6 Reasons Why Borrowers and Sponsors Choose to Crowdfund
Commercial Real Estate
It used to be that only people with connections—not to mention wealth—could invest in real estate. And those looking to raise cash for such investments either had to have a great existing relationship with the banks for really big deals, or tap family and friends for smaller deals. Syndication, or gathering money, was always a thing, but today, syndication is becoming “crowdfunding.”
According to a recent report by Massolution, global crowdfunding— “pool money from the crowd” to raise capital for new projects and businesses—is projected to be a $34.4 billion industry this year. Real estate crowdfunding, which brings together investors, borrowers and investment sponsors to create new real estate investments, is definitely part of the wave. The 2016 “Americas Alternative Finance Report” showed market volume for online real estate crowdfunding grew an average of 231% a year from 2012 to 2015 to reach $483.77 million. Throw real estate marketplace lending into the mix, and you’re looking at a space that generated over $1.3 billion in 2015. By all indicators, real estate crowdfunding will continue to grow, evolve and disrupt commercial and residential investment markets.
Through real estate crowdfunding, previously “unconnected” and still unwealthy people can engage in transactions that used to be inaccessible, choose the type of real estate investments that align with their goals, and track the performance of those investments—all from a laptop or tablet.
On the opposite side of the market, crowdfunding can be a smart, easy and efficient means of financing real estate transactions for borrowers and sponsors. For this group in particular, there are some key benefits to working with a reputable platform -- like RealtyMogul.com.
Crowdfunding can be faster and more efficient than traditional syndication—making it smarter and potentially more rewarding than ever before. Here are 6 reasons to choose crowdfunding to raise money for your next real estate deal:
1. Small Balance Market
Because of regulations and higher costs put in place after the 2007-2008 financial crisis, some of the big banks have had a tough time making money on smaller deals. This has caused an estimated $200 billion-a-year commercial small balance market to be served. Certain crowdfunding platforms, like RealtyMogul.com, finance that sweet spot of $1 million to $5 million, helping to fill in that gap.
2. Not just more, but also a more diverse pool of investors
As crowdfunding platforms work on simplifying investing by making it faster and easier, they’ve managed to attract and retain investors from all over the country, and not to mention the multitude of institutional investors as they find it easier to manage investments on an online platform where they can access the deal 24/7.
3. Variety of products
With RealtyMogul.com, investors can choose between a debt and/or equity investment in the same real estate transaction. That means more flexibility and more options as a borrower or sponsor—you can raise joint venture or preferred equity for a term of 1-10 years for your project, or finance commercial projects with short- and long-term bridge and mezzanine loans, typically within 45 days.
4. A dedicated team that does the heavy lifting for you
Successful platforms will pre-vet all investments offered through their platform – and in RealtyMogul.com’s case, even fully underwrite them. Being able to fully underwrite our investment opportunities enables us to fulfill our commitment to put investors first, while giving us the credibility to represent our borrowers and sponsors well. We also have a team that markets the deal, manages the relationship with all investors, handles distributions, and even takes care of tax reporting. This frees up the borrowers and sponsors’ time to focus on finding that next great investment project.
5. Leveraging technology to make everything faster, more efficient, and more transparent
On the investor side, people can choose the deal they want to invest in, evaluate due diligence materials, and track how their investment is performing—and do it all online, 24/7. As a sponsor, you can expect a smoother, faster process because our technology streamlines both the fundraising and reporting aspects of your deal.
6. Efficient cost structures
Since crowdfunded deals are accessed fully online, overhead and regulatory costs could be lower than in banks and other traditional lenders. This enables the platforms to pass along potential savings to investors, borrowers and sponsors.
As there are risks with any investment, real estate investing is no different, and there isn’t a guarantee of a return of any sort. What we can rely on is how real estate crowdfunding has undoubtedly changed the way capital can be raised for sponsors and borrowers.
At RealtyMogul.com, we combine more traditional real estate experience with cutting-edge technology to simplify real estate investing with hopes of making it better than it’s ever been. In short, we help investors and sponsors connect in a way that delivers benefits to both.