Residents of Philadelphia may have heard a new term being thrown around with regards to commercial real estate investments: crowdfunding. Crowdfunding utilizes the Internet to allow a person to raise and pool capital from a number of small investors. These small investors would then have an interest in the real estate enterprise to which they contributed. However, those interested in starting a crowdfunding venture should keep three crucial points in mind.
One point involves the risks related to crowdfunding, particularly when it comes to defaults. If the business fails to make payments on the loan and defaults, the investors will incur that loss.
A second point to keep in mind is that real estate enterprises do not necessarily provide an immediate financial gain, but are more of a long-term investment. This means that one’s finances in the investment will be frozen until the project has matured.
Finally, accredited investors may have different opportunities than non-accredited investors. According to the U.S. Securities and Exchange Commission, an investor is considered accredited if that person’s assets, not including their primary home, total $1 million or above or if the investor earns at least $200,000 each year for the past 24 months and expects to make $200,000 or more in this year. However, crowdfunding provides a means for non-accredited investors to enter into a commercial real estate enterprise.
Commercial real estate investments can certainly be lucrative, and may be of interest to many Philadelphia investors, big or small. Crowdfunding is just one way for a person to be involved in a commercial real estate enterprise. Those interested in learning more about crowdfunding and other commercial real estate matters, including financial transactions, may want to consult with an attorney, who can help explain the legalities behind such ventures.
Source: Fox News, “Real estate investing: Not just for millionaires,” Robert Massi, Aug. 13, 2015