With the average American today having much shorter attention spans (just seven (7) seconds, per some estimates), American investors’ investment strategies have sped up as well. Now, more investors want to quickly analyze and fund a deal in the same hour, day, or week instead of over the period of several months. As a result, a higher percentage of investors are seeking new forms of creative, efficient, flexible, and easier to use and understand investment strategies such as those offered by Crowdfunding Platform firms online specifically for Real Estate.
Crowdfunding Platforms allow many individual investors to pool their funds typically by way of online websites so that they may invest in various forms of Residential and Commercial Real Estate such as individual Single-Family Homes, or up to 1,000 + Multi-Family Apartments complexes. Crowdfunding for Real Estate is somewhat of a hybrid between the ongoing “Social Media Revolution,” and sophisticated Wall Street Investment Firms which use complex debt and equity capital structures to purchase Real Estate.
Crowdfunding Platforms share much of their income and profits directly with their investors as opposed to the banks taking the bulk percentages of the deal’s profits. Double digit investment returns are much more appealing to many investors than zero to negative net returns offered by their local banks after factoring in 0% to 1% bank rates, inflation rates, and increasing bank fees.
The frustration levels with local regional or national banks here in the USA may be near all-time highs in 2015. Banks still have rather tight underwriting guidelines in spite of historically low mortgage interest rates. For example, Former Federal Reserve Chairman Ben Bernanke supposedly did not qualify for a home mortgage at his own bank back in October 2014. If the former Federal Reserve Chairman for the most powerful financial entity within the American borders cannot qualify for a home mortgage, then how successful will you or your small business do trying to qualify for a loan?
The true beauty of investing with properties held by Crowdfunding Platforms is that it allows investors the opportunity to invest in large, quality multi-million properties with just relatively smaller amounts of capital (i.e., $5,000 to $25,000+, depending upon the capital structure). Also, these same investors don’t need to deal directly with any potential problems associated with any tenant issues. Yet, the same investors get to share in the highest net income returns, which are maximized by the professional management and investment teams.
The Exponential Growth Rates of Crowdfunding Platforms
The total combined investment amounts for Crowdfunding Platforms for Real Estate increased from $2.7 billion in 2012 shortly after the creation of the JOBS (“Jumpstart Our Business Startups”) Act to $5.1 billion in 2013, and later to approximately $10 billion in 2014. The JOBS Act eased securities regulations for funding small businesses and Real Estate transactions, which made raising capital much more efficient. 2015 is expected to be significantly higher as well with these ongoing and compounding growth rates. Will these numbers continue to compound and at least double in size in year each subsequent year?
The total combined estimate for all types of Crowdfunding options worldwide for properties, business start-ups, charities, and many other types of fund raising options is estimated to be close to $11 trillion dollars. If only a small fraction of this total amount of Crowdfunding capital is directed into Real Estate, then the combined amounts of capital for Real Estate Crowdfunding Platforms may soon surpass all REITs nationally and internationally.
Crowdfunding Platforms vs. REITs
One of the main benefits of using Crowdfunding Platforms is the ability to invest in specific individual properties rather than in the entire business structure and operation like with REITs. Crowdfunding Platforms, as opposed to REITs (Real Estate Investment Trusts), allow investors to select a specific asset or property type in a market region of interest.
With Crowdfunding Platforms for Real Estate, investors are placing their funds into a Limited Liability Company (LLC). Crowdfunding investors don’t have ownership of the properties, but they do gain access to the property income by way of a document called an Operating Agreement. Investors in Crowdfunding Platforms for Real Estate take a piece of the share of the profitable income in many of the Top Tier properties such as Multi-Family Apartment Buildings, Retail Shopping Centers, and other profitable properties without having to deal with the day-to-day property management headaches.
Passive Investors in sophisticated and efficient Crowdfunding Platforms are able to fund multiple properties at once in a much shorter period of time. This allows investors a more balanced and diversified investment portfolio based primarily upon their own needs and interests. These same investors are then able to share in their cash flow and property appreciation profits in both the short and long term.
With REITs, investors may own shares within these companies with their funds secured by the governing company entity as opposed to the potentially dozens and dozens of Commercial Real Estate assets held by the same REIT. Many REITs these days may offer their investors annual dividend yields of just 4%. Is the risk of earning just 4% for REITs even worth it anymore once factoring in the costs associated with annual rates of inflation alone?
Pre-Crowdfunding Platform Real Estate Options
Prior to online Crowdfunding Platforms for Real Estate, there were only so many options to invest in Real Estate. Of these non-conventional funding options for Real Estate (homes, primarily), only a small percentage were available for Commercial Real Estate. Some of these options included the following:
1.) All Cash.
2.) Hard Money Private Lenders.
3.) Friends and Family.
4.) REITs. Per Forbes, the combined market value for publicly traded equity REITs approached $670 billion in the Fall of 2013. Many REITs prefer high quality Retail Shopping Centers, Multi-Family Apartments, and prime Class A, High-Rise Office Buildings.
It’s all about the Digits
“It’s all about the digits,” both literally and figuratively. More investors are using digital technology options today in order to research and invest in options, which will create them additional figurative “digits” or money. CNBC and other television and online websites, made stock investing very efficient, timely, and much easier to comprehend for beginner investors as well as for the sophisticated wealthy investors and institutions.
Online Crowdfunding Platforms are allowing investors to analyze and clearly understand the risks and opportunities for various types of Real Estate investments at the touch of their keyboard or Mobile Device just like with the stock market. It was less than six (6) years ago that the Dow Jones stock index almost reached a low of 6,500 as compared with recent all-time highs above 17,000. Will Crowdfunding Platforms for Real Estate grow as fast as the Dow has in recent years as the technology and investing options grow and evolve over time?
* Digital Analytics – Investors can sort through various prospective properties at the touch or click of their digital electronics device. Investors can invest in high-yielding properties on the other side of the country while sitting in front of their home computer. So, this means that today’s Real Estate Crowdfunding Platform systems are the modern-day equivalent of online stock investments.
* Digital Payment Options – Will digital payment options like Apple Pay or Google Wallet also make it much easier to invest in Real Estate today within literally seconds?
* Digital Currency – Some Crowdfunding Platforms are now allowing investors to use a digital currency system like Bitcoin. These digital currency and payment options may allow a higher degree of financial privacy for investors today. For investors tired of dealing with their large and slower to respond financial institutions, the more efficient digital investment options are more appealing these days.
* Digital Diversification – Investors can invest in a much higher number of properties in a very short amount of time using digital analysis systems.
* Digital Pre-Vetted or Analyzed Properties – Crowdfunding Platforms can easily and much more efficiently analyze deals around the country by way of using the most sophisticated data sharing and value analysis systems.
* Digital 3rd Party Systems: Businesses such as FundAmerica, Accredify, and Crowdcheck.com assist clients with confirming that the investors are qualified to invest funds with the Crowdfunding Platforms (i.e., they meet the income and net worth requirements as well as other credit, residence, and security guidelines within anywhere from minutes to a few days) prior to also acting like their online Escrow, Accounting, and Title Companies.
* Digital Communities or Social Media Shares – Investors today can share information with hundreds or thousands of people on an hourly or daily basis by way of using online Real Estate or investment communities, or finding others with common interests on Social Media sites like Facebook, LinkedIn, Google +, Twitter, or other sources. In recent years, upwards of 90%+ of all homebuyers are finding their properties first online before they even venture out to visit the property in person. So, Crowdfunding Platforms for Real Estate are just another step forward in this Digital Revolution process.
* Digital Returns – Many prime Crowdfunding Platform investments are paying double-digit annual returns to their investors. As such, the more efficient use of digital analytical investment systems is lowering the cost of capital and overhead for investment firms. This, in turn, allows the same Crowdfunding Platforms to share a higher percentage of their profits today with their clients.
The more efficient that digital communications systems get each year and the more flexible that future potential investment guidelines get for Crowdfunding Platform investors, then the sky may truly be the limit for seemingly infinite returns. Whether you ever invest in Crowdfunding Platforms or not, these multi-million and billion dollar investment groups are potentially your future competition for individual or packaged pools of Single-Family Homes or Multi-Family Apartment deals.
The first to fund a deal is usually the first to have their offers accepted, so it is always wise to learn about the most creative and quickest funding options out there today as well as your current and future competition. Banks may also continue to lose more and more depositors to Crowdfunding Platform investments. Both small investors and large banks can try to learn from these sophisticated and very efficient Crowdfunding Platforms so that we may all improve and grow our businesses too.
One of the most amazing things about using Digital Media and Digital Payments is that beginner investors and very wealthy financial conglomerates can use many of the same services in order to create new wealth. The best figurative digits ($$$) out there may be linked to investments and educational information associated with literal online digits.
The Digital Revolution and Digital Real Estate Investments will continue onward with exponential growth and returns each year whether we pay attention to it and learn from it, or completely try to ignore it. A high percentage of the most efficient sources of information systems and investment strategies originate digitally today. Let’s all try to be a part of the latest “In-Crowd” for Real Estate investments by learning many of the creative and profitable digital strategies available today.
Author: Rick Tobin
Look for Rick’s ebook on Amazon Kindle: The Credit Crisis Deals: Finding America’s Best Real Estate Bargains.
Rick Tobin has a diversified background in both the Real Estate and Securities fields for the past 25+ years. He has held seven (7) different Real Estate and Securities brokerage licenses to date.
Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), Equity Funds, and foreign money sources.
You can visit Rick Tobin at RealLoans.com.