Real Estate Investing Online and Crowdfunding

Written by JingjingPublished in
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As capital continues to move to online platforms through rewards, donations, and equity, real estate has seen an increase of investment activity online. Many real estate focused platforms have been created in the past years.

In order to help investors better understand these new solutions and strategies we have reached out to Brock Murraythe 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 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 is investing in startup equity online 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 Real Estate Funds

Real estate crowdfunding has different categories. The main two types are debt and equity.

Debt, Investors are lenders, instead of owners, of a property.  Holding periods would be shorter and range from 6 to 8 months. Equity, Investing with equity, investors are owners or shareholders of a property.Shareholders are rewarded through the retained earnings of the firm and have a claim on the assets of the corporation after the debt holders. Holding periods can vary from 6 months on the low end to up to 10 years. Convertible debt, Convertible debt is a loan that can convert to equity under certain conditions. It's a hybrid security with debt and equity-like features.

For example, a few real estate equity offerings we cover at Fund Wisdom, iFunding and Fortress Equities,LLC are both equity-based funding, while Venture Fours New Redmond Hotel is convertible debt-based funding. 

Projection

Brock said:"the customers of Katipult have performed dozens of deals in 2014. 2015 will be a transformative year in the real estate equity crowdfunding industry and the entire industry is shifting online and 2015 will be an acceleration of this trend."  It seems to be consistent with the recent study 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.

Due to rapid development of equity crowdfunding in 2014, we also expect real estate to become one of crowdsourced investment global asset classes.

2015 equity crowdfunding real data

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