Prior to the arrival of ‘the crowd’ it was difficult for private individuals to invest in real estate other than through the stock market. Private securities investments (including real estate) could not be marketed publicly, meaning finding opportunities was largely down to having the correct wealthy and/or professional contacts.
After the 2007/8 banking crisis, many of the traditional lenders (i.e the banks) tightened their lending criteria. This led to a shortage of capital across most markets and the need for alternative finance sources.
In 2012 in the U.S the ‘Jumpstart Our Business Startups’ (JOBS) Act was passed as a response, changing the legislation that had previously prevented general financial solicitation from individual investors. Start-ups and small business could now raise capital in a far more public way.
Investors were now able to participate in private real estate deals, which modern technology made possible from the comfort of their own homes. In the mid to late 2000s early crowdfunding platforms proved the concept, which has led to the launch of websites looking to crowdfund business and investment across all sectors.
Whilst crowdfunding is now an established investment vehicle with considerable benefits, it’s important that you understand the disadvantages of real estate crowdfunding before deciding whether it’s the right investment for you.