Kickstarter and GoFundMe have made huge waves and created a new road for projects to take to get funded. A lot of bright individuals have had the idea to create similar sites for investments. Real Estate has been a natural target market for this because the large dollar sums and lack of liquidity in many private real estate investments has made it hard for mass affluent investors to access this asset class while still maintaining liquidity and diversifying their portfolio.
There are several real estate crowdfunding sites out there, each a little different. They generally offer some due diligence or screening of deals. They also qualify their investors – generally there are sophistication, net worth, or liquidity requirements. However, not all sites will require these and there are some that smaller investors can use. Regardless, once you’re approved, you can examine and invest in deals.
Crowdfunding sites are a great way to add real estate to a portfolio, however investing in individual real estate projects is a very complicated and potentially risky strategy. While the sites may provide some amount of due diligence, they do not necessarily provide all the information an experienced real estate investor would have. You should expect to spend a significant amount of time reviewing any offering documents, feasibility studies, and project plans that are outlined, and do some research to compare the offering with other comparable properties in the area to see if it is being offered above or below fair market and why. You should also take a look at the documents to understand the terms for getting your money back.
Real Estate Crowdfunding is a nascent marketplace. While some sites are more established than others, you should spend a considerable amount of time researching and reviewing the site to make sure its legitimate before giving any personal information. Furthermore, as a nascent marketplace, there is not yet a lot of information on liquidity, and on the performance of the deals, so you should use extra caution in investing here. As always, an experienced and trusted advisor to help you is a must.