Real estate investing platforms have created increased access to real estate investment opportunities much the way business focused investing portals have done the same for access to high growth startups. The Real-Estate Crowdfunding Review lists it's rating of the the top platforms for accredited investors for 2019 and a separate listing for those that do not meet this wealth requirement. The top rated is Peer Street. Which was rated on the following factors:
- Functional sign-up: site requires password and verifies email address.
- Focuses just on real estate crowdfunding and not just a broker
- All available investments are online, and provides all information on them necessary to invest online (including all due diligence documents, such as leases, appraisals etc.).
- Location: All investments U.S.-based available to investors in all U.S. states.
- Transparency: allows investors to fully share and critique information on investments
- Deal Flow: at least three available investments in a month.
In order to help investors better understand these new solutions and strategies we have spoke with Brock Murray, the CEO of JOI Media Inc. chairman of Katipult platform and also board member of National Crowdfunding Association of Canada, to provide insight into real estate funding online regarding his article-The Well-kept secret of high returns in real estate investment.
Brock said: "the customers of Katipult have performed dozens of deals. The entire industry is shifting online." It seems to be consistent with the studies from Massolution, which reports that there was $1 billion injected into the U.S real estate market by crowdfunding investors in 2014, and the number would climb to $2.5 billion by the end of 2015. We have not been able to find updates to this data for 2018 in review.
Brock describes Katipult as, "a software infrastructure that allows issuers to launch an online syndication or crowdfunding platform for equity and debt private placements".
Q: What's the advantage going online to raise funds in the real estate industry?
A: Access to capital is strained in many cases so groups are looking to diversify their investor pools. The logistics, distribution, and exposure of crowdfunding is very scalable when compared with traditional methods.
Q: Why are investing startup equity growing so fast?
A: Investments in startup businesses dominate a lot of crowdfunding conversations, particularly with regulators (compliance, investor protection, etc). While that is a very important aspect of the industry for new businesses having access to capital, real estate crowdfunding provides a much safer investment to the average investor and their is a clear exit strategy (often with interest payments while you wait) so it would be ideal regulators addressed this asset class separately within the rules.
Debt vs. Equity Offerings
Funding platforms offer, and focus on, different investment classes like debt and equity. Debt investors are lenders, and have different ownership rights in the property than equity holders. Equity investing provides ownership or shareholding rights of a property, but holding periods can be shorter for debt. Shareholders can be rewarded through retained earnings with a downside of a risk of default by the team raising the money. An equity investment has a claim on the assets of the fund after the debt holders. Convertible debt is a loan that can convert to equity under certain conditions. It's a hybrid security with debt and equity-like features.
Peer Street is a marketplace that provides unprecedented access to high quality real estate loan, or debt investments, top rated by Real-Estate Crowdfunding Review. We have a relationship with the team and are happy to help with further analysis and encourage you to share experiences in the comments section.
We continue to see equity offerings for real estate on the equity funding focused platforms we cover. Due to rapid development of of these funding portals and technology shifts we expect to see greater investment in real estate offerings over high growth business equity offerings, which we focus on.