Real Estate Crowdfunding - What You Need to Know Before Investing

 Posted on December 00, 0000 in Commercial Real Estate

Commercial real estate (CRE) investment was once reserved for the elite, but changes in federal laws have opened up several methods that people can use to break into the CRE market. One such example is real estate crowdfunding. Of course, like most investment opportunities, there are potential risks that one must be aware of when participating real estate crowdfunding. Learn more in the following sections, and discover how a seasoned commercial real estate attorney can help you mitigate against the most common issues that investors may face in CRE crowdfunding.

How Crowdfunding Has Changed the Face of Commercial Real Estate

Prior to the Jumpstart Our Business Startups (JOBS) Act of 2012, investors were only able to access institutional-quality real estate through private equity funds, real estate investment trusts (REITs), or direct investment. All of these options have serious limitations. In an REIT, individuals are investing their money into a pre-constructed strategy or portfolio rather than an individual property. Private equity funds are usually cost-prohibitive, and they often lack transparency for the investor. Direct investment can allow an investor to bypass these issues, but they require ample time, money, and labor - something that many investors lack.

Crowdfunding entered the playing field almost immediately after the implementation of the JOBS Act, and it has continued to grow exponentially since that time - partly because it alleviates many of the hurdles and obstacles that investors may face in CRE investment methods. Since crowdfunding allows individuals to invest in assets with deal-specific business strategies, it offers more transparency and better stability than REITs and private equity funds. It also requires a lower initial investment than most other CRE investment models. That does not mean that crowdfunding is without fault or risk, however, and understanding the possible issues that may arise is critical to an investor's future success.

Potential Crowdfunding Challenges for New Investors 

While crowdfunding can provide investors with a way to diversify their portfolio at a lower start-up cost, the rapid growth of this industry presents some unique challenges. First and foremost, there are crowdfunding agencies that make unrealistic promises regarding possible returns, so investors are encouraged to perform their due diligence before investing in a specific crowdfunding platform. Crowdfunding also offers less liquidity than some of the other investment models, which means investors need to be prepared for the possibility of longer hold times than they might experience with an REIT or private equity fund.

Our Naperville Commercial Real Estate Attorneys Offer Seasoned Legal Assistance

Regardless of how you invest in commercial real estate, the assistance of a seasoned lawyer is highly recommended. Lindell & Tessitore, P.C. can help reduce your overall risk of financial loss when diversifying your portfolio. Our skilled Naperville real estate lawyers are some of the most trusted in the state. Get started by scheduling a personalized consultation. Call 630-778-3818 today.

Source:

https://www.forbes.com/sites/forbesrealestatecouncil/2018/08/13/intro-to-real-estate-crowdfunding-not-all-models-are-created-equal/#51cda54b7bc2