Swapnil Agarwal is the CEO of real estate firmÂ Nitya CapitalÂ and Karya Property Management as well as the Founder of non-profit Karya Kares.
Today, technology has a significant influence on our day-to-day lives, which is no exception when it comes to the world of investments. Traditionally, private real estate has been an opaque industry with little to no data available to investors for allocating capital in this asset class. However, today the pool of investment opportunities has broadened, and accredited investors have more options to diversify their portfolio in a tech-savvy, cost-effective manner. This comes in the form of crowdfunding.
During my time as a CEO over the last six years, Iâ€™ve had the chance to see how accessible and impactful crowdfunding can be when it comes to real estate. Although it is widely available and often an affordable path to investing, many people still donâ€™t know the basics of the crowdfunding model and how they can reap the benefits from it.Â
What is crowdfunding, and what does it have to do with real estate?
Crowdfunding is “the use of small amounts of capital from a large number of individuals to finance a new business venture.” For investors, crowdfunding basically acts as a platform to match investors with investment opportunities. As more crowdfunding opportunities come online, the competition and reachability increase, making it even more attractive to an investor and opening up new opportunities that were not widely accessible in the past.
You might see this all over the internet â€” people â€œcrowdingâ€ together and funding a new unique product that they have an interest in, whether itâ€™s video games or a whole new business. You can add real estate to that list, asÂ the 2012 Jumpstart Our Business Startups Act, or JOBS Act, signed into law by President Barack Obama, allowed for the use of crowdfunding for real estate deals.Â
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In the case of real estate investing, crowdfunding helps investors fully utilize their investment options across asset classes, from multifamily to commercial office properties. It acts as a means of delivering investment opportunities to the masses that they didnâ€™t have access to before using the convenience of modern technology to help investors choose which ventures to review and secure.
A thriving boost in crowdfunding growthÂ
Real estate crowdfunding has boasted a sizable growth rate in just eight years. As it currently stands, the global real estate crowdfunding market is expected to reach a value of around $868,982 by 2027, with a compound annual growth rate of around 58.3% between now and 2027.Â
While real estate crowdfunding is a relatively new concept, itâ€™s managed to develop alongside new technologies, helping real estate developers match with needed funding to expand. Crowdfunding continues to evolve to offer more convenient ways for investors to seek out properties they might be interested in.
Why crowdfunding matters to investors
The buffet of investment opportunities is enhanced in the crowdfunding process and allows investors to be more selective with the investment opportunities theyâ€™d like. Given that it is online and the selection of properties is at the investorâ€™s fingertips, it allows a greater sense of opportunity in both time management and cost.Â
In the past, you needed millions of dollars to invest in properties and often the right contacts in your network. Now, with the power of crowdfunding, accredited investors can invest in multiple investments for as little as $25,000, a fraction of what investors would previously spend. Their real estate options can range from an apartment in Idaho to hotels in New York to golf courses in Vegas and everywhere in between. Itâ€™s a redefined way for investors to stretch their wealth and portfolio without having to put all their eggs in one basket.Â
The value of unique platforms
One of the great things about crowdfunding, directly with an operator and without getting third parties involved, is the strong relationship between the investor and the operator. Operators that do not use crowdfunding often tap into a high-net-worth source of capital, from a wealthy individual to a VC firm. Either way, the pool is small.
Crowdfunding creates a space that connects real estate owners with individuals who may never have found each other otherwise. It allows investors to better align, forging a direct, less costly relationship between both parties. It gives the investor a chance to diversify their investments on a large or small scale. Crowdfunding has a strong track record when it comes to boosting investor sentiment, opportunity and often returns.
Looking ahead, I see online crowdfunding platforms exploding into the world of real estate. I envision crowdfunding as the investment opportunity of the future as technology continues to advance and individual investors evolve their portfolios beyond typical stocks and bonds. At the pace itâ€™s currently going, I think real estate investors can expect to see big changes in the industry, with more and more choosing to opt into this new, unique way of approaching investment returns.