Skip to main content

This is a 2 part series, Jump to the 2nd part >

Many savvy real estate investors are turning to online real estate platforms. Online portals offer a lucrative alternative to owning a piece of real estate through a plethora of investing options which range from commercial sites to single-family houses and land ownership. Many of these investing options can be lucrative, but they were previously inaccessible to the average investor.

Real estate investors can avoid the 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 the equity crowdfunding industry grows we've observed a commensurate growth in real estate offerings. We have observed correlations between equity crowdfunding real estate platforms and online real estate portals that indicate a symbiotic relationship, with each type of platform looking to achieve positive returns via enhanced research and risk management. In this article we discuss platforms that focus just on real estate to explore some of the overlap and strategies to help you capitalize on these investment opportunities.

 

 

Crowdfunding Real Estate Innovation

Real estate crowdfunding has disrupted the property investment landscape by radically increasing levels of access to deals that were once out of reach for the average investor. A comparatively new concept, innovative technology has been applied to the financial and legal aspects of the transaction. Capital raised through platforms can go toward a number of initiatives like 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.

Overall Real Estate Market Size (2020)

2020 Total Market Value *

$33.6 T

1 Year Change

$1.1 T (3.4%)

10 Year Change

$11.2 T (51%)

* Market data above presented by Zillow Research in their January 2020 article. At the end of the piece they share their take on value creation: "There are generally two ways in which total housing value can grow: Appreciation among existing homes, and/or additions to the local housing stock itself. Roughly 86%, or $9.7 trillion, of the growth in value of the U.S. housing stock over the past decade can be attributed to the simple, steady appreciation of existing homes over this period. The remainder can be chalked up to builders adding value to the housing stock through newly built homes. In almost every individual market, a similar pattern holds true – the majority of overall housing value growth can be attributed to appreciation." Appreciation is an increase in the value of an asset over time driven by demand, weakening supply, inflation or interest rates and the reason to invest in the asset class.

Crowdfunding Market Size & Growth

According to research by Ernest and Young, "The global crowdfunding market is worth $84 billion in 2018 and forecast to reach $ 114 billion by 2021, meaning an expected CAGR (2016-2022) of approximately 17%." They go on to share, "Americas account in 2018 for, approximately, 50% of the global market share, meaning $42 billion, 85% of which is represented by US ($ 33 billion).  "Equity crowdfunding is the fastest-growing segment with a CAGR (2016-2021) of 33.9% in contrast with 10.9% performed by lending crowdfunding." They then state real estate crowdfunding, "is one of the fastest-growing segments for crowdfunding.It guarantees to the investors high returns on investments, in the order of 10%-15% on average. In 2016 this segment amounted for $ 4 bn. By 2021, it will probably reach $9 bn, with a CAGR of 19%."

Competing firm PWC Global put out a report, Emerging Trends in Real Estate stating, “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.”

According to Absolute Markets Insights Industrial buildings, or commercial property, are poised to see an expected CAGR of plus 60 percent during the forecast period, according to a report distributed by .

Online real estate portals vary widely in their prospective offerings and reach. But in general, as has been the way 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 provides an attractive asset class for diversification. They provide investors with a unique opportunity to invest in a specific area and property type.

Structure

Pooled investments via cash from stakeholders are earned through the platform’s ability to stimulate investor interest.

Equity investments are typically longer-term, offering a higher risk/reward profile than debt. They give investors (stakeholders) an equity stake in the commercial or residential property. Dividends generally consist of rental income from the property where the investor will receive revenue following the sale of the property.

At Fund Wisdom we focus on angel or venture capital equity investing, where the investor seeks a return based on an increase in valuation of the business. This asset type typically contains an even higher risk and reward profile than property.

Debt investments allow the investor to become a lender for the property. 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 or dividends are delivered on a monthly or quarterly basis and investors maintain priority during payout. It's also worth noting that 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 of sale; or through 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?

Where to Invest

In the second part of this article series we cover top platforms to place a real estate investment.

Retail Investor

My Constant
Equity Multiple
M1 Finance