You might have heard about GoFundMe, IndieGoGo, or Kickstarter. Those are just some of the big names when it comes to crowdfunding. They cater to crowdfunding for a cause such as hospitalization and education, some help in kickstarting a technology effort or raising seed money for a new business.
But, have you heard about the idea of raising funds for real estate through crowdfunding?
Crowdfunding is not new. In fact, a stock market is a form of heavily regulated crowdfunding. The word “crowdfunding” was first used by Michael Sullivan in an effort to raise funds for his video blog. While the first successful use of the internet to raise funds was in 1997 through ArtistShare.
In 2012, the JOBS Act was signed to help start-ups and small businesses access funds easier. It eased some regulations to allow the participation of non-accredited investors which makes the pool of potential investors larger. With a larger pool of investors, raising funds becomes easier and faster.
Real Estate Crowdfunding
While many crowdfunding platforms are designed for civic causes or help raise seed money for a tech start-up, real estate crowdfunding platforms such as EquityDoor were specifically founded to cater to real estate companies that are looking to raise funds for their projects and make real estate investing easier for investors especially those who are looking to diversify their portfolio through real estate.
Crowdfunding platforms give investors the ability to pool their money and contribute to projects that interest them. It's easier for investors to figure out which real estate projects are good for them. They don't have to visit a bunch of different websites. They can use the same platform to access the information they are looking for a company.
Clearly, real estate crowdfunding has gained traction in recent years as shown in the growth of participants in various platforms such as RealtyMogul with over 200K registered investors, while Fundrise with over 130K active investors. As a result, real estate crowdfunding has helped raise nearly 25% of all private equity capital for commercial real estate in the US, according to a report by REJournals.
In 2019, global real estate crowdfunding was valued at $120+ million. It is expected to grow at a 33.4% CAGR to $851 million by the end of 2028.
Real estate crowdfunding is just a fraction of the whole crowdfunding industry. But with the current market fundamentals and favorable regulations, the industry is expected to continue growing and remain bullish in the coming years.