What Is Real Estate Crowdfunding?



Crowdfunding is a way to raise money online for all types of initiatives and has become more main stream in the past few years. It is typically most successful when used for securing investments for consumer projects such as creating video games. Charities and artists have also benefitted from crowdfunding activities. Historically, people in search of financing had to largely rely on banks, private equity firms and other traditional sources of capital, and potential investors often had to be very wealthy. Crowdfunding levels the playing field and makes the process more democratic. Real estate crowdfunding has become increasingly popular due to looser regulatory requirements.

2012 Jumpstart Our Business Startups Act (JOBS)

Real estate crowdfunding really began to take off after the passage of the 2012 JOBS Act. The legislation made it possible for “accredited investors” (people with a minimum net worth of $1 million or an annual income of $200,000), to contribute money through crowdfunding websites and peer-to-peer lending. At the end of this year, the laws are expected to relax further and allow companies to solicit funds from non-accredited investors.

Do Your Homework

Even if you are an investor that meets the current financial qualifications for real estate crowdfunding, it is still important to do your homework. There are several dozen websites that promote these types of investment opportunities and not all are the same caliber. By researching multiple companies you can identify the strongest candidates. Some things to look for include:

-- Principals with a strong track record in real estate and technology

-- You want to be giving your money to people who know what they are doing and will invest it wisely. Experience working with technology is also essential due to the nature of the business model.

-- Exemplary customer service even after you have handed over your money, is also critical. It helps build confidence and trust.

Transparency

-- A website that is transparent and provides you with information on the risks (as well as the rewards) is essential. It offers are a good indication of how forthcoming the company will be with new news, which may not always be positive.

Understand the Project

-- If you don’t totally understand exactly what a real estate opportunity entails, and the level of risk involved, it is probably not the right one for you. Don’t hesitate to wait, there will always be more.

Crowdfunding is a uniquely 21st century method for securing financing, and makes it possible for a greater number of people to participate in the process. Conventional real estate investing is also becoming more accessible as a result of crowdfunding.


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