"Crowdfunding" Commercial Properties
There are essentially three kinds of commercial real estate buyers:
- Investors who buy with the intention of leasing the property for ongoing income
- Flippers who buy low, fix, and (quickly) flip to other buyers at a hefty profit.
- Entrepreneurs (users) looking for a place to do business. They buy property and use it.
Investing in big commercial properties or projects has traditionally been reserved for wealthy individuals or institutions, those with sophistication and substance – experience, connections, financial strength, and savvy to jump into buildings, developments, master plans that everyday investors couldn’t access or afford, save through publicly traded real estate investment trusts.
All of that’s changing thanks to better technology and recent regulations on “crowdfunding,” an increasingly popular method of funding a project or venture by raising small amounts of money from a large number of people…almost always through the Internet. In 2015, an estimated $34 billion worldwide was raised this way; funding a wide range of artistic and creative projects, medical expenses, travel, or community focused enterprises.
AND now commercial real estate!
Crowdfunding platforms such as Fundrise, RealCrowd, Crowdstreet allow individuals to invest directly in commercial real estate, bypassing fund managers, and diversify their portfolio across a number of different assets, for as little as $500! It’s a democratization of real estate investing, but does carry some risks. Unlike investing in stocks, bonds and mutual funds, these are illiquid assets, difficult to value initially, requiring both patience and prudence. SO…
- Do your research: Look each prospective deal in-depth. Does it fit your investment philosophy? Does it complement your overall portfolio? Remember, diversification is key, unless you can afford to lose your shirt!
- Understand what you’re buying: A real estate investment can’t be solely summarized on a pie chart. Is the building located in a desirable area of a growing city? How do vacancies compare with other properties nearby, across town? Are rents steadily increasing, or (alarmingly) contracting?
- Think big: Look beyond a single property or asset class – industrial real estate, for example, which is red hot in most areas, or targeted demographic groups like Baby Boomers reluctantly (inevitably) moving into “over 55” or senior care facilities.
SOURCE: Brian Watson – The Business Journals, November 2, 2017