Can Crowdfunding Change the Global Real Estate Investment Model?

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In the past, much of the real estate investment market managed to limit access to deals by a) withholding information pertaining to it, and b) requiring high levels of investment to participate in investments. This meant that normal people couldn’t afford to invest in property, and lacked the relevant information to do so even if they could. 

In America, this culture of exclusivity arguably started back in 1933 with the Securities Act, which stipulated that it was forbidden to advertise private securities investment to the general public; the only people who could be marketed to were professional (or “accredited”) investors, i.e. people with enough money, connections and inside information to invest. The law was designed to stop people being defrauded by bogus investments with claims of massive returns, but nowadays it has evolved into a way to retain exclusivity and shut out all lower-stakes investors – those that aren’t part of the inner circle.

But this is changing thanks to Real Estate Crowdfunding. Using equity crowdfunding platforms such as Bricksave means that non-accredited investors are now able to invest money in properties across the globe and enjoy the benefits of potential capital gains. Herein lies the first major effect crowdfunding has had on the real estate market: because properties are now being crowdfunded by multiple smaller investors instead of a few large professional ones, the upfront capital required is less and therefore the market is open to more people. At the same time, investment opportunities are being taken out of the hands of the inner circle of accredited investors (those that were previously protected by the limiting of information driven by the 1933 Securities Act), thus bringing more balance to the market and reducing the risk of monopolisation. (Many parts of the recent U.S. JOBS Act in fact removes some of the restrictions put in place by the 1933 Securities Act, hence why it is so important for U.S. Real Estate Crowdfunding).

Another change brought on by Real Estate Crowdfunding is to do with geography. The internet now allows people to invest in properties thousands of miles away from their own homes and countries, which in turn provides them with a wider and more diverse range of options. This kind of remote global property investment would have been impossible before Real Estate Crowdfunding, seeing as crowdfunding sites now provide a platform that offers curated investment deals to be undertaken anywhere on the planet.

This brings us onto our next change: the real estate investment market is now far easier to access because Real Estate Crowdfunding platforms are very easy to use. Property investment was previously notorious for involving lengthy paperwork and maze-like legislation, but Real Estate Crowdfunding platforms such as Bricksave handle all of this for you, meaning that the investor only needs to worry about actually investing money.

The evolution of the internet is all about democratising information, and the online real estate sector is no different. Information that was previously withheld from the public by professional property investors is now readily available, and in some cases even provided by the Real Estate Crowdfunding platform itself – one of Bricksave’s main directives, for example, is to provide all crowdfunders with any reasonable information they may need to make a decision about investment. Everything from market trends to developer background can be sourced via the platforms, meaning that the investor is savvier than ever before.

With Real Estate Crowdfunding growing as it is and affecting the industry as outlined above, the real conclusion here is that property crowdfunding has already begun to alter the global real estate investment model. Predictions suggest that more and more people will be drawn to the property side of crowdfunding; one article by National Real Estate Investor indicates that the demographic of those choosing to invest in crowdfunded real estate is predicted to grow to include a wider age range and more diverse financial background. N.R.E.I also tells us that new regulations on traditional property lenders are being put into place at the end of 2016, meaning that non-traditional means of fundraising like crowdfunding will have an opportunity to fill the gaps and increase their market reach.

With more people investing, the industry will expand, and it is not unreasonable to suggest that Real Estate Crowdfunding may be poised to overtake traditional property investment in the near future and establish itself as the number one way to invest in real estate.

 

by Bricksave CEO, Tom de Lucy

June 13, 2016

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