Wednesday, January 20, 2016

Growing Trends for 2016 Real Estate - Crowdfunding

Have you ever wondered what it would be like to own a large commercial property (i.e. retail plaza, office complex, high rise apartment building), but unfortunately don’t have the millions of dollars in the bank to make it a reality? Well the rise of crowdfunding in real estate might just be the opportunity you’ve been looking for.

But first, what exactly is crowdfunding and how does it work?

You might be familiar with fundraising sites such as Go Fund Me or Kickstarter, or US based peer-to-peer lending sites such as Prosper or Lending Club. Crowdfunding for real estate is similar to these platforms and the basic premise is simple. An investor can access individual real estate properties through an online platform and pool money with other investors to invest the required funds for a property. Say for example, the property cost $10 million dollars, it could be split into 10,000 shares of $1,000 each or 0.01% ownership for each share.

Real estate crowdfunding falls into two sub-groups: debt and equity.

In debt crowdfunding the investors act as a lender for, rather than as, the owner of the property. In such circumstances, the investment would be secured by the property and the investor would be entitled to monthly interest and a return of principal, but not to any benefit from property appreciation.

In equity crowdfunding, the investor becomes an indirect owner of the property by obtaining shares, limited partnership units, or other securities in the entity that owns the property/project. This form of investment carries inherently more risk, but also a potential greater return as a result of a direct interest in the property appreciation.

Crowdfunding for real estate is still in its early days in Canada. However, it has been making significant inroads in the US. The Ontario Securities Commission has been reviewing the industry as it matures and tries to regulate to protect investors. So check back often on the regulations as the industry matures in 2016.

Though crowdfunding will allow more people access to the commercial real estate market, for companies being able to solicit investments in projects from the general public online both greatly increases companies’ ability to raise the capital they need, from a greatly expanded pool of potential investors, but may also greatly increase the likelihood of lawsuit, especially if the investment performs poorly.

So there you have it. We are on the precipice of “the democratization of the real estate investment opportunity”. Are you excited?

Russel Lalovich
Office: (519) 966-0444
Cell: (519) 995-5620

1 comment:

  1. Thanks for sharing this useful information about Growing Trends for 2016 Real Estate.
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