Crowdfunding: Now Anyone Can Own a Skyscraper!

Posted: Updated:

Have you ever wanted to own a skyscraper? How about an entire apartment complex? Well, good news, now you can! And, you don't have to meet "accredited investor" requirements. How? It's called crowdfunding!

Crowdfunding is an online platform that allows individual investors to pool their money together to purchase something they may not be able to buy on their own. Before May 2016, the Securities Exchange Commission only allowed accredited investors to buy into these investments. To be an accredited investor, one needs to meet certain net worth or annual income minimums. Thanks to these changes, today anyone can purchase a share of these real estate transactions. But before you do so, is it right for you?

According to the University of Cambridge Judge Business School, in 2015 crowdfunding real estate transactions topped $1.2 billion; over three times the amount in 2014. The growing popularity and recently lifted financial restrictions has opened the door for everyone, including a swarm of uneducated investors. To avoid potential poor financial decisions, let’s highlight some key components to think about:

Professional Research: There might be more to know than location, location, location. The average investor typically does not have the time, energy, or expertise to navigate through these real estate transaction options. We recommend finding a professional who can help with proper due diligence.

Limited Liquidity: When you purchase a single real estate crowdfunding investment, it's not like purchasing a mutual fund that can be sold at anytime. Before you decide to invest in a crowdfunding option, you need to understanding how long your money might be locked into the deal.  With a crowdfunding investment, the money you've invested is no longer readily available to you - even if you lose your job and need the money to pay your monthly mortgage! Remember, as with any investment, the focus should be on long-term growth versus a short-term gamble.

Understanding Isolated Industry Risks: The real estate industry has a supply-and-demand risk that can be similar to investing in the stock market. Furthermore, anytime you purchase a single investment versus multiple investments, you decrease your diversification and increase your potential risk. When you increase your risk, it doesn’t necessarily mean you'll receive an equivalent increase in your return!

Research the Crowdfunding Platform: Currently, more than 125 crowdfunding platforms exist. According to Jason Best, a partner at Crowdfund Capital Advisors, you’ll want to consider comparing associated fees, the quality of property management, and the sustainability of the platform. As with any new industry, it’s safer to choose among the larger more-established companies such as Realty Mogul, Realty Shares, and iFunding, to name a few. However, given the industry is still in its infancy, even with these larger online companies there are no guarantees. Our recommendation: Read the fine print!

If you’re looking for more liquidity and diversification than you will get with a single real estate purchase, crowdfunding companies like Realty Mogul and Fundrise also offer traditional Real Estate Investment Trusts. REITs are popular financial investments that have been around for a long time. They invest in a variety of commercial properties nationwide and offer investors plenty of options with strong management track records.

Summary

Owning a skyscraper - or even a piece of one - has a certain cachet attached to it. It’s more glamorous and personal than investing in REITs. But before you dive headfirst into your first crowdfunding purchase, be sure to weigh your options and understand the investment. Whether crowdfunding is right for you or not - the crowd agrees - it's here to stay.

If you’re interested in learning more about this topic, I suggest you listen to podcast Episode #108, "Investing in Real Estate Via Crowdfunding Platforms," on J. David Stein's website, Money for the Rest of Us.

Evan D. Bedel, CFP, is a Financial Planner and leads Generation NeXt services for Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit the Bedel Financial website at bedelfinancial.com or email Evan.

  • Perspectives

    • Transferring Assets to Grandchildren

      Planning the transfer of assets to grandchildren is in many ways similar to transferring assets to your own children, with a few exceptions...

    More

Subscribe

Name:
Company Name:
Email:
Confirm Email:
HTML
INside Edge
Morning Briefing
BigWigs & New Gigs
Life Sciences Indiana
Indiana Connections
INPower
Subscribe
Unsubscribe

Events



  • Most Popular Stories

    • Carrier Details Indy Layoffs

      Carrier Corp. says it will begin the layoff process for more than 630 employees in Indianapolis this summer. The layoffs are coming despite the company's commitment to keep more than 1,000 jobs in the city, 800 of which were previously slated to be outsourced to Mexico. In a notice to the state, Carrier says the employees are part of its fan coil production operation, which is being relocated to Mexico. The affected positions were never included in the deal orchestrated by...

    • Greene Co. Hospital Appoints Executive Director

      Kristin Crynes has been appointed executive director of nursing at Greene County General Hospital. She has worked at the hospital for more than 14 years, serving in leadership roles in infection control, employee health and environmental services. In her new role, Crynes oversees the hospital’s 85 nurses serving in departments that include emergency, obstetrics, medical/surgical, surgery, intensive care, specialties and more.

    • Three Charged in Amazon Fraud Scheme

      A couple from Delaware County and a man from Indianapolis are facing charges related to an alleged $1.2 million scheme involving Amazon. Erin and Leah Finan and Danijel Glumac are accused of defrauding Amazon of hundreds of electronics products and selling them on the black market.

    • Birge Picked to Lead 'Next Level' Coworking Space

      The new executive director of a coworking space set to open in Indianapolis says she has a big opportunity to help foster connections throughout the state. Katie Birge, former director of the Bloomington Economic Development Corp.'s Bloomington Technology Partnership and digital marketing strategist for Bloomington-based Envisage Technologies LLC, will become executive director of Launch Indy June 1. 

    • Simon Plans Billions in Investment

      Indianapolis-based Simon Property Group Inc. (NYSE: SPG) says it expects to pump about $1 billion both this year and next into its shopping, dining, entertainment and mixed-use properties. The Real Estate Investment Trust says it has already invested more than $5 billion into development projects throughout the United States over the past five years.