Real estate crowdfunding experienced red-hot growth in 2015. DealIndex predicts the market to reach $2.6 billion when the tallies come in. That’s more than a 150% increase over 2014, reckons crowdsourced solutions provider Massolution.
There’s a reason for the explosive growth. Investors have started to realize the attractiveness of crowdfunded real estate investments. Crowdfunding gives investors access to deals and deal flow they didn’t have before.
Owners and operators benefit, too. Crowdfunded real estate loans close faster and come from alternative sources outside banks. That makes it easier for borrowers to inject new capital into operations faster.
But the market is changing and growing fast. New entrants and seasoned vets alike must keep a laser focus on key trends in 2016 to maximize yield.
1. Crowdfunding Grows Up
All types of crowdfunding are growing. But the industry is also growing up.
Lend Academy predicts that person-to-person lending platforms will merge and mature in 2016. Dominant players will absorb smaller rivals. Better and expanded services will result.
“We haven’t seen much consolidation to date,” says site writer Peter Renton. “But I think 2016 is the year it begins in earnest.” He predicts at least three acquisitions, several IPOs and banks building their own platforms.
Consolidation and maturation mean better security, service and product mix. The same holds true for platforms devoted to real estate. That’s good news for new and veteran investors. 2016 is the year to up your game or jump in for the first time.
2. It’s Time to Fall in Love with Debt
As the market matures, debt-based products are due their time in the spotlight. Law firm Dechert LLP describes the unique characteristics of crowdfunded debt deals:
“Debt deals offered through real estate crowdfunding platforms today typically circle higher risk and higher returns than opportunities that attract bank financing and institutional investor interest.”
Real estate crowdfunding firms will specialize further as the market consolidates, says Dechert. We think sites will offer investors more specialized debt products as part of the trend. That would open up more avenues to drive potential returns. It would also reduce friction on both sides of the transaction.
3. More Money, More Diversity in Real Estate Investment
David Drake at InvestorIntel predicts diversity to be a major trend in 2016. We couldn’t agree more. It’s happening on every level of the industry.
The market is growing and, with it, the options for real estate crowdfunders. Investors can diversify more as platforms support investment of smaller amounts of capital. And changes in the JOBS Act allow non-accredited investors to enter the game.
The demographic portfolio of investors is diversifying, too. According to DealIndex, younger generations are bullish on P2P lending. Millennials are 10 times more likely to use the platforms than Baby Boomers. And 14% of millennials already using non-bank financing.
With numbers like those, we predict 2016 as the year crowdfunded real estate takes the world by storm.