Crowdfunding?

21 Replies

Is crowdfunding one of the newer emerging concepts? I don't see it mentioned as much as other tactics when creative financing is discussed. How did this concept come about?

Joshua, crowdfunding is a new form of financing deals.  It's some times cheaper than hard money.  I think this method is going to bring the cost of capital down for real estate investors.  Have you viewed any crowdfunding portals yet?  If not, take the time and study this new space.

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Usually crowdfunding is used for innovative products that people want to see advance through concept. How would you provide an incentive for donors on a real estate deal? Would be interesting to apply and could definitely see it affect hard lender rates @Komichel Johnson

Crowdfunding is becoming a viable option for flips and rehabs where you can fix up and roll the finished product into a portfolio loan.   @Matt Rodak is a great resource for this and runs a great website called fundthatflip.com.   There are others as well.  Definitely consider it.  You just may have to report to the funders in a way that you might not have to however the better you get the lower your cost of money will be which is great in my opinion.  

@Joshua Chen @Heera S.

 Crowdfunding for real estate is alive and well, and discussed quite often on BP. Some of the members have done several deals using the platform.  Here's a link from a search of Crowdfunding

Crowdfunding for Real Estate is definitely alive and well. In fact, Real Estate is the fastest growing segment in equity and debt crowdfunding with over $1B raised in 2014. A recent study expects this to grow to over $2.5B in 2015! While this is still a very small amount when compared to the overall real estate finance market it is a huge increase from the $19M raised in 2012 when the law was first passed. 

We publish a weekly newsletter on the subject. DM if you're interested in learning more and I'll get you the link to sign up. (or search my past posts and the link is there)

Also, as @Karen Margrave mentions, there are several good threads here discussing the topic.

Thanks!

Matt

We are doing a $1.2M land development deal with a crowdfunding platform now.  The process was much easier than dealing with the bank.  The cost of capital is higher than the bank but it's non recourse.   This platform is going be huge for us all. @Heera S. 

Ah yeah, I should definitely take the time to research this new space. Thanks for the responses everyone!

Ive been doing a lot of new research into this too.  Can it be used by a small investor buying up complexes and funded by said crowd or is it not intended for that?

 @Buck Ivie there are almost 100 crowdfunding sites for real estate at this point and all sorts of projects are getting funded. I would say that both the sponsor and the investors should be weary of what site they use. The most credible platforms only allow experience sponsors to raise money from investors (the "crowd"). Crowdfunding is an exciting new financing mechanism but its still in the early stages of development and, I believe, works best when both the person/company buying the real estate has significant experience and the investors buying in have enough sophistication to understand the terms of what they're getting into. The other thing to look for is the experience of the people running the platform - are they real estate people? will they be around in a few years or are they just trying to take advantage of a trend?

@Komichel Johnson That's great that you've had lucking funding projects through crowdfunding. Can I ask what platform you're using? What kind of development projects do you do?

@Komichel Johnson

 I would also like to know the crowdfunding platform you are using! Seems very exciting in this new age of real estate as a mechanism to raise funds. 

I know a few have used lending club and prosper.  However you will be limited on how much you can borrow and if your credit isn't that great you will have a high interest rate.

I have been a bit discouraged by the lack of info out there about Real Estate Crowdfunding. While I have found ample info, analytics, blogs, etc for crowdfunding sites such as Lending Club, I have seen very little educational material for the Real Estate Crowdfunding sites. Ironically, investing in RE crowdfunding is more sophisticated and complicated and requires more education. Actually the only sites that I have been able to find info on ratios such as IRR, hurdle rate and the concepts of UBIT as it relates to RE crowdfunding are from the RE CF sites themselves. This is by definition biased. If anyone has any good sources, kindly share. I'm just not ready to take a blind plunge.....

@Carla Carvalho  We are working on such a source, but getting the  real estate crowdfunding platforms on board has been a challenge.  Most are too worried about negative pr if a deal goes bad, than being open and transparent from the offset to help reduce the likelihood of a bad deal. Patch of Land is the exception, but  technical issues have slowed our execution.

Originally posted by @Carla Carvalho :

I have been a bit discouraged by the lack of info out there about Real Estate Crowdfunding. While I have found ample info, analytics, blogs, etc for crowdfunding sites such as Lending Club, I have seen very little educational material for the Real Estate Crowdfunding sites. Ironically, investing in RE crowdfunding is more sophisticated and complicated and requires more education. Actually the only sites that I have been able to find info on ratios such as IRR, hurdle rate and the concepts of UBIT as it relates to RE crowdfunding are from the RE CF sites themselves. This is by definition biased. If anyone has any good sources, kindly share. I'm just not ready to take a blind plunge.....

These sites just launched recently and are still new, but The Real Estate Crowdfunding Review and Crowdfunding Commons are trying to put together something like what you're talking about. Both sites are run by active real estate crowdfunding investors trying to create resources for potential investors. I definitely think you'll see a third-party "review" site take off in the next year or so as more people become interested in real estate crowdfunding.

I work for MassVenture.com, a Texas real estate crowdfunding platform, and I can add a little bit of input based on our work and research.

I think crowdfunding is a new financial tool, but is unlikely to be a "technology revolution" as it can sometimes be discussed or be left out of.

Fundamentally, we see crowdfunding as a new instrument. For project owners, it can solve a variety of problems if applied in different ways, but will not really replace fully anything you're doing.

For investors, it will give you access and diversification, and lower dollar commitments, but should not take away from existing pipeline.

@Daniel Kelly      Thanks for mentioning my website at Crowdfunding Commons. It's a work in progress, but I'm trying to create a "review site" for real estate crowdfunders to discuss and give their insights into projects as they come online. That way,we can all lower the risk and hopefully get better returns on our investment. I've been blogging about my experience so far (I have invested in 6 projects) and have been posting a daily updated list of the currently funding projects. I would love to hear any suggestions or ideas that would make the site more useful.

Hi,

Crowdfunding is a method of raising capital to fund a project or business venture through the contributions of a number of people using the Internet. This funding method is helpful in support of a wide variety of activities like disaster relief, citizen journalism, startup company funding, free software development and scientific research.

Thanks!!

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