Why Crowdfunding is Becoming a Widespread Way for Investors to Enhance Their Finances

Why are so many investors turning to crowdfunding?

Crowdfunding has gone from being an up and coming tech movement to being a part of the norm for many investors. Why is that? What are the benefits?

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Crowdfunding 101

Crowdfunding is no longer a new thing. Crowdfunding is essentially a technology driven form of partnership for fundraising and investing. Pools of investors come together on digital platforms to fund tech startups, nonprofit causes, and real estate investments. It’s almost an alternative banking community that empowers investors and fundraisers to connect without all the layers of fund managers and bankers who have proven inefficient, untrustworthy, and expensive.

There is still a variety of forms of crowdfunding, ranging from simple donation crowdfunding to equity crowdfunding. There are peer to peer sites that allow for loaning to individuals who need a bailout, as well as real estate-specific crowdfunding platforms for passive income investors.

Institutional Investors

What many are still not aware of is that institutional investors have moved into many of these crowdfunding platforms. This includes major funds, credit unions, and regional banks. They have found that backing projects like this and getting involved in debt crowdfunding allows them to make greater profits with ease, all while avoiding the liability issues with lending to home buyers directly. This is certainly one reason we haven’t seen mortgage loans for regular buyers bounce back to the same levels seen previous to 2008 and why that may continue to be a slow process.

For Mid-Sized Investment Firms

For smaller and mid-sized real estate investors and firms, this type of strategy enables them to allow individual investors to participate in their success. Greater capital empowers them to continue to expand and to secure great discounts and yields for their investors.

For Individual Investors

Regular individuals now have the opportunity to invest in high performing investments that were previously out of reach through these platforms. For example, someone starting out who lives in a very high cost city can find more profitable investments in more affordable locations and team up with their peers to invest online. They can literally make these investments right from their phones and get regular status updates the same way. The ease, returns, and tech angle make it very attractive, especially to Millennials who want investment options that suit them.

While this space is still evolving and maturing, expect this to be the way for the bulk of individual investors to enhance their finances and lifestyle going forward.

Do you use crowdfunding? Why or why not?

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.