Is Real Estate Crowdfunding a Good Idea?

The crowdfunding concept is pretty simple: A group of people put together a collective effort of pooling their money to fund a business venture or project. The fund accumulates into enough money to invest in a company, or in the case of real estate, some property.

Naturally, the person or company seeking funds has to put together a compelling offer and market it in order to drum up enough investors to raise substantial sums.

Partnerships of real estate investors have been around forever. Crowdfunding just grants more people a piece of the pie for less of an investment. The concept has some positive and negative aspects when applied to real estate investing.

Many American cities are slowly strangling at their centers due to the lack of investment capital. People are beginning to realize that living in the center of a city has options they’ve never considered before, like access to art and entertainment, business networking opportunities and housing around the corner from employment. However, many inner cities, for lack of money, are in deplorable condition. Areas could be bought up, and if enough capital is raised, perhaps some properties can be imbued with life again.

On the downside, the housing market is still a bit unstable. Many people lost homes, and getting clear title to some properties could be difficult with the mortgage bundling that occurred. Distant investors would perhaps overlook the prime factors for consideration of real estate: Location, property appraisal, traffic analysis and simply viewing a property. It is difficult to view a property that is about to become an investment but located across the country. Some potential investors would have neither the time or the skill to critically evaluate their investment.

Realistically, crowdfunding of real estate property would work well on smaller projects that investors could view personally. That would mean that the investor would need to live near the community where the property was located.

For instance, a city property or lot could be bought by investors to build an entertainment center, or several building could be bought with the potential for investments in entertainment and restaurants.

Urban farming is another possibility. A group of people could invest in a lot with the purpose of growing food for a farmer’s market.

Charitable organizations funding habitable properties could crowd-fund houses, restore them and donate to those who needed housing.

None of the investments listed above pose opportunities for large returns, and so it would be difficult to gain investors for these projects other than those with specific interests. However, crowdfunding could be a viable investment plan for real estate in the future, with the right incentives.