In 2013, CNBC published an article titled “Real estate’s new frontier: Crowdfunding.” The piece discussed how crowdfunding—the process of soliciting funds from the public to finance a project or venture—was making the move to the real estate market for the first time. Typically, we’ve seen crowdfunding as a popular finance option for the tech industry, for all manner of entrepreneurial ventures and startups, and for entertainment projects like albums or films. While browsing a site like Kickstarter or Indiegogo for crowdfunded projects, though, you’re far less likely to come across a real estate investing proposition.
According to the article, before 2013, the lack of real estate market involvement in the crowdfunding sphere was due to law. In September of that year, though—when the CNBC article went live—a new law called the Jumpstart Our Business Startups Act (or JOBS) was taking effect, making it possible for crowdfunding to start participating in the markets of real estate development and investment.
The Growth of Crowdfunding in Real Estate
Fast-forward more than two years and it might seem like crowdfunding still hasn’t really caught on for real estate. After all, the most successful crowdfunding projects of 2015 were a smartwatch, a video game, a specialized bee hive, and a card game about exploding cats. The crowdfunding projects that attain the most viral attention seem to be those with tech or novelty roots—if not both.
However, crowdfunding is taking off in the real estate world—just on different sites than those where most crowdfunding projects tend to appear. Another CNBC article—published in September 2015, almost exactly two years after the first one—stated that, by the end of the year, the real estate sector was expected have raised $2.57 billion in crowdfunding in 2015 alone. That number is up from a bit over $1 billion in 2014, which means that crowdfunding is undoubtedly a growing presence in the real estate community.
So how does it work? Crowdfunding users put up a certain amount of money—maybe $1,000—to help fund a real estate development. In turn, those funders are given a small share of the property equity. Unlike with most types of crowdfunding, where users help to fund the development of a product and then receive that product (and potentially, other perks) in return for their assistance, investors in real estate crowdfunding are investors in a more traditional sense. Since they own a part of the real estate development, they get a certain percentage of the rent and appreciation earnings from that property.
How Document Management Can Help with Real Estate Crowdfunding
The still-new nature of crowdfunding in the real estate industry means that the process remains more chaotic and less defined than other, more traditional forms of real estate investment. That’s where DMS (document management software) becomes a part of the equation. Document management software can help to simplify real estate crowdfunding and make the concept more effective and widespread, and can do so in three primary ways:
- Simple Information Management
For everyone from title companies to property management companies, information management in the real estate industry is already complex, involving contracts, deeds, lease or rental paperwork, information about residents, and much, much more. Crowdfunding only brings more informational chaos into the real estate space. Real estate developers who choose the crowdfunding paths have to keep track of how many investors they have, who those investors are, how much money each investor contributed, the equity percentage each investor owns in the development, contact information for each person involved in the project, and other files pertaining to crowdfunding participants. DMS can help take these scattered pieces of information and organize them into a logical, intuitive, and easily searchable paperless filing system.
- More Investors
The newness of real estate crowdfunding presents a lot of opportunities for everyday investors to get into an equity sector they’ve never had a chance to access before. However, that newness also comes with a fair amount of mistrust that real estate developers have to be able to diffuse. Many of the users taking part in crowdfunding projects—not just in real estate, but in any sector—are not what you would call experienced investors. Most of these individuals are fine with putting up small amounts of money to fund their favorite band’s album but are going to be more cautious about dropping a couple of thousand dollars on a real estate development. Crowdfunding sites are also not subject to SEC regulations, which only adds to the mistrust surrounding crowdsourced real estate development.
With an intuitive DMS system in place, real estate developers can be markedly more organized with their client and investor information. This better organization leads to improved communication and transparency, faster dissemination of equity earnings, and other perks. All of these perks should improve investor satisfaction, which can generate positive word-of-mouth for real estate crowdfunding—thereby leading to more investor interest.
- Information Security
A lot of United States citizens have lost their faith in information security as of late, thanks to the recent rash of data breaches, hacks, and leaks. Couple that loss of faith with the no-confidence feeling that most people have about the real estate industry—especially those who were burned by the housing bubble burst in 2008—and it’s easy to see why someone might steer clear of a real estate investing model that goes through an online crowdfunding hub. DMS can help restore faith in information security, though, with advanced encryption, redundant storage, secure file transmission, and other features dedicated to keeping information as private as possible. Add the fact that the real estate industry is becoming more stable and robust by the year, and two of the biggest reasons to avoid crowdfunded real estate investments simply aren’t there anymore.
Are you looking to improve the information management policies for your property management firm or real estate-related crowdfunding venture? Try out eFileCabinet today, by visiting our website at www.efilecabinet.com and clicking the “Free Demo” tab to try out a 15-minute preview of our software.