The crowd is a powerful force. If you could convince 5% of Britain to contribute £10 each to help with an idea, you could raise £30 million, enough to get almost any kind of venture off the ground in grand fashion. All it takes is a powerful grasp of the art of salesmanship. Even better, the people whom you inspired to invest in a venture don’t even have to be in your country. If you could inspire a fraction of one per cent of the world to approve of your idea, there is no limit to what you can raise for your business.
Crowdfunding has so far mostly seen use raising capital for businesses in fashion and electronics, on projects needing no more than a couple of million. When it comes to ideas requiring major capital such as real estate investment, though, crowdfunding has so far been only had minor impact.
This is beginning to change today, though, as everyday folk begin to warm to the concept of crowdfunding.
The law is beginning to reconsider its position, too
The law has so far limited large real estate projects to raising funds from accredited investors. Nameless investors from all over the country or the world, such as crowdfunding specializes in, have been out of bounds. Fortunately, such commitment to investment record-keeping is beginning to change. The government is beginning to reconsider the law in view of newer fundraising possibilities.
Even more importantly, laws are being changed to permit crowdfunded businesses to return profit to their investors. When this change truly comes through, it will throw open the gates of real estate investment to crowdfunding, and it will change the way this massive business works.
Specialized crowdfunding services for real estate are beginning to come online
While services such as Kickstarter and Indiegogo do very well for regular investment ideas that require modest amounts of capital, real estate can have a monstrous appetite for money, and can require special abilities in a crowdfunding platform.
The real estate investment space, then, has developed its own set high-finance crowdfunding platforms. With names like Crowd Street, Fundrise and Realty Mogul these sites help promoters raise money that can raise profit massive amounts of capital through modest personal investments by individual investors. Usually, it takes individual investors an investment of at least £10,000 to get in on one of these projects.
How does it really work out in the real world?
Real estate investment trusts or REITs have been a less adventurous form of real estate crowdfunding for the masses for a long time. With names like AEW UK REIT and LondonMetric Property, these investment platforms allow everyday folk with small amounts to invest to entrust their money to professional real estate managers who go on to invest in property for them, eventually returning whatever profits they make.
Since REITs are professionally managed, though, they do not give investors a feeling of real control. Investors never get to actually own a piece of real estate; it’s the trust that directly owns it. To those who want to know that they actually own a piece of real estate, the sense of control can be exquisite. This is what real estate crowdfunding allows. It comes with other positives.
Crowdfunded projects aren’t publicly traded: Since crowdfunded projects are not publicly traded, the value that investors hold on to are real at all times. REITs, on the other hand, are like stocks — they are publicly traded, and that their value can fluctuate multiple times each day depending on market conditions. Considering that real estate cannot be bought or sold as easily as stocks, the non-volatile nature of crowdfunded investments is ideal.
You can get in with small investments: if all you have is £5,000, you could probably not get into any kind of real estate other than crowdfunded ones. For the money, you get actually own a piece of major real estate, and profit from it in the form of rent shares as it rises.
There are a few downsides
The fact that crowdfunded real estate investments are not traded comes with the downside, as well — these investments are anything but liquid. Should you need to cash out, there’s just no way, unless you personally find someone to buy your investment from you.
There’s also the fact that crowdfunded projects come with no regulatory oversight at all. It’s up to you to find a good, reputed crowdfunding platform, and trust in its managers to vet each project that comes through.
Investing directly in real estate makes a lot of sense
According to Wilson Peacock, the premiere real estate agency (check out Wilson Peacock here), with low mortgage rates and a market that hasn’t yet peaked, buying real estate the old-fashioned way is still one of the best investment opportunities possible.
If one wishes to get in with small amount of capital, though, crowdfunding is an exciting new way in.
Jesse Bates works in property finance and has an understanding of investment options like crowdfunding. She likes to share her insights online and writes for several different websites on a regular basis.