Online Real Estate Investing Rapidly Growing with Mary Sommerset
Change is afoot in the world of commercial real estate investing.
A handful of pioneers are disrupting an industry that has been mired in outdated practices, concentrating power in the hands of the few. They are changing this paradigm by providing access to the masses. For example, CrowdStreet, one of the handful of companies, has a cloud-based platform, which they license to commercial real estate owners and operators.
It’s a game changer, allowing small investors to get into the game.
And those smaller investors often require business and marketing coaching to increase their success. Mary Sommerset is a Certified Business Coach with 20 years marketing experience working with Leader Publishing Worldwide, Inc. to help small businesses grow. With the changes in online real estate investing and the competitive nature of the game, business coaching can make all the difference.
Crowdfunding for real estate got its start in 2013. Since then, it has evolved and is now better categorized as online real estate investing. Massolution, a Los Angeles based research and advisory group estimated the size of the global crowdfunding industry in 2015 at $34.4 billion (all types of which real estate is a subset). The World Bank projects this market to grow to $300 billion by 2025.
In addition to technology innovation, new laws were passed, namely the Jumpstart Our Business Startups or JOBS Act, that passed in 2012 and removed a key obstacle by allowing private real estate offerings to be directly advertised to accredited investors. According to Ian Formigle, VP of Investments at CrowdStreet, ”Online real estate investing is still relatively small in the grander scheme of things, but we’re experiencing 200-300% annual growth. Along with CrowdStreet, other pioneers in this space will also affect the growth rate, which will quickly allow it to become a formidable component of commercial real estate capital markets ($435 billion in 2015).”
CrowdStreet’s technology solutions serve clients with as few as 5-8 employees as well as global institutions. They believe markets are stronger when they are accessible, transparent, and efficient. They believe in democratizing access to investing in commercial real estate in order to spread investment opportunity and risk across a larger pool of investors. CrowdStreet and others give investors the ability to diversify their portfolio with the 3rd-largest asset class in our country.
Here are 10 Reasons to Invest via Crowdfunding
The rapid rise of e-commerce shows how people utilize the Internet to buy everything from autos to groceries. People like the speed and convenience of being able to access information, compare and contrast choices, form a conclusion and complete a transaction at home or on the road. Now investors have the same type of access to institutional-quality commercial real estate offerings at their fingertips.
The old school method of real estate investing amounted to finding out by “word of mouth.” This method commonly referred to as the “country-club model” made access to real estate investment difficult. Online real estate investing shatters this paradigm by revolutionizing access and delivering transparency to private real estate offerings.
Compare and contrast multiple competing investments
Now that investors have broad reaching access to private real estate investment opportunities across the country, the next step is to evaluate them. Quality online real estate investment platforms provide comprehensive offering information in an easy to decipher and consistent format. Investors can now quickly compare and contrast competing offerings and filter through them to find a project that fits his or her investment criteria, as well as to register to receive notifications when new offerings that match the investor’s criteria become available.
Directly invest in commercial real estate
Online real estate investing allows investors to directly invest in commercial real estate, meaning they are not buying into a publicly traded real estate company that owns dozens of properties, or a mutual fund that includes an assortment of different real estate companies. Rather, direct real estate investment gives investors a stake in one specific property or a fund with a specific investment focus. The direct investment allows investors to select the specific property type, the location and the operator that best suits their investment strategy and objectives.
Cash Flow: Most private real estate offerings
offer the prospect of sustainable investor cash flow distributions targeted to grow over the asset-holding period. Often, these distributions commence at 6%-9% annualized rates of return, typically paid quarterly, that can hit double-digit yields within three years and sometimes even achieve such yields out of the gate. In a yield-starved world, investors are increasingly discovering that cash flowing commercial real estate investments provide an attractive option to earn a strong yield as well as equity appreciation upon sale.
Lower minimum investment amounts
Online real estate investment platforms put direct real estate investment more easily in reach for individual investors. In the past, the ability to invest in a real estate private offering usually came with a minimum investment of $100,000 or greater. Now investors can access institutional quality real estate offerings for as little as $10,000.
The relatively low minimum investments amount made possible by online real estate investing platforms, allow individuals investors, for the first time, to mimic the endowment model of investing and quickly build a diversified real estate investment portfolio. Rather than sinking $100,000 into a single property and waiting for it to reach maturity, investors can now choose to invest $10,000, or $20,000 into five or 10 different deals that vary by geographic regions, sponsors, investment structures, asset classes, risk profiles and holding periods.
Robust reporting platforms
Online real estate investing platforms offer online dashboards that help investors to manage investments, regardless if it is a single property or a large portfolio of real estate assets. Investors can use their dashboards for a variety of functions, such as quarterly reports, store all investor documents, receive and store K-1s and view distributions. CrowdStreet, for example, is continually adding tools to their investor dashboard, including the next iteration with robust portfolio analytics.
Dissatisfaction with equity markets
Another factor that is enticing investors to move into direct real estate investing is a growing dissatisfaction and concern over exposure in equity markets. From domestic markets at all-time highs yet with international distress over uncertainty in China, a political roller coaster and negative interest rates, investors have been exiting the U.S. equity markets and redeploying capital into direct real estate investments. In a climate of uncertainty, a well-leased commercial real estate asset with a durable rent roll increasingly looks like an attractive alternative.
It’s the same as its always been, just better
Finally, and perhaps most important, is that the advent of online real estate investing is a story of modality and not one of fundamental change in action or structure. Once investors understand this story, skepticism subsides and the virtues of online investing platforms begin to shine. Online real estate investing is essentially syndication. In its purest form, syndication is a pooling of individuals to invest jointly into something that no individual could afford to invest in alone. Syndication has existed offline for centuries. Since the passage of Title II of the JOBS Act, syndication can be conducted privately pursuant to Section 506(b) of Regulation D. Now that syndication can be conducted publicly it can occur online. Now that it can occur online, it can allow technology companies to emerge to make it more scalable, efficient and transparent.
Putting it all together
Investors who study the space of online real estate investing are beginning to recognize the power it possesses to revolutionize their portfolio strategy. The more investors who enter the marketplace, the better the marketplace becomes.
Commercial real estate investment has historically been limited to deep-pocketed investors, typically those with a minimum of $250,000 to invest in each deal. Thanks to the JOBS Act and new software, which enables real estate syndication at scale, companies like CrowdStreet are now able to provide access to institutional-quality commercial real estate investment offerings with minimums as low as $10,000. Bringing business and marketing coaching to this new cadre of small investors will ensure greater success in this new market.
Innovation comes in many forms. The real estate market is now joining the online commerce party.
This new platform offers democratization of investment opportunities. It’s worth checking out!
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