How to use crowdfunding to invest in real estate

 

Design-led housing developer breaks world record for equity crowdfunding

By Jennifer Openshaw

It’s the Facebook approach to money: Connect with friends. Then donate, invest and even fund a new business together.

Crowdfunding is all the rage, attracting everyone from individuals who want to get in on the next big thing to regulators who want to protect you. And one segment drawing a lot of attention of late is real estate, an investment formerly accessible mostly just to those who could afford to plunk down a large down payment on their own.

Crowdfunding will certainly face some stiffer controls in the not too distant future. Just this week, the public comment period closed on Title III of the JOBS Act, the SEC’s crowdfunding rules proposal. Among other things, the JOBS Act (short for Jumpstart Our Business Startups) enables average investors to access more complicated investment opportunities which previously were available only to “accredited investors” who earn more than $200,000 a year or who have a net worth exceeding $1 million.

“Until new SEC crowdfunding rules are finalized, the only way most Americans can invest in real estate — outside their home — is through a REIT,” says Grant Easterbrook, senior research associate at Corporate Insight, who’s been tracking these new platforms.

Purchasing a share in a REIT allows an investor to buy into a management company with a portfolio of existing investments. Real estate crowdfunding, however, pools investors together so that, with as little as $5,000 typically, they can buy small shares of individual properties.

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