Real Estate Investor Magazine South Africa November 2016 | Page 44

DEVELOPMENT

Crowfunding

Real Estate
A Growing Option for Developers
BY DREW HOOK

C

rowdfunded buy-to-let has ignited interest
among investors who want a slice of the
property market but lack the capital to create
their own portfolio. The rise of crowdfunding has been
accelerated by people’s distaste with the banks. By
taking power away from the institutions and giving it
back to the people there becomes a democratising on
the way people can invest. Property as an investment
is a tangible asset that everyone understands and can
put a value to, and as such lends itself well to the
crowfunding model.
Crowdfunding opens up the market to everyone
so they can invest in property for a much-reduced
commitment. It allows people to diversify across
asset types and geographic areas, helping to spread
risk and, hopefully, increase returns. There are also
the benefits in allowing low-level investment and
providing the opportunity to spread investment risk.
These however lead to potential problems getting in
and out of an investment.
Real estate has long been a favored investment
class due to its hands on quality. And those who have
raised funds for a venture or invested in somebody
else’s, will know that developing a single property can
be a tough, high-risk affair. Brokers tend to keep their
best deals off-market and close to the vest, ensuring
insiders win them. When the market moves strongly
in one direction, novice investors are often completely
shut out. Crowdfunding may offer a potential
opportunity for property novices who wish to start
their investment journey.

Investing with Crowdfunding

Property Investment may not seem like the obvious
choice for crowdfunding at first glance. While a few
crowdfunding projects have raised more than $10
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NOVEMBER 2016 SA Real Estate Investor

million, most attract a small number of investors and
earn just a few thousand dollars.
The crowdfunding industry at large, though, seems
to practically double in size every year. According
to Crowdsourcing.org, the total funds raised grew
from $2.7 billion in 2012 to $5.1 billion in 2013 to an
estimated $10 billion in 2014. The portion of that likely
to go to real estate is small but growing. Landlords
and developers are turning to crowdfunding because
banks or other traditional financing sources have
turned them down.
Buying into a property investment, which ranges
from renovations to distressed debt, groups you
in with the other funders. In most cases the deals
require a hold of three to five years with annualized
returns of around 10 to 30 percent. The crowdfunding
platform organizes you as single limited-partner
entity, which the platform manages. Deals are vetted
and sponsorship documents are negotiated in advance
and on a deal-by-deal basis. Once the strategy is set,
the particular investments to be acquired are usually
identified in the offering.
If you’re an individual investor looking for a tried
and tested investment method, then a well-managed
REIT may be for you. If however you like the idea
of getting involved in property with a modestly sized
commercial or multifamily investment and you’re an
accredited investor, crowdfunding may be the game
for you.

Go to www.crowdfunding.co.za or
RESOURCES
realestatecrowdfunding.co.za
www.reimag.co.za