Crowdfunding Grows as Source of Real Estate Investment

By Dan Weil, Crowdfunding is the hot new thing for startups trying to garner cash, and now people are using it to invest in real estate too.   Crowdfunding consists of a group of people financing a venture through the Internet.

When it comes to real estate, investors can use dozens of crowdfunding websites to put money in areas including single-family homes, real estate development projects and distressed mortgages, The Wall Street Journal reports. Investments can begin as small as $100.

Crowdfunding platforms have generated $135 million of investments in real estate so far, The Journal estimates.

The Jumpstart Our Business Startups Act of 2012 sparked much of the crowdfunding activity in real estate by loosening fundraising rules for small companies.

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Crowdnetic, a crowdfunding research firm, tells The Journal that real estate is far and away the biggest crowdfunding sector it follows.

Real estate is “the hottest sector,” Richard Swart, who heads a crowdfunding research program at the University of California, Berkeley, tells the paper. “It’s getting the most interest and the most activity.”

However, some are concerned because many investors don’t know much about real estate and there might be unscrupulous landlords and developers using crowdfunding because traditional financing sources have turned them down, The Journal notes.

In fact, the paper points out, “at least three websites have folded or temporarily suspended operations as founders rethink their business strategies.”

Meanwhile, the Federal Reserve’s continuing low interest-rate policy is attracting investors to real estate investment trusts (REITs). Investors put $5.6 billion into REIT exchange-traded funds this year through June 3, according to Bloomberg.

“We live in a world where investors are thirsty for yield, and since REITs are required to dividend out most of their profits, they’re a good yield vehicle,” Jim Sullivan, managing director at Green Street Advisors, tells the news service.

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