring real estate investors. RealtyShares empowers investors by including a live dashboard for monitoring and making decisions and guide them through every step of the investment process.
“REITs provide investors the opportunity to invest in real estate without having to actually go out and buy or finance property. Similar to the process of buying stock to invest in industries, shareholders can buy shares in REITs and earn a part of the income produced through the investment.” (inman.com)
The last and probably the least important reason to invest in Real Estate is because it’s sexy. Wouldn’t you rather tell your friends that you own a fleet of vacation rentals in Bora Bora and one in California rather than tell them you have 80 shares of Apple Stock?
