Crowdfunding, the financial activity that started as a platform for people to support inventors and special projects, is rapidly becoming a model for equity, startup and real estate investing.
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According to Massolutions, a renowned market research and advisory firm focusing on the financial industry, crowdfunding platforms across all sectors raised more than $34.4 billion during the year 2015; this figure is expected to rise higher than what venture capital firms will be able to raise in 2017.
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One interesting aspect of the Massolutions report is related to the real estate industry as users of crowdfunding platforms seem to be very keen on the idea of taking fractional investment positions on property acquisition and development.
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Commercial property owners and real estate developers have also shown considerable enthusiasm for crowdfunding, which they consider to be an efficient platform that can substantially increase the visibility of their projects. Naturally, the prospect of reaching out more potential investors is what real estate professionals like the most.
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Since real estate crowdfunding is still a nascent field of finance and investment, economists and financial analysts are paying close attention to emerging trends, here’s a brief look at three of these trends:
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Foreign Interest in American Real Estate
Brazilians in Miami Beach, Russians in New York and Chinese in Detroit: these are the most prominent nationalities of foreign buyers who have been pouring into key real estate markets across the United States since 2002.
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Trends in foreign investment in American real estate tend to vary according to the political and financial climate. At the height of the housing market bubble from 2005 to 2007, foreign buyers were somewhat cautious with their acquisitions. After the market crashed in 2008, foreign buyers arrived with suitcases full of cash to take advantage of distressed properties that could be acquired at bargain prices.
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By 2014, foreign interest in U.S. real estate had somewhat subsided due to the slower rate of value appreciation as well as scrutiny on Chinese buyers and restrictions on Russian investors due to political sanctions. As the American housing market gradually improves and the economy recovers, prospective foreign investors are excited at the potential of real estate crowdfunding, which can lower investment barriers and offer a greater diversity of opportunities.
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A Positive Regulatory Climate
When the Obama administration enacted the Jumpstart Our Business Startups (JOBS) Act in 2012, crowdfunding was specifically mentioned as a financial platform that could be suitable for the issuance of securities and other debt and equity instruments. Since the passing of the JOBS Act, financial regulators at the state and federal levels have been introducing legislation and rules to authorize and govern crowdfunding. The lawmaking pace has been gradual in this respect; however, analysts are expecting that this pace will pick up considerably over the next few years because most legislators are very positive about crowdfunding.
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Millennial Investment Styles
This is the most important trend developing in the world of real estate crowdfunding. Younger investors who are members of the Millennial Generation are very interested in financial platforms that take advantage of internet and mobile technology. Home insurance, for example, is something that Millennials prefer to obtain from a mobile app instead of sitting down with a broker, and they want to be able to check on their policies and obtain customer service right from their smartphones. Since virtually all crowdfunding platforms have mobile apps, they have proven to be very popular among Millennials.
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In the end, a combination of technology, regulation, financial climate, and the ongoing generational shift are all factors contributing to the advancement and acceptance of real estate crowdfunding as a bona fide investment platform. Just like real estate investment trusts (REITs) shook the investment marketplace decades ago when they entered Wall Street, real estate crowdfunding is poised to become one of the most important economic developments of this decade.
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