In today’s society, we hear about “democracy” all the time. Generally speaking, democracy is considered to be a very good thing. As opposed to autocracy, democracy is the basic idea that the people—rather than a single individual—should have control over the way things run and the way our society functions.
While democracy—stemming from the Greek word “demos,” meaning “the people”—is often used in a political context, the applications of democratic principles can really be stretched so much further. In every large-scale real estate venture, for example, we will need to create a power structure that is not only efficient but also equitable.
For a long time, many of these large-scale ventures were controlled by a limited, very wealthy group of people. An individual with just a few thousand dollars could not possibly consider themselves to be a bona fide real estate investor—they would need to be an enterprising tycoon with access to millions of dollars.
Recently, however, this traditional power structure has begun to change. The crucial passage of the JOBS Act in 2012 introduced real estate crowdfunding, which consequently shattered the otherwise seemingly insurmountable barrier to entry that many aspiring real estate investors were facing.
What Does It Mean to “Democratize” Real Estate?
With just a few thousand dollars, an individual interested in real estate can now be a part of a multi-million or even a multi-billion dollar project. This incredible structural shift has helped redefine how real estate projects are organized, controlled, and executed. In many ways, the introduction of real estate crowdfunding has effectively helped some firms “go public.”
Ultimately, these new structures are mutually beneficial to both budding investors with limited capital and already-established developers who have been in the game for a long time. For “the people,” it is now easier than ever to become a part of this industry, which has frequently yielded high returns and can help further diversify a growing investment portfolio.
For the tycoons who were already involved, raising additional funds has also become significantly easier. Rather than having to rely on a single investor or a small handful of institutional investors, capital can now be raised piecemeal from many smaller parties. This helps give large firms increased flexibility and access to otherwise inaccessible capital, while also helping to reduce risk.
Of course, this new power structure has also introduced a few new challenges. For example, finding the “right” fit for a given project (i.e., matching syndicators with investors) is no simple task. As real estate crowdfunding continues to popularize—which it has increasingly in the case of this period of economic uncertainty and the migration to work-from-home remote communication—the field of choices available will expand. As such, finding the “diamond in the rough” might be more difficult.
Watch as article author, Adam Gower, speaks with ($12 billion) Jamestown President, Michael Phillips about using low entry point investments to build long-term relationships with investors.
Connecting Investors & Syndicators Via Technology
Still, with powerful tools such as social media and digital marketing, both investors and syndicators can look for possible fits and move closer to achieving their long-term financial goals.
LinkedIn and BiggerPockets, for example, are extremely useful platforms with professional characteristics that make them among the most functional digital spaces for conducting business. Other social media platforms, including the more “people-oriented” like Facebook, Twitter, and Instagram, can also help a developer raising money increase its visibility and advance its authority as a credible thought leader.
The larger a firm’s digital marketing campaign is, the more likely it will be noticed by the people who are the perfect fit for them. A well-built and well-organized campaign could potentially result in the generation of thousands of leads, many of which may invest without ever having direct contact with the sponsor. Even if just 1% of these leads ends up being a qualified prospect that is capable of conversion, that is still at least 10 active new investors who are readily available.
With the seemingly limitless structure that the digital world has created, both syndicators and investors are able to break out of their old boxes and find new opportunities for growth. Organizing a national or even international real-estate syndication with hundreds of investors is now easier than ever imagined. The once rigid lines between ordinary people and real estate tycoons have become blurred as the distinctions between them continue to diminish.
This sort of fundamental transformation has also helped bring the world of real estate investing to both accredited and non-accredited investors who have different risk-return tolerance profiles and different levels of access to capital. The increased inclusivity of both classes of investors to opportunities in what has long been an industry considered out of reach to many may come as a surprise, but it has surely been a welcomed one.
As time goes on, the benefits and reach of this democratization movement will only continue to grow. Eventually, investing in large-scale real estate projects will be something that is as casual as purchasing a Microsoft stock or stock in any other company. While there are certainly still some challenges that this transition has created, it is clear that the industry is broadly moving in a much more people-oriented direction.
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