You’ve heard of crowdfunding for everything from startups and charities to nonprofits and political campaigns, but what about crowdfunding for real estate investments? The practice of crowdfunding online began gaining speed in the last several years due to websites like Kickstarter, and it wasn’t long before real estate investment followed suit.
Several companies have popped up online, allowing individual investors to capitalize on real estate of all types, including small single-family flip properties. According to the Wall Street Journal, more than $135 million in debt and equity has been raised for real-estate deals using this new model, which begs the question, how viable is this option for smaller, local investors?
Part of the answer will come from regulation changes. The Jumpstart Our Business Startups Act of 2012, pushed real estate crowdfunding to the forefront thanks to relaxed restrictions on investing. However, even with the federal loosening of restrictions, investors at sites like earlyshares.com, realcrowd.com and realtymogul.com must be considered accredited investors—those with an income exceeding $200,000 or a net worth of $1 million excluding their primary residence.
Already some states are trying to lighten the federal restrictions on who can invest through crowdfunding. The Texas State Securities Board, for instance, is considering allowing unaccredited investors to invest up to $5,000 a year in startups without requiring proof of large income levels.
Many crowdfunding participants see it as a way to diversify their portfolio by putting their money in several different opportunities, while recipients view it as another avenue to buy and sell homes as opposed to traditional financing channels, cash purchases or peer lending. But how much will it affect the way the market invests? Only time will tell.