Understanding the Pros & Cons of Real Estate Crowdfunding
Real estate crowdfunding is becoming more and more popular in many parts of the world. Unfortunately, there is a huge misunderstanding about the whole concept of crowdfunding. This revolutionary concept comes with a lot of hope and fears in equal measure. But why is crowdfunding receiving a lot of social media attention? Could this concept disrupt the real estate industry? What are the do’s and don’ts when engaging in crowdfunding?
In the real estate industry, crowdfunding has the potential of being a game changer. Most people are unaware of the power of crowdfunding. In fact, few people understand how it works, what it is or the pros and cons of raising funds using this method.
That said, how can investors in the real estate sector take advantage of crowdfunding? Can it be disastrous? How can investors improve it?
Disadvantages of Real Estate Crowdfunding
If there is anything that real estate investors have learned from the recent crises, it’s that it is important to anticipate what’s next. The rise of crowdfunding has brought with it three potential side effects that investors need to watch out for.
The most notable side effect is perhaps the potential ramifications of the new Title II ruling. Some people are of the opinion that the final SEC ruling undermines the Jobs Act, and that it fell short of what most people expected. According to one blog post, the ruling opened doors for investors in the real estate sector as it made it possible for them to publicly raise funds for any type of project. The SEC has mandated those raising funds to ensure that individuals who are contributing the funds are actually accredited investors. In the future, the SEC will start investigations by interrogating those raising funds publicly if anything goes wrong.
Still, there seems to be no way of stopping the evolution of fund raising in the property market. The real victims in all these are those who refuse to embrace change in the course of their respective careers. Fortunately, change is gradual, and not instantaneous. After all, there are still people who rely on home phone lines and fax machines to make things work for them.
Currently, one of the biggest threats to banks comes from crowdfunding campaigns. This type of funding is threatening to topple banks as the most preferred source of funding for real estate projects. Anyone can create a crowdfunding project if they can’t find one that suits them.
What Most People Do Not Understand
Many people know that crowdfunding is the best way to raise funds for real estate projects, especially when banks and other lending companies reject their loan applications. However, crowdfunding is much more than just an alternative source of funding, it also helps to create an environment for more innovation and makes the industry more efficient. It can also speed up growth in the industry, increase returns and broaden spreads.
Those who do not appreciate crowdfunding are unaware of the benefits it has to offer. Investing in real estate through this option does not necessarily translate to giving up control. In fact, investors can make more profit by using Kickstarter, Indiegogo and other alternative platforms.