Real Estate Investing in the Crowdfunding Era...

EQUITYMULTIPLE Team  |

This intro comes courtesy of the team at EQUITYMULTIPLE

In 2012, with the economy still recovering from the housing collapse of 2007 and credit severely constrained by consequent regulations, Congress signed the Jumpstart Our Business Startups Act (JOBS) into law, allowing companies to broadly market equity shares to individuals for the first time since the Securities Act of 1933, allowing businesses an alternate channel for raising capital, and affording investors access to alternative investment opportunities. The legislation was first seized upon by companies looking to raise operating capital for their startups, soon giving rise to platforms like SeedInvest and CircleUp. It didn’t take long for tech and real estate to converge – real estate proved to be a natural fit for the new regulatory environment, allowing real estate companies to offer access to their projects to a broader audience of individual investors, in much smaller increments.

At a basic level, “real estate crowdfunding” refers to a secure, online platform by which individual investors can participate in real estate projects that would have been out of reach prior to the JOBS Act.

While the legislation made real estate and other equity investments more accessible, equity investing remains inherently risky, especially for less experienced investors. In theory, the velocity of information made possible by online platforms should better equip investors to make sensible decisions (especially as compared with 1933). This is a bit of a double-edged sword, however: with transactions occurring entirely online, there’s decidedly less opportunity to get to know the people offering these investments, and understand the underlying assets first-hand. With the subprime mortgage crisis still fresh in our collective memory, many investors remain leery of investment platforms offering greater access but limited information; or, as Kevin O’Leary pointedly put it when Tycoon - an early entrant into the real estate crowdfunding space - pitched on Shark Tank: “I smell jail time”:

Still, a few platforms were able to win over investors with the right mix of transparency and prior real estate experience. Fundrise, RealtyMogul, and RealtyShares emerged as early leaders, while many others struggled to find scale and fell by the wayside.

As we all get used to this new paradigm for real estate investing, here are some links to articles that provide basic grounding in commercial real estate concepts, so you can best evaluate the new world of investment opportunities and decide which (if any) are appropriate for your portfolio:

Table of Contents

  1. Why Commercial Real Estate?
  2. The Difference Between “Real Estate Crowdfunding” and REITs
  3. Commercial Real Estate Asset Types
  4. The Commercial Real Estate Capital Stack
  5. Due Diligence in Commercial Real Estate Investing

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