- December 13, 2018
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While crowdfunding has certainly grown in popularity over the past decade, the concept of it has been around since the dawn of time. Similarly, the commercial real estate industry is one of the oldest industries in the world, and its model hasn’t seen very many changes over the past hundred years. It stands to reason that it was definitely time to shake things up, which is what marrying the two has done.
What is Crowdfunding?
If you’re not familiar with the idea of crowdfunding, let’s take a minute to clarify what exactly it is. It might help to think of it like your office lottery pool, where every participating colleague throws in a pre-determined amount of money and the resulting pot is used to purchase lottery tickets. With crowdfunding in the commercial real estate market, the amounts may vary from investor to investor, but the concept is the same. The full amount of the funds collected are used for the common good of each contributor, in this case, to purchase a commercial real estate property that is agreed upon.
How Has it Grown in CRE?
The concept of crowdfunding started to infiltrate the commercial real estate market back in 2012, with the introduction of the Jumpstart Our Business Startups (also known as JOBS) Act signed by President Obama. Included in this law was a provision allowing for businesses to raise capital for their companies through Internet crowdfunding. Since its inception, the concept of crowdfunding for real estate transactions has exploded! It’s grown 250% just since 2015 and is projected to continue to grow at this same rate of speed over the course of the next three years. That may lead you to wonder why? Let’s explore that.
Why Commercial Real Estate?
As far as investing goes, commercial real estate is one of the smartest places to put your money, and for good reason.
- Stability: Commercial real estate offers a level of stability that most other investments can’t match. While fluctuations in the state of the economy will definitely impact the CRE market, the impact is much less than it would be for other types of investments. The reason for this is simple; businesses need homes, too.
- High Returns: Another reason why CRE is such a smart investment is the high rate of returns an investor can expect, traditionally much higher than stocks.
- Diversity: Investing in commercial real estate also adds diversification to your investment portfolio, rather than keeping all of your money in one place.
- Tax Benefits: Investors in commercial real estate are privy to a boatload of tax benefits.
What Has it Done?
Utilizing the idea of crowdfunding in commercial real estate investments has greatly changed the landscape of how the CRE market operates. For one thing, properties that were previously reserved for the mega-rich investors (of which are few and far between) have now become accessible to the smaller investor who wants a piece of the pie. That doesn’t mean that the standards for investors have lowered, but that the crowdfunding platforms are able to underwrite a magnitude of quality deals, thereby creating an ability to offer smaller investors access to a greater abundance of senior level deals. Investors can now come to the table with as little as $5K! Additionally, crowdfunding is associated with much lower fee schedules, saving investors a lot of money. Traditional financing options come with greater overhead to the financial institution, but crowdfunding platforms have tapped into technology that allows them to cut out a lot of the middlemen, thus lowering overhead and creating an opportunity to hand down these savings to their clients. In short, everybody wins!
While the idea of crowdfunding is still considered to be in its infancy in the commercial real estate market, it only appears to be growing in popularity. It can be expected that this concept will continue to change the model of investing and open up bigger investment opportunities to smaller investors.
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If you’ve been waiting for the right time to invest in commercial real estate, you can easily understand why this is it! It’s literally never been easier to finance a commercial real estate investment. At SVN | Graham, Langlois & Legendre, LLC, we’re here to help our clients find the perfect investment opportunity at the right price. We pair our expertise in the local market with a deep understanding of each individual client’s needs, making us the perfect partner on your investment journey. Take a look through some of our available properties today and reach out to get started!