Crowdfunding, the practice of funding a project by raising many small amounts of money from a large number of people through the Internet, exceeded $34.4 Billion in 2015 according to Massolution's crowdfunding report. According to these same analysts, that number will continue to grow, especially among certain vertical markets like real estate.
Real estate investing is a fast-growing market that has recently taken hold of the crowdfunding phenomena and applied it in a way that is changing the face of investing. In fact, Massolution shows that of the $34.4 Billion in funds raised, real estate made up $2.5 Billion by institutional and solo investors combined.
With crowdfunding making such a big impact in the real estate market, it makes sense to keep up with the crowdfunding trends. Here are three to watch in 2017 that may affect how you do business.
1. Crowdfunding Regulations
Prior to the end of 2015, crowdfunding was still rather new and unexplored. Government regulations were scarce and confusing, making investors leery of sinking money into a fund. Who knew if it was legitimate? Who knew if it was safe? However, the JOBS ACT and Regulation A+ have brought crowdfunding out of obscurity and confusion and into the mainstream in terms of fundraising.
The JOBS Act has given the SEC the ability to create rules about equity fundraising, making it legitimate in the eyes of investors. Started in 2012, this act allowed small businesses and entrepreneurs the ability to raise capital. However, this act only allowed them to raise funds from accredited investors, which constitutes only 2% of Americans. Then in 2015, the Regulation A+ was added, allowing private growth-stage companies to raise up to $50 Million for the public in general.
This means that as an investor with an LLC, it is now possible to raise money for real estate investments from the public through crowdfunding platforms. It is also possible to invest funds into a large project that could have been out of your reach before.
Keep in mind that crowdfunding, like any investment, carries risks, even when covered by SEC regulations.
2. Millennials Invest Differently
Millennials are not into 'stuff' the way their predecessors were, making it difficult for brands to capitalize on millennials with wealth. Thousands of hours of marketing meetings take place weekly trying to figure out how to capture the attention of millennials.
This is true of real estate as well. Millennials don't see the owing property as a worthy personal goal. Unlike their parents, owning a home is not a status symbol. In fact, one of the largest real estate companies in the world and a favorite of the millennial generation, Airbnb, doesn't even own property.
Nonetheless, as millennials make their way in the world, finding wealth through the creation of tech companies that make billions, they need a place to invest and will turn some of their money to real estate since it is a great way to diversity their portfolio.
According to Forbes “Real estate crowdfunding has the potential to help them share the wealth while staying true to their sensibilities.” In other words, they can invest their money through a real estate crowdfunding opportunity without walking away feeling like a landowner.
3. Saving For Retirement
Studies show that Americans are saving for retirement now more than ever. The trend is for retirement savings to start at younger and younger ages. As younger Americans learn more about retirement savings, they will naturally gravitate towards investment vehicles that improve their rate of return.
Passive income is the number one need in retirement. With analysts warning that social security will be defunct by the time today's young Americans reach retirement, finding sources of stable, passive income is key. Of course, real estate is a great source of this income. These same Americans, however, are not likely to be involved in the day-to-day operations of real estate, instead wanting to invest from the golf course.
Enter crowdfunding. With a few clicks of their smartphone, someone can invest their retirement funds through a crowdfunding platform, beginning the journey towards passive income.
Whether you are new to real estate investing or a seasoned investor, crowdfunding can offer opportunities for growth. It can provide an entry point to opportunities that used to take insider information and access. As crowdfunding continues its growth, the opportunity to capitalize on the success of this platform will grow as well.