What Is Real Estate Crowdfunding?

These days, it feels like everything is peer-to-peer. Rather than spend on training employees, companies hire gig workers. Instead of getting a car, commuters can hail an Uber. It was only a matter of time before the trend reached the real estate industry. With real estate crowdfunding, a small-time investor can now skip years of saving and buy into a property for a few thousand dollars.

What Is Real Estate Crowdfunding?

A new business model provides individuals with the ability to invest relatively small amounts of money in development projects via real estate crowdfunding. For example, Small Change is a platform that offers real estate investments under Reg CF. Thus, non-accredited investors can access deals that are typically reserved for accredited investors.

The concept of crowdfunding is not new. Through platforms like Kickstarter, entrepreneurs have long been able to crowdfund or raise capital from the general public. What is new is the concept’s application to real estate. Thanks to real estate crowdfunding, the playing field has been leveled to include regular folks.

Rewards and Risks of Real Estate Crowdfunding

Real estate can be one of the best vehicles for generating wealth. The question is whether it is a good idea for people with little real estate experience to get involved.

Crowdfunding does not include professional advice. Instead, it is the investor’s responsibility to conduct due diligence. He or she needs to understand local market conditions and assess whether the construction team and property management group are competent. The individual also has to know whether the investment is secured by collateral or unsecured.

With Freedom Comes Responsibility

Startups like Small Change have brought the peer-to-peer economy to real estate. Thus, non-accredited investors can now access deals alongside accredited investors. Though this is worth celebrating, real estate crowdfunding does carry risks, especially for those who fail to read the fine print.