The practice of using crowdfunding to gather investment money for real estate deals has gained steam over the past year, with more and more Web sites offering investment opportunities in property across the country. “There’s massive demand, both from entrepreneurs who want to get access to capital and from people who want to invest capital,” says Scott Whaley, president of the National Real Estate Investors Association in Cincinnati.

The key advantages of these investment arrangements, Whaley says, are that they give investors access to more deals, allow them to invest smaller sums and connect directly with developers to ask questions and research deals.

Richard Swart, who runs a research program at the University of California, Berkeley, studying the intersection of innovation and social funding mechanisms, estimates that the size of the securities crowdfunding market will range anywhere from $4 billion to as much as $200 billion over the coming years depending on the level of enabling government regulation.

But real estate investments are different from other crowdfunding ventures, such as raising money for short films or a neighborhood coffee shop. “When you talk about structured debt or residual cash flows, these are complex and need some curation, or at least someone who can look out for the investor’s interest so that they understand the alignment of interest between borrower, lender, investor, explain how cash flows work, what their rights are,” says Todd Lippiatt, principal of Propellr, a new real estate crowdfunding site.

Unlike traditional brokerage houses and investment firms, whose business is selling, and most crowdfunding platforms, whose lack of financial services expertise makes them little more than electronic bulletin boards, Propellr and AssetAvenue, another real estate Web site started by David Manshoory, actively help accredited investors invest alongside seasoned professionals.

Both Manshoory and Lippiatt bring the requisite expertise to their crowdfunding sites, but use very different business models.

Asset Avenue
Manshoory’s professional experience is in the real estate industry on the investments and acquisition and development side. “Right now, most real estate investments are done offline, meaning all communications are done offline,” he says. “There isn’t a lot of technology powering that industry. What AssetAvenue does, and why I started it, is to bring the act of investing in real estate online. It helps both sponsors and investors with the use of technology.”
AA, which rolled out in late 2013, focuses on commercial properties, reflecting the staff’s skill set and industry expertise.

“The team I’ve built is real estate first, technology second,” Manshoory says. “They’ve come from reputable, well-known companies; they come with a Rolodex of sponsors—prebuilt relationships we’re leveraging on behalf of our investors. We have access to sponsors individual investors don’t have. We have the time, knowledge and wherewithal to underwrite the investment opportunities and screen out the bad investments from the good ones.”

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