Does Crowdfunding Work For Investors Too?

by Ryan Smith 14. November 2013 02:27

Crowdfunding is a recent and experimental phenomenon in real estate. For years, people have been able to use crowdfunding to raise money for projects such as new films, disaster relief, and new gadgets. Although crowdfunding has worked for these projects, can it work for real estate projects too?

We think it can, but with certain limitations. Until recently, this type of crowdfunding was strictly regulated. Now that those regulations have been stripped away, it's easier than ever to crowdfund for real estate projects. And this can be a good thing.

Crowdfunding in real estate allows for potential investors to be part of a community and enhance their own neighborhoods. Investors usually receive partial ownership of the funded building. In addition, sometimes investors can even receive special privileges or discounts, depending on what the property houses.

While crowdfunding can be positive, the reduced regulations also means there are some bad projects and equally bad scammers out there waiting to take advantage of this new investment practice.

To avoid the scammers, make sure you're investing with a developer who has a proven track record. Ask for investor references and past project information, including documentation that demonstrates previous success. Know who you're giving your money to before signing it over as crowdfunding, how he or she expects the project to make money, and how the project will fit in with the area where it's intended to be built.

Even taking all of these steps, it can still be hard to separate the bad projects from the good ones. This type of investing is on the rise, and it can potentially lead to disaster for inexperienced investors or even experienced investors who don't understand this new practice. Because there are very few regulations, there is ample opportunity for developers and sponsors to collect your money without following through with the agreement. If you do decide to test out crowdfunding for yourself, remember to remain vigilant at all times.

While investing always comes with risks, we want every investor to be as well-prepared and secure as possible. For this reason, we invite you to attend our signature Staying One Step Ahead Global Investor Conference. To learn more about this event, visit http://smithcompanies.com/sosa/details/default.aspx?s=cbb1

 

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