Real Estate is proving to be a fast growing industry for equity and debt crowdfunding. I am not going to get into specifics of the benefits of one option over the other in this post (both are equally viable) but instead spend time discussing why crowdfunding a real estate deal makes sense and why many others are doing so in ever growing numbers. Crowd deals doubled from 2012 to 2013 and are expected to double again between 2013 and 2014. 2015 looks like an even bigger year as marketing to accredited investors is making them aware of deals they would never have been privy before.
For regular readers of the blog, I am going to cover the three main benefits to an investor that crowdfunding provides but instead of generic language I will fill in some blanks relevant to real estate deals. The three primary benefits are: (1) Access to more (and larger) deals, (2) Speed of transactions, and (3) Lower cost structures.
Not every investor is capitalized equally. The large capital investor is going to have access to more deals through relationships than a smaller capital investor. Both are accredited, but big money has benefited from real estate more easily through traditional avenues than others. In recent years, banks have gotten even tighter with their requirements and the process drags out for many, many months. Private investors are usually a better option with fewer headaches and faster transactions but they require established networks and relationships.
Crowdfunding opens up deals to investors who would ordinarily never see the deal. Investors, usually the most wealthy, have enjoyed access to these deals because they held the right kinds of relationships. Real estate deals have been favored for centuries because they are relatively unique inasmuch as they offer a fixed return backed by the value of the tangible real estate asset itself. While no deal is without risk, these deals offer fewer risks than some.
A frustration that even the super wealthy experience around these deals is the time it takes to put it together. Even as crowdfunding opens wide the access to real estate deals for accredited investors, so too does it dramatically decrease the time to “get the deal done.” Rabbit speed technology injected into the tortoise slow world of conventional real estate is a game changer. Companies like RAZRVentures.com helps to streamline the process using electronic forms, pre-screening investors, pre-established legal and broker services, and the power of the Cloud to provide deal transparency. Questions are anticipated before the deal is opened and answers to unanticipated questions can be received 24/7 through streamlined processes.
And like the rule of supply and demand, when access is opened to a wide pool of investors and efficiencies are introduced to an otherwise inflexible and archaic system, the nimble crowdfunding solution provides decreased transaction costs.
Increased access to real estate investors, increased efficiencies, decreased costs and a process that is much more transparent than historically would have been the case means that accredited investors of all levels of wealth can play a role in deals that would otherwise have been restricted to some broker’s rolodex.
Dr. Rickel is a Senior Advisor at RAZR with executive experience across multiple industries. Member of CFIRA, NLCFA. Todd can be reached at $Doctor@razr.com.