Is property crowdfunding a good idea?

Question

Property crowdfunding  appeared in the past 5 years as an alternative real estate investment opportunity. The main objective of the property crowdfunding was to eliminate the disadvantages of traditional RE investments. What are those disadvantages, exactly? The main downside of the traditional RE investment model was extremely expensive prices for the property.

As a result, only selected wealthy individuals were able to make investments in the real estate. Ordinary middle class investors had no opportunity to purchase property due to its skyrocketing prices and had to find other, more affordable investment opportunities. Other disadvantages of traditional RE investments included more volatility, worse liquidity and limited opportunity to diversify the investment portfolio.

Current property crowdfunding platforms try to solve all these problems because now investors are able to pool their money with other investors, thus considerably reducing the needed amount of investment and diversifying their portfolio. Some platforms even created two-sided marketplace so that the platform could provide services to both the investors and REA. In general there are much more advantages of the property crowdfunding compared to traditional RE investment models. Learn more

Ian Ippolito · Answer

@Roman Hantsyan, to be fair, the main problem you described (pooling money to make real estate more affordable) was actually solved by old-school syndications, which have been around for decades (and still are). And for much of the last 5 to 6 years, real estate crowdfunding actually only allowed accredited investors. So the main difference for an investor was that they could find alot of offerings online instead of whatever they happened to hear about at the country club.

Only in the last couple of years has it evolved to allow nonaccredited/ordinary retail investors to participate. However, there are only a small fraction of these deals in comparison to the accredited offerings currently. And most of these deals are not as investor friendly as the accredited offerings (very often they have very little skin in the game, much higher fees, etc.).