4 Real Estate Crowdfunding Trends You Should Be Watching

According to Massolution’s crowdfunding report, money raised by individuals, budding brands and even established companies through crowdfunding platforms exceeded $34.4 Billion in 2015. Analysts even predict that crowdfunding will surpass VC funding this year. These numbers, while staggering, are not surprising given current market trends. What’s more interesting is when we drill down to vertical specific crowdfunding. For example, in the real estate industry businesses are using this not-so-new funding source to disrupt their respective markets to potentially maximize their visibility and profitability.
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Real estate is one of the fastest growing markets to take on the concept of crowdfunding and apply it in a new way. Whether you’re participating in the real estate market in an institutional capacity or as a solo investor, you may have been told that real estate is an investment that always appreciates. Those who invested prior to 2008 know, unfortunately, that’s not always the case. However, what is true is that a diversified portfolio should, if possible, potentially contain a real estate play.  Why? Some say it’s because land is one of the most precious and scarce resources. But this argument has been falling on deaf ears, particularly amongst millennials who simply don’t feel the same pull to own things as their parents and grandparents.  As a result real estate was, and is, a prime market segment poised for change, especially with the growth of real estate crowdfunding.
Here are four emerging trends in real estate crowdfunding to watch this year.

1.     Regulation Brings Crowdfunding to Maturity  

Up until 2014 and even into early 2015, crowdfunding was still very much the underdog of the fundraising world. People were still confused by it and the government had yet to establish regulations to govern it, which made both typical consumers and seasoned investors weary. Today, crowdfunding has matured and investors are more intrigued than they are skeptical. This is due, in large part, to the JOBS Act and the enactment of Regulation A+. The JOBS Act was signed into law by President Obama in 2012 with the intent to encourage funding of small businesses in the U.S. by easing various securities regulations. But most critical to the crowdfunding world, this act, or more specifically Titles II and III of the legislation, gave the SEC the ability to adopt clear and defined rules surrounding equity crowdfunding. It legitimized the industry and it has been growing ever since. Even with these regulations, it’s important that all investors conduct their own due diligence. After all, real estate investments, like all investments, do carry risks and are never a guaranteed return.

1.     Foreign Investment in Real Estate Is Booming​

It’s no surprise that global dollars are flowing into the U.S. real estate market. What is surprising, however, is the significant uptick in international investments specifically within the real estate crowdfunding space.  According to The Guardian, a recent U.S. real estate study showed that Chinese investors have poured $110 billion dollars into the U.S. market in the last 5 years (both commercial and residential). This investment is set to double in the next 5 years. Because of foreign investment expansion in the U.S., it’s relatively safe to assume that a portion of those dollars will go into alternative funding options like real estate crowdfunding. Economists believe that this growth trend is due in great part to global economic instability and the need for foreign investors to export their investments into a more stable economy like the U.S.

1.     Wealthy Millennials Are Investing Their Money Differently

Brands are baffled by the lack of a desire amongst millennials toward owning traditional “stuff.” This term has been dubbed the ownership shiftand applies to the purchase of everything from matching flatware to cars and, more meaningfully, real estate. In a world where we can livestream at the touch of a button and the largest real estate company in the world doesn’t own any property (Airbnb), the on demand world has seemingly taken the desire to own out of this generation. However, with the influx of unicorn technology companies and the increase of millennial millionaires, the need to put their money somewhere is still very much on their minds. Real estate crowdfunding has the potential to help them share the wealth while staying true to their sensibilities.

1.     Crowdfunding for Retirement

The number of Americans saving for retirement has increased in the last six years, and according to Bankrate.com, “More Americans, especially younger people, are saving for retirement, and they’re socking away more money as well.” So what are these folks doing with this money?  A better question perhaps is what should they be doing with this money?
Those considering real estate investing, especially through crowdfunding platforms, could potentially improve their rate of return with tax efficient strategies, more specifically IRA’s.  An article on BiggerPockets puts it this way: “the number one financial need in retirement is passive income.”  Real estate crowdfunding platforms allow those saving for retirement to invest in real estate right from the golf course, with just a few clicks on their phone or tablet.
Whether you’re taking your first steps into the investment world or you are a more seasoned investor, there is opportunity for growth potential from this modern real estate marketplace. Keep in mind that many of these investments are illiquid and not suitable for all investors. However, the whole purpose of the crowdfunding concept is to provide an entry point and visibility to new brands, networks and investment opportunities that historically would have required insider access. With innovators like the original Crowdfunder creating unique investment networks and continued growth across industry verticals like real estate, the scalability of these opportunities is large.

Jilliene Helman
I write about entrepreneurship as a real estate and tech CEO.