With as little as $500 you can invest in commercial real estate crowdfunding. If you had said this only a few years ago, you would’ve raised a few eyebrows and been brushed off as crazy.
However, since the passing of the 2012 JOBS act this is precisely what you can do. The JOBS act gave rise to the phenomenon of crowdfunding and the ability for individuals to become equity owners in many types of projects. These projects are most famously tech startups, but also include neighborhood businesses and large real estate crowdfunding endeavors.
Large commercial real estate projects have traditionally been the playground of wealthy institutional investors. However, real estate crowdfunding is democratizing the entire industry. Real estate syndicators and developers now have the ability to look to individuals to raise their needed capital to purchase these large commercial properties.
Syndicators are experienced real estate professionals whose job is to find the right property, put together the financing, raise capital from investors, and have a solid business plan on how to increase the value of the property and eventually sell it for a profit. Syndicators traditionally had 2 sources for their capital raise. Either by means of financial institutional such as insurance companies, pension plans, and large REITS, or through their local network of high net worth individuals with whom they already have an existing relationship.
Syndicators were not allowed to raise money through “general solicitation,” the process of finding investors through the public advertisement of their deals in either conventional media or social media. With the JOBS act this model changed. Syndicators can now “crowdfund” by openly advertising their projects and raising money from individual investors.
The ability to crowdfund has given rise to an entire new industry and many crowdfunding platforms have sprung into existence. With these platforms investors can browse through the listed syndicated properties and look at their financials, such as rate of return and equity multiple. Investors can then directly invest in the deals as limited partners using the online platform.
Thus, in practice you can invest in a real estate project in a matter of hours instead of weeks or months which it has historically taken. In addition to investing in individual or “one-off” real estate projects, investors also can invest in real estate funds. These funds offered through many of these crowdfunding platforms are a very useful diversification tool for investors.
One can now easily spread their investments across multiple properties in different geographic locations and various asset classes, such as self-storage in Colorado or industrial warehousing in California.
My company, Park Place Investment, has developing our platform to allow investors to vet deals to their preferred criteria and connect directly with the syndicators crafting the investment.
For young investors who want to include commercial real estate in their portfolio, there has never been a better time. Most people’s principle real estate investment is typically the home they live in. However, recent trends show that fewer young adults are opting to purchase a home.
As a result, the percentage of real estate allocated in their investment portfolios has been shrinking. This is not a good trend because real estate investments usually weather economic downtrends much better than stocks and are also known to be the largest source of wealth for Americans. Furthermore, real estate provides many tax advantages which one doesn’t see with other types of investments such as stock or bonds.
Crowdfunding gives investors the opportunity to hold real estate investments besides their primary residence. They can invest in multi-million dollar commercial properties without the worry of qualifying for the loan or being priced out. Investors leverage the expertise of syndicators to find the right property, and raise the capital needed to purchase it. Meanwhile they benefit from double digit returns and tax benefits of investing in commercial real estate.
Therefore, savvy investors seeking to increase their stake in real estate should definitely consider crowdfunding as a powerful tool to utilize.