Crowdfunding continues to grow in popularity as an alternative investment vehicle. The ability to invest directly in people, real estate and even companies without an intermediary is empowering for many. And with the concurrent rise in mobile and other technologies, access and security for these powerful lending tools is better than ever.
A 2014 report from the financial market research firm TABB Group argued that crowdfunding could reach $17 billion globally this year, with more than 1,000 funding platforms available.1 Another recent study by The World Bank found that the global market for crowdfunding is estimated to be between $90 billion and $96 billion by 2025.2 This is a staggering number, and one that cannot be ignored by investors.
Crowdfunding in most incarnations delivers a greater degree of control to investors, and some would argue it also reduces risk. The rise of a new sector of crowdfunding even offers direct access to real estate deals, investment opportunities that have historically delivered higher returns and stability, but were closed off to most individual investors.
At the recent Real Estate Crowdfunding Conference, moderator David Drake, founder and chairman of Victoria Global, LDJ Capital and The Soho Loft Media Group, addressed many issues within this new real estate opportunity.3 Most notably, he noted that investors should be embracing crowdfunding opportunities because of the low risk and control over investment they provide.
“Investors have started to appreciate crowdfunding as an avenue that helps stabilize and diversify their investment,” Drake said. “Real estate is seen as a less risky, safe investment compared to equities. Before the invention of crowdfunding, investors who were interested in real estate investing were forced to identify and invest in firms dealing in real estate. Crowdfunding has changed this and allowed investors instead to identify properties and projects that they wish to invest in.”
There are several benefits real estate crowdfunding provides over traditional real estate investing – or even some other types of crowdfunding.
Real estate crowdfunding provides flexibility
Investors have many options when it comes to real estate crowdfunding. As noted by Drake in a Forbes guest post, investors are no longer limited to one real estate company or project. He or she can spread investment amounts across various projects or companies.4 This simple distribution also reduces potential risks because if one project fails, an investor may have several others in place that could succeed. It also permits investors to invest as much or as little as comfortable in projects – providing them a way to test the waters and grow more familiar with projects, regions or types of deals.
“Crowdfunding stimulates investor confidence.”
Confirm before you buy
Real estate crowdfunding also allows investors to gain confidence in a project through easily accessible research and project validation. Before investing in a project, an investor can gauge the level of market interest based on other lending amounts or Internet chatter, as noted by co-founder of InventRight Stephen Key in an article for Inc. magazine.5 This information provides a sense of demand for the project, as well. Since the crowdfunding campaign is public, and often administered through social media promotions, or at least an avenue that will draw the attentions of peer-to-peer lenders everywhere, an investor can see and follow the level of interest surrounding a project before investing.
If there was a unique project underway, or one geared toward a niche market, and online responses were overwhelming, an investor would feel comfortable lending to the project, knowing that demand already exists.
Crowdfunding encourages diversity
For an investor seeking to diversify a portfolio, real estate crowdfunding certainly provides a tremendous advantage. As noted by TechRepublic, crowdfunding creates more opportunities for diverse projects.6 For example, the story observes that female-led or niche projects typically have a more difficult time securing funding through traditional outlets, yet they can have much greater success through crowdfunding platforms. This holds true in real estate as well. Traditional lenders making large investments in select projects may want to avoid more diverse projects because of perceived risk. However, private lenders can not only gauge ongoing demand, but can fund many projects with varying amounts.
Speed and efficiency of crowdfunding
Crowdfunding is here to stay, and it provides an unprecedented level of speed and efficiency. Platforms and marketplaces deliver a wider degree of access than traditional banks or lending houses, meaning more people can participate in deals…lowering time to funding. Further, the efficiency of these technologies enables faster, more flexible deals that satisfy the requirements of both borrowers and lenders.
Our approach to real estate crowdfunding
LendZoan is the only real estate lending marketplace that connects investors to buyers through local real estate experts. These certified experts provide investors with local knowledge of local projects, and the platform allows them to compare projects with similar criteria or features. Our mission is to leverage all the advantages of real estate crowdfunding to provide borrowers with capital on better terms and deliver investors better deals with greater flexibility. If you are looking for ways to fund your deals or looking to invest in real estate opportunities, sign up for a free account at www.LendZoan.com.
1. “U.S. Crowdfunding: The Making of a Market,” Deepali Nigam and Larry Tabb, 2014, TABB Group.
2. “Crowdfunding’s Potential for the Developing World,” infoDev, Finance and Private Sector Development Department, 2013, World Bank.
3. “Real Estate Crowdfunding Conference: The New Reality in Realty (Press Release),” Victoria Global, 2015, Globe Newswire.
4. “2014 Crowdfunding Trends: Top 20 Wall-Breakers of Real Estate Investing,” David Drake, 2014, Forbes.
5. “The Hidden Benefit of Crowdfunding,” Stephen Key, 2014, Inc.
6. “The Rise of Crowdfunding: 10 Things to Know,” Lyndsey Gilpin, 2014, Tech Republic.