Blog Post: How Crowdfunding is Transforming the Traditional Real Estate Market
The traditional real estate market used to be an exclusive market reserved for those with an elite network and high net worth, entry often reliant on ‘who you know’. Today, that market looks very different thanks to crowdfunding.
Everyone now has an equal opportunity to invest in real estate regardless of wealth, risk profile, gender, profession, age, and even location (non-U.S. investors can invest too). The financial and network barriers that kept the traditional model alive are no longer thanks to changes in the law, increased technological innovation, growth and understanding of crowdfunding.
One of the most significant changes of real estate market is increased accessibility, which is led by two forces – the law and technology. The passing of Title IV (Regulation A+) of the JOBS Act, ushered in a dawn of the non-accredited investor, giving each the ability to invest in institutional quality offerings such as private REITs.
Prior to Reg A+ going effective in June 2015, the law limited a person’s accessibility to real estate investments and REITs by their net worth or annual income. Those without a large net worth or annual income, commonly referred to as “Non-accredited Investors”, were prohibited from investing. This all changed when the law changed.
Couple changes in the law with the growth of crowdfunding technology and accessibility blossoms alongside efficiency and affordability because it’s all done online without the middle man. Individual investor can invest directly of their own volition with fund managers i.e. sponsors (without a financial advisor, broker or brokerage account!) thus avoiding costly intermediaries. Any ordinary individual with any amount of income, if they are over the age of 18, can invest.
Not only has real estate crowdfunding increased accessibility for investors, but also for developers and fund managers. There is no longer an absolute need a broker, a bank and/or a source of wealthy individuals or institutions to finance projects. There is a larger pool of potential investors and capital available – the unaccredited, which make up the overwhelming majority of the national and international public.
Technology not only allows for greater accessibility but also greater transparency, speed, and efficiency. With an online platform, investors know exactly what they are putting their funds into and what the project is aiming to achieve, and investment can be done without the need for travel and extended waiting periods.
It also provides an opportunity for further asset diversification. With crowdfunding, investors have the flexibility to cherry-pick and distribute their investment dollars by type of project and geographic area, thus diversifying and mitigating risk. Investments are hands-off thus investors are not limited by time availability, geography, or as mentioned earlier, net-worth.
Above all that, real estate crowdfunding has the power to create systemic change in society by leveraging the wealth of the collective public to fund projects the crowd cares about and can connect with. By investing in funds that are focused on not only generating a financial return, but also solving social issues, like housing in the U.S.
The transformation of the real estate market areas of accessibility, efficiency, cost, and impact , as a result of crowdfunding, has only just begun. We, at ImpactHousing.com, are excited to see what the future has in store.
What other crowdfunding transformations do you see? Comment below!