The intense enthusiasm over crowdfunding business ventures has spilled over into other verticals, bringing interest and momentum to real estate investing. Equity crowdfunding platforms like AngelList and CircleUp have drawn attention and have effectively been matchmakers for startups and investors for several years now.
Real estate has made leaps and bounds over decades to break into the portfolios of investors. The “big three” asset classes, stocks, bonds and cash, dominated the portfolios of institutions until 1975 as they were the only assets accepted. But in the 1980’s, institutional investors were seeking out an alternative investment that had more stability with a steady income. The driving force behind this shift was the rise of REITs during this time which ultimately allowed institutional investors to add commercial real estate to their portfolios for the first time.
Today, real estate is no longer an alternative investment. Institutional investors are allocating 10 percent of their portfolios to real estate, and individuals are thriving thanks to the technology that brought them crowdfunding. Real estate has officially worked its way up from being alternative to the fourth big asset class among both institutional and individual investors with its promise of diversification and reliable income streams.
Real estate has been heating up conversations and sparking change across the board, all supporting a flow of support toward crowdfunding. In an effort to highlight how important real estate is on a global level, in November 2014, the Standard & Poor’s Dow Jones Indices officially announced that it was giving real estate its own sector of its Global Industry Classification Standard (GICS). When it takes effect in August 2016, it will not only strengthen the role of real estate as an asset in investor’s portfolios, but as a recognized essential key player in the global economy.
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And over just the last two years, since the Securities and Exchange Commission (SEC) approved Title II of the Jumpstart Our Business Startups Act (JOBS Act), real estate crowdfunding platforms have been connecting borrowers looking to raise money for their projects with accredited investors, those with an annual income of at least $200,000 or a net worth of at least $1 million. By loosening the restrictions on general solicitation, real estate crowdfunding has quickly become the go-to for both investors to diversify their portfolio and borrowers to raise capital quickly.
Real estate investing has been put on the back burner for decades partly because of its daunting reputation. But crowdfunding has fiercely broken those barriers by creating a simple process with direct access to real estate. Crowdfunding platforms like RealtyShares are online marketplaces for passive real estate investing, without the hassle of direct management but while boasting benefits of dividends from rental income and the upside of appreciation when a property is sold. The benefits have officially tipped the scale re-introducing real estate as a beneficial investment accessible through a simple technology-driven process.
As the industry now approaches its fourth year of existence, its strength continues to energetically mature. Of the $870 million in capital raised through crowdfunding in the past two years, $208.3 million of that was capital from real estate crowdfunding for developments and investments across the U.S. And the industry is now revving up for its next big push with the approval of Title III of the JOBS Act.
Recently approved, Title III will open up investing to an entirely new class of investors. These non-accredited investors will be able to invest $2,000 or 5% of their income (whichever is higher) if their net worth and annual income are both less than $100,000. Investors with over $100,000 in net worth or income may invest up to 10%. With this big shift in regulations, the stream of investors is expected to soar to well over 200 million with its commencement in early 2016.
The hard-hitting momentum of crowdfunding is catching attention all across the industry Just before Title III was approved this year, investing platform AngelList received a $400 million seed fund called CSC Upshot from one of China’s biggest private equity firms. The fund is the largest that has ever existed to fund companies at an early stage. Another giant step forward for crowdfunding which will allow small investors the chance to invest in parallel with angel investors.
What was once an alternative investment, has gained increasing momentum through crowdfunding allowing it to make a permanent place in investor’s portfolios. Real estate crowdfunding’s success, aside from the innate benefits of real estate, has been a nod to the power of networking and technology. Crowdfunding will no doubt be ambitiously generating the expansion of real estate investors across the globe, driving it to become a mainstream avenue for individuals to invest.
