History of real estate crowdfunding
Real estate crowdfunding is the fastest growing segment of crowdfunding. In 2014, with respect to the previous year, the value of real estate crowdfunding worldwide increased by 156%, exceeding the value of $1 billion.
The value of individual real estate crowdfunding campaigns ranged from $100,000 to as much as $25 million. By contrast, in 2015, the projected value of real estate crowdfunding is expected to reach $1.4 billion in the U.S. and $1 billion in Europe. This represents a two-and-a-half-fold increase worldwide compared to 2014. The strongest growth is observed in the commercial and industrial real estate investment segment.
In 2014 in the US it was as much as 250% with respect to the previous year. The total value of real estate crowdfunding is expected to reach $2.57 billion in 2015, or 7.5% of the total value of the global crowdfunding market (www.crowdsourcing.org).
In 2014, 40% of real estate crowdfunding platforms operating in the world were operating based on a lending model, i.e. allowing investment in debt-like instruments. Slightly fewer, i.e. 38% of sites, adopted an equity model. Through these platforms it is possible to make investments of an ownership nature - in stocks and shares. On the other hand, 23% of services operated on the basis of a mixed model. These platforms allow both debt and equity investments.
An important category, reflecting the size of barriers to entry into real estate investments carried out through crowdfunding, is the minimum value of capital necessary to make an investment (the minimum investment). Equity crowdfunding carries a higher level of investment risk. Thus, in 2014 globally, the lowest value of capital to make a real estate investment under this model was $5,500. The average value of this capital, in the real estate crowdfunding market was at the level of $25 600.
Investments in real estate carried out in the loan model are characterized by a slightly lower investment risk. They required a minimum capital commitment of $1000. In turn, its average value was $ 7000. The lower minimum value of capital to make an investment means that real estate crowdfunding in the loan model is more accessible to investors than equity crowdfunding.
Investments in the real estate crowdfunding market are categorized as medium to long-term investments. They bring regular rental income and lead to capital appreciation in the long term. However, there are also short-term (speculative) investments where the profit is the difference between the purchase and sale price of the real estate.
In equity crowdfunding, funds are usually raised by companies not listed on the stock exchange. They are often entities just starting their business activity (start-up). Investments in their projects are of a long-term nature. The period for which they are made ranges from 1 to 10 years, with an average of 6 years. At the end of this time, it is assumed that the property will be sold and the shares redeemed. However, in practice it may turn out that the assumed investment duration will change. This fact must be taken into account by the investor at the stage of planning financial flows from the investment.
In loan crowdfunding, funds are usually raised by companies with a longer history. These capitals are raised in order to co-finance ongoing projects. The period for which an investor makes funds available to such entities ranges from as little as five months to three years. The average time between raising and returning the funds is in this case 1.5 years.