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Many seasoned, hands-on, and savvy real estate investors have been turning to online real estate platforms. This is due to the lucrative alternative of owning a piece of real estate through crowdfunding. Online portals offer a plethora of investing options ranging from commercial sites, to single-family houses, and land ownership. Much of which can be lucrative, but was previously inaccessible.

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Real estate investors can save both valuable time and capital investment expenditure. You can avoid costs of hiring an agent, working with a broker, and dealing with property management. Not to mention the potential hazards of being responsible for physical real estate, i.e. landlord-tenant issues, property damage, and criminal activity.

At Fund Wisdom we focus on funding portals that offer equity in startup companies. As this equity crowdfunding industry grows we have observed a commensurate growth in real estate offerings. There are platforms that focus on real estate so we explore some of the overlap and strategies to capitalize. There are particular correlations between equity crowdfunding real estate platforms and online real estate portals, a symbiotic relationship with each tool combining to achieve positive traction towards enhanced real estate research, risk management and investment.

Crowdfunding Real Estate Innovation

Real estate crowdfunding has disrupted the real estate investment landscape by radically increasing levels of access to real estate deals once out of reach for the average investor.

Total Value of U.S. Housing Market 2020

Total Market Value

$33.6 T

1 Year Change

$1.1 T (3.4%)

10 Year Change

$11.2 T (51%)

Real Estate crowdfunding is a comparatively new concept, which applies fintech logic to a capital collection for Real Estate investments. The capital raised goes towards acquisitions used to develop or refurbish a Real Estate asset with the aim of subsequent use. Due to the nature of the crowdfunding mechanism, users can diversify their portfolios by investing in a variety of properties generally through a low minimum investment amount required.

Real estate equity crowdfunding is one of the fastest-growing segments in the crowdfunding space. The marketplace promises a positive ROI to potential investors, averaging 10%-25%. The U.S. segment has expanded from $4 Billion in 2016 with a CAGR of 19%.

“Assets will need to be adapted to meet the needs of the people using them more effectively or converted to entirely new uses. Real estate owners will need to become operational businesses and learn very different skills than they required even five years ago. At the heart of this will be understanding what the person using a building wants and delivering it seamlessly.”

Emerging Trends in Real Estate, PwC, Global

Industrial buildings of a commercial property type must observe substantial progress over the next eight years, growing at an expected CAGR of plus 60% during the forecast period, according to a report put out by Absolute Markets Insights.

Online real estate portals vary widely in their perspective offerings and reach. But in general, as has been the way right across the "net," investors leverage massive amounts of real estate data through online real estate online portals. The information available to potential homeowners and real estate investors includes but isn't limited to:

Homes for sale

Coming soon

Buyers agents

Rental guides

Foreclosures

New construction

Real estate apps

Rental listings

For sale by owner

Recent home sales

Demographics

Homes estimations

Open house

Buyers guides

Rental buildings

Sellers guide

Sellers agents

Sale by owners

Valuations

Mortgage lenders

HELOC lenders

Mortgage rates

Refinance rates

Mortgage calculators

Amortization calculators

Affordability calculator

Mortgage learner centers

Lender resource centers

Property managers

Real estate agents

Home inspectors

Sales representatives

Real estate equity crowdfunding can provide an attractive asset class for diversification. These investment vehicles provide investors with a unique opportunity to invest in a specific area and properties. Equity platforms continue to be vibrant and progressive with online real estate marketplaces making the most of this explosive growth potential.

Structure

Equity investments: is a longer-term investment, offer a higher return potential. Equity investments give investors (stakeholders) an equity stake in the commercial or residential property. Dividends generally consist of rental income from the property. The investor will receive revenue after the sale of the property. At Fund Wisdom we have focused on angel or venture capital equity investing seeking a return based on an increase in valuation of the business in which they have a vested interest.

Debt investments: the investor is acting as a lender to the property owner. Investors receive a fixed rate of return based on the interest rate of the owner’s mortgage loan, as well as the amount invested. Payments delivered on a monthly or quarterly basis. Investors maintain priority during payout. And investors don’t own a proportional share of any property.  Profits are realized in one of two ways: an increase in cost is achieved and paid at the time the of sale; or the collection of regular interest payments from debt issued to borrowers through a loan instrument.

Investors should always perform their due diligence assessments. Leveraging an evaluation process is a critical step in managing risk effectively. A general criterion for evaluation can include but is not limited to the following; the platform:

  • Does it have a robust financial position and available capital?
  • Do you have a strategy for insolvency, recouping losses, and managing risk?
  • What are the associated fees (opportunity cost)?
  • Is there an ongoing management fee?
  • Is the shareholder paying a percentage based on yields or total portfolio size?
  • What is the developer’s business plan?
  • What are the expected cash flows, expenditures and projected returns?
  • What is the loan-to-value before repairs and after repairs?
  • Are investors in a first-lien position or second?

Debt: Marketplace P2P Property Lending

Capital Repayment with Interest

Debt crowdfunding: the funding of debt from individuals, groups, or institutions, more commonly known as peer-to-peer lending (P2P lending); the practice of matching borrowers and lenders through online platforms allows borrowers to gain access to funds quickly and generally at lower interest rates than banks.

The investors' benefit is inherent in the ability to lend money at a range of interest rates based on proprietary credit scores assigned by each platform. Investors can potentially receive regular, attractive returns while leveling risk across various borrowers.

The wide range and unique variety of portals allow anyone interested in real estate to take a long look at what is available in the market and the unique ways to invest. Crowdfunding real estate investing grants investors the access they need to engage in a variety of real estate investing projects.

  • Customized investment based on financial obligation and ability

  • Authentic and reliable platforms

  • Option to diversify the portfolio

Platforms

RealtyMogul with $2 Bil + capital raised, operating as an online marketplace for real estate investment to investors, borrowers, and sponsors. Its platform enables investors to invest in evaluated real estate investments. Borrowers acquire a business or commercial purpose mortgage loans and sponsors to raise equity. The company’s platform also offers fix-and-flip loans, bridge and permanent loans, and joint venture equity. It serves high net worth individual investors and institutional investors, including family offices, registered investment advisors, private equity firms, hedge funds, banks, and asset managers. Types of assets: mostly finished assets. Real estate asset class: residential, retail, commercial, office, and industrial.

RealtyShares with $900 Mil capital raised, [IRR Management Services] operates an online platform that brings investors, borrowers, and sponsors together to crowdfund real estate investments. The company operates an online marketplace assisting its members in browsing real estate investments and interfacing with an investment page for specific offerings. The platform allows users access to investment opportunities involving various finished asset types: multi-family residential, office, industrial, self-storage, retail, medical office, and hospitality facilities; securities related to real estate loans; equity investments in commercial properties; and preferred equity investments.

Fund That Flip: is a crowd financing platform for residential real estate redevelopment projects. It focuses on delivering residential re-development debt investment opportunities. The company’s platform facilitates the financing of residential redevelopment projects and offers access to real estate deals available. It serves accredited investors and re-developers in the United States.

42 Floors: Online commercial real estate space marketplace

LiquidSpace: an online marketplace and workspace network for renting office space.

Appear Here: a premier online marketplace for short-term space. The company's online platform allows landlords to list their space for free, for brands to book, like booking a hotel room.

PeerStreet - providing P2P real estate loans with 6-36 month terms. Once you invest in a loan or note through PeerStreet, you must remain in the investment until it pays off. $1000 minimum investment. The team at Peer street puts in place an initial review and vetting process. Focused on accredited investors only at the time of writing. North of $500 Mil capitalization through the vetted network of private lenders with diverse sources of capital to help fuel their growth and provides lending at a local community level.

Move Inc. (the Move network includes Realtor.com) and has an established alliance with the National Association of Realtors, for operating Realtor.com, a subsidiary of News Corp., market capitalization at 852.84 Mil, the company serves the Move Network of real estate websites.

Equitydoor provides a four-step process for allowing potential real estate investors to feel their way through their process, Browse – explore the marketplace of investment opportunities, Select – choose investments that match your objectives and risk tolerance

Roofstock provides online real estate services, offering buying, selling, leasing, real estate investment, and property management services.

Sharestates with $1.56 Bil capital raised, functions as an online marketplace for real estate investments. The company allocates investments in cash flow properties. It enables investors to earn returns on real estate properties, and property developers to fund projects.

Patch of Land, with $725 Mil in capital raised, is an online peer-to-peer real estate crowdfunding marketplace and loan provider. The portal connects real estate developers requiring financing with lenders and real estate investors. The company focuses on six to 24-month real estate first-lien mortgage loans with borrower guarantees. Type of asset: development and finished assets.

American Homeowner Preservation LLC – uses capital to purchase distressed mortgages within the United States at massive discounts.

Equity

Investment for an ownership stake in the business

This model enables investors to distribute the risk of enterprise on a more significant number of shareholders who, in case of failure, would face a smaller loss. The backer collects company shares, typically in its early stages, in exchange for the capital pledged.

  • Fundrise: ($3.2 Bil in real estate investments) is a financial technology company that operates as an online investment platform. The company has been labelled as the first company to crowdfund investments in the real estate market successfully. Type of asset: development and finished assets. Real estate asset class: residential and commercial. Between 2014 and 2018, the company averaged 8.76% to 12.25% annualized yields, net fees (1.0%). And an upfront cost of 2% in asset origination fees.

  • 1031 Crowdfunding with $1.3 Bil focuses on commercial real estate (CRE) equity investments that qualify for 1031 exchanges  exchanges for people who own existing real estate and want to sell them without being taxed. It offers single property investments and multi-property funds.

  • DiversyFund is a financial tech company offering a single product, an eREIT: The DiversyFund Growth REIT is an SEC-regulated REIT that builds wealth by investing in cash-flowing apartment buildings.

  • CrowdStreet with $460 Mil capital raised, the platform provides a virtual commercial real estate marketplace that connects accredited investors with institutional real estate investments. Its online portal supports commercial real estate developers and operators to acquire, convert, and manage investors for their projects. Type of asset: development and finished assets.

  • Cadre – investing in private commercial real estate throughout the United States.

  • Groundfloor with $38 Mil capital raised, is a US-based online real estate lending platform. It was the first company to achieve SEC qualification utilizing Regulation A+; the market is also open to non-accredited investors. Type of asset: developments. Real estate asset class: residential land.

  • EquityMultiple, with $800 in capitalization, remains focused on institutional-grade commercial real estate projects while offering both debt and equity investments. The company operates as an online real estate investing and finance platform connecting accredited investors with commercial real estate assets.

Real estate funds or portfolios also allow investors to diversify their debt investments through a single vehicle:

  • AlphaFlow with $10 Mil – $50 Mil capitalization, designs and develops software. The Company provides a platform that allows users to explore and invests in a range of real estate properties. The platform also offers investment advisory and portfolio management services.

  • Groundbreaker Technologies – a is a group of real estate syndicators and software technology specialists with over 70 years of combined experience building best in class systems for real estate syndicators, backed by some of the world’s most prolific real estate and software investors.

  • RealCrowd – is in the commercial real estate investment market. The average individual deal-size for investment opportunities falls just shy of $30 million, while funds have ranged in sizes ranging from $15 million to $150 million.

The USA is the largest crowdfunding market, but Europe registered the highest growth rate in the last few years. The European market presents excellent opportunities for growth, as witnessed by the 89.6% CAGR.

https://www.investmentzen.com/fundrise-review#returns

REIT Investments

Real Estate Investment Trusts (REITs) are investments in different real estate classes, offering diversification and non-correlation with other types of equities with some tax advantages.Crowdfunding platforms have specialized and designed to solve niche conditions within the real estate market space. The platform focuses on the profile or total branding image surrounding their deals. Pooled investments, together with cash from other stakeholders, are earned through the platform’s ability to stimulate investor interest. Investors get the benefit of receiving dividends, collecting distributions, and the long-term appreciation of the assets owned. While each investment vehicle offers a unique focus and value proposition to investors, platforms have now consolidated into several main categories of the business model.

Fundrise and RealtyMogul offer semi-blind eREIT funds that aggregate properties throughout the U.S. These investments offer built-in diversity and very low minimums, making them appropriate for less experienced investors. These REITs offer investors a way to invest in multiple properties or types of real estate through a single vehicle:

  • Fundrise eREIT: generating continual cash flow through debt investments in commercial real estate assets (pays a 9% dividend, 2020).

  • MogulREIT I: the fund makes investments in debt and debt-like real estate-related assets.

  • MogulREIT II: the fund invests in multifamily apartment communities

REITs are apt to flourish in an environment of easy monetary policy where the mostly hybrid form of real estate vehicle, acts like a fund offering broad diversification with tax incentive.
Technology is driving real estate, investing both from a single unit rental and land leasing to REITs, ETF s, and crowdfunding prospects. And there are differences associated with each investment vehicle.

Success Factors: Achieving Funding for Real Estate Project

A solid crowdfunding effort is due in large part to building traction, adopters, and advocates towards gaining approval and establishing social proof among existing and potential investors.

Social Proof: a psychological occurrence in which observers follow the actions of others with the belief that the "others" know something they don't; their activities are reflective of appropriate behavior. Studies have shown that 92% of online consumers read multiple product reviews before making purchase decisions. Product reviews are more than ten times more trusted than product descriptions.

The initial adopters and potential brand advocates influence investment. The confidence displayed by early adopters is critical to the achievement of crowdfunding efforts prior, during, and after the event, informing and authenticating the project. Scale determines how profitable a crowdfunding platform ought to be.

The Top Value-Added Real Estate Websites

Zillow With a market capitalization of 10.5 Bil, Allows users to post houses for sale, Set a "Make Me Move" price (pre-marketing), and A real estate wiki. offering highly selective and specific searching capabilities. Zillow provides a fully integrated home shopping experience that includes access to for sale and rental listings, which provides an easy to use the platform to buy and sell houses directly through Zillow, and Zillow Home Loans, the affiliated lender providing mortgage pre-approval and financing.

The Zillow Group offers a comprehensive suite of marketing software and tech solutions to assist real estate professionals to optimize business opportunities and connect with consumers. They provide an application programming interface (API) and developer support network. The company operates the most popular suite of mobile real estate apps, with more than two dozen apps across all major platforms. They build their own value estimator: Zestimate home values and Rent Zestimates.

Other consumer brands include StreetEasy, HotPads, and Naked Apartments. Zillow Group business for real estate, rental and mortgage professionals include Mortech, Dotloop, Bridge Interactive, and New Home Feed.

Trulia (Zillow acquired Trulia in 2015) functions as a house and neighborhood portal designed to accommodate buyers and renters throughout their homes and neighborhoods search across the United States. The site offers Peer-reviewed recommendations, Local insights, and Map overlays.The site provides details on commuting, crime stats and reports, schooling, church locations, shopping and nearby businesses.

Realtor.com, with a market cap of 6.9 Bil, offers statics about neighborhoods, a massive variety of listings that are customizable based on individual preferences, including apartment listings and regional mortgage rates.

HomeUnion identifies Real Estate Investment Locations.

Homes.com: the site offers buyers, sellers, renters, and profit-seekers with current real estate information, tools, and home listing.

Homefinder is a real estate portal presenting listings to assist home buyers, sellers, renters, and landlords in achieving their real estate goals. One of the only real estate sites that have its' open house tab as well as a bookmark for foreclosures, a tab for rent-to-own, and one for auctions. 

Xome is the only platform that digitally relates all critical touchpoints along the real estate process. It makes the process of buying and selling a home more transparent for consumers by offering Status dashboards, Dynamic ratings of agents and real estate professionals, and Real-time property data.

The platform provides unparalleled visibility throughout the real estate transaction process. Xome brings together the top real estate professionals and best services, empowering buyers and sellers. It offers agents and Concierge services for customer care and acts as a broker providing qualified real estate agents and mortgage lenders. The platform allows you to buy, sell, find agents, receive houses via email, and take virtual tours of residences. The company also provides a real estate an auction platform with one of the largest real estate owned (REO), short sale, foreclosure, and luxury property auctions.

Redfin is a broker portal focused on providing real estate agents. The portal offers 3D tours of their home listings. Redfin's business model revolves around sellers paying a 1 to 2% listing fee to Redfin. Sellers are also committed to by with Redfin within 365 days of closing. Not including the additional fee charged to compensate the brokerage representing the buyer usually in the 2.5 to 3.0% range. And buyers are given a small portion ( ~0.5%) of this fee by Redfin.

Capitalize

While we suggest before investing in one of these portals to speak with an advisor, our goal is to provide data and insights to reduce your fees, improve your access to innovative offerings so you can act on your own. With a low upfront cost of participation, real estate equity crowdfunding continues to grow into 2020. We believe the trend will further gain in popularity as the broader market begins to tighten. New and seasoned investors will have to do more with less to capitalize on fruitful returns that become harder to find. These platforms increase availability of information to investors and speculators alike. While the growth potential is attractive, investors need to tread cautiously. All investments worth your time and hard-earned cash will inherently present challenges and risks, producing the higher rates of return.

We value your opinion so let us know what you think in the comments below.

Comments
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