What is Commercial Real Estate Crowdfunding and How Does it Work?

What is CRE Crowdfunding and How Does it Work?

If you want to invest in commercial real estate, you may want to consider crowdfunding as a means of achieving that goal. Commercial real estate crowdfunding gives individual, independent investors the opportunity to connect with large-scale, sophisticated investments that they would otherwise not be able to access.

What is Commercial Real Estate Crowdfunding?

Commercial Real Estate Crowdfunding is a new way to fund and invest in commercial real estate projects and developments. While some people may have familiarity with Kickstarter campaigns in which capital contributors are offered gifts or experiences in exchange for their financial support, commercial real estate crowdfunding offers capital contributors a piece of an actual investment vehicle with defined monetary return parameters. In addition, real estate developer can now raise equity or debt through online crowdfunding in order to capitalize commercial real estate projects, rather than relying on their own capital or the capital of friends and family. Through crowdfunding, a deal sponsor can open up an investment opportunity to the public in order to raise the necessary funds. The overall dollars remain the same, but the source of such funds can be generated from a large number of investors, each contributing relatively smaller dollar amounts. The rate of return to these investors should remain the same depending on the fee structure of the deal.

Crowdfunded commercial real estate is advantageous for investors because such investors can gain access to larger deals with relatively less capital than previously possible. In addition, because minimum invests are decreased via crowdfunding, individual investors can achieve greater diversification and risk reduction by spreading their available capital among multiple projects while at the same time having the freedom to carefully choose the projects in which they wish to invest. This added personal choice allows investors to only invest in projects that resonate with them personally or best suite their financial goals. Further, investors can follow these projects through the entire deal cycle while collecting income from distributions generated by the real estate.

Commercial Real Estate Crowdfunding is a new way to fund commercial real estate projects and developments. Rather than courting just a few investors, a real estate project will deal with large numbers of smaller investors. These smaller investors will still pitch in the same amount of money in total and will acquire the same rate of return. They simply won't need to invest a large amount in a single project.

Commercial real estate crowdfunding is often done through crowdfunding platforms or websites, many of which can be accessed with a simple Google search. Some of the more popular platforms include RealtyShares, CrowdStreet, RealCrowd, RealtyMogul and the list goes on. Prospective investors need to carefully choose the platforms in which they procure deals. In addition, much care should be taken to ensure that the most appropriate deals are being selected for investment, regardless of the platform.

How Commercial Real Estate Crowdfunding Works

Commercial Real Estate Crowdfunding investment opportunities can be found via the internet through Google or any other viable search engine. As noted above, there are any number of platforms or websites offering various types of commercial real estate deals for investment. These deals vary tremendously by size, property type, minimum investment and accreditation requirements. In addition, some platforms offer “funds” which invest in multiple properties at the discretion of a fund manager. Further, some opportunities are structured as debt while others are structured as equity. For debt investments, investors are essentially lending money to finance a given project. As a result, there is typically a maturity date and fixed return schedule. For equity investments, there typically is no maturity date and returns can vary depending on how the project performs. It is also worth noting that an investor in an equity position usually is assuming more risk than an investor in a debt position. With that said, every deal is unique and there are always exceptions to this generalization.

All crowdfunding deals are not open to all members of the public. Depending on how the platform structures the deal, the deal may be restricted to accredited investors. Those deals that are restricted will only provide legal investment offering documents after an investor verifies their accreditation through such website. This is a regulatory requirement that platforms must follow. Generally speaking, this process is not difficult and the platforms do everything possible to make the experience user-friendly.

Want to learn more about commercial real estate crowdfunding? Realty Mentors can help you with any and all of your questions. Contact us today to find out more about your commercial real estate opportunities.

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