From less than 10 a year ago to over 50 today, real estate crowdfunding platforms are sprouting up like World Cup fans in the United States. The accelerated growth is expected to continue, with large national firms along with local operators announcing upcoming platform launches. This rapid proliferation is due to developers' need for capital to fund real estate projects, investors' desire to generate attractive returns through investments they understand, the efficiency and convenience offered by the sites, plus a low barrier to entry for new platforms.
Historically, developers would weave through an assortment of potential equity and debt partners, banks and hard money lenders, mezzanine sources, and private equity firms to try to find capital. Terms were often unpredictable and varied between sources. Today's real estate crowdfunding platforms provide transparency and agility often lacking in the more traditional providers.
Today, an investor can invest $5,000 in a second mortgage on a Miami mixed use property on Fundrise, $25,000 in a first mortgage secured by a La Canada, California single family home on Realty Mogul, and $50,000 in a highrise "Cotel" in Manhattan on Prodigy Network. If the investor has previously registered on the platforms, offerings can be reviewed, documents signed and investments funded on the three different projects on three different platforms in maybe 15-minutes or so. The ease and speed is seductive. Further, the modest minimum investment amounts enable accredited investors to diversify across multiple projects and platforms. Returns are above-market compared to bank CD's and more traditional income investment options, and even compared to peer-to-peer lending platforms such as Lending Club and Prosper.
I stumbled across Realty Mogul's listing on AngelList in Spring 2013. Once I visited Realty Mogul's site, I was so intrigued that our company, American Homeowner Preservation, invested in their second offering, the "Ridge Single Family Rehab" in Everett, Washington. We then did the same thing with Realty Shares, investing in their first offering, a Single Family "buy and hold" at 913 Winn Street in Jackson, Mississippi. Both investments performed well. I was so impressed with the concept that I contacted our securities counsel and web developer and asked them to create a similar investment structure and platform for American Homeowner Preservation.
The barrier to entry is low: a web developer, some time with attorneys and accountants, and connecting up some vendors will spawn an operational real estate crowdfunding site in a few months. As a result, the proliferation is likely to continue unabated. That said, the expertise and prudence to be selective with offerings is essential to delivering on advertised returns to investors. With many markets today demonstrating a discomforting frothiness, platforms which are loose in underwriting deals may do well initially. However, these will likely be the first to falter if markets turn, projects flounder and investors start to lose money. An event like 2008's meltdown would strain even the most sapient platform operators.
Here is the lineup of America's first 50 real estate crowdfunding platforms:
American Colonial Capital Fund
American Homeowner Preservation
Carlton Accredited Equity
Creative Equity Group
High Income Real Estate
NXGen Capital, Inc.
Patch of Land
Tycoon Real Estate
The first 50 is a remarkable milestone in the fledgling real estate crowdfunding industry. The platforms fill developers' capital needs in a predictable and dynamic manner, make opportunities straightforward and rewarding for investors, and effect transactions in an easy and accessible manner. Fuse these attributes with a low barrier to entry for new platforms, and we can look forward to "The First 100" by the end of 2014.
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