Crowdfunding, or crowdfinancing, based on the old principle of

collecting money from many small investors, is a new spin on

an old idea. It allows ordinary investors a chance to own a

piece of commercial or multiunit residential real estate. This

form of raising money for real estate deals began with the Real

Estate Investment Trust (REIT) Act, allowing small investors to

band together to invest in many large-scale properties and

opportunities--just like private equity funds and wealthy

entrepreneurs had been doing.

Then self-directed IRA sponsors caught on. Then the JOBS Act

was implemented. There are still obstacles with

crowdfunding/crowdfinance

Quality control — There are no established controls or

standards. It is not always clear how the process works, what

parameters have been tested, or what criteria are considered

when evaluating a project. There are still no“rule of

law”standards in this new industry.

Lack of guarantees — Real estate investments never have

guarantees that the project will pay off with the expected rates

but with crowdfunding these failings are more severe because

the platforms have not been time-tested.

There is not enough evidence for most investors to rely on with

many crowdfunding web site and businesses.

Regulations — The 2012 Jumpstart Our Business Startups Act

(JOBS) legalized equity crowdfunding, allowing companies to

raise a considerable amount of money from investors who are

accredited and some who are not accredited. Crowdfunding

portals must register with the SEC, either as investment

brokers or funding portals, but this is usually not an obstacle

for new entrants to the industry.

Still, despite all manners and kinds of new crowdfunding

platforms, with a variety of platforms, only about 3 percent of

small businesses participate.

Why?

Relevance — The accredited investor is unlikely to look at

crowdfunding as a first choice, depending on the

circumstances. Most good deals still get bank or institutional

lenders interested unless there is a seriously low credit score

or other systemic issue involved..

Liquidity — There is currently no secondary market for

crowdfunding investments (EXCEPT: as of September, 20015, there are several online secondary markets being established) which means that the project will have to

come to completion before the investor can liquidate. This is a

big advantage that REITs have over crowdfunding platforms;

however, new or existing platforms could seize the

opportunity to create a secondary market.

Restate estate platforms for crowdfunding offer many

advantages for investors, especially those who do not want to

risk a significant amount of their funds, which could jeopardize

their portfolio.

Crowdfunding is still relatively new and the whole idea remains

obscure to many real estate investors, who may have heard of

crowdfunding -- and even used it to invest in other types of

“crowdfunding”projects, possibly -- but have never made the

connection with real estate.

Although still facing challenges and growing pains, real estate

crowdfunding is a powerful tool and a powerful idea that will

only keep growing. This new form of crowdfunding or

crowdfiancing will become a meaningful part of the industry as

a whole.

Bottom line:

The first thing to ask a prospective real estate crowdfunding

platform is what they charge for what. For example, on a

secure $1,250,000 loan deal, different real estate platforms are

asking for anywhere from $55,00 to $75,000. Services vary but

not that much.

JOIN THE DISCUSSION AT THE REAL ESTATE CROWDFINANCING

LINKEDIN DISCUSSION GROUP.