Challenges Involved with Crowdfunding Commercial Real Estate

Nowadays, there are several ways through which investors can invest in commercial real estate and the web also helps them in giving new ideas for investing.

Crowdfunding is a relatively new phenomenon in commercial real estate investment and is based on the concept of collecting money from many small investors.

In the commercial real estate sector, the concept of crowdfunding has been used to help raise significant capital to invest in all types of property.

However, there are many challenges involved with crowdfunding commercial real estate investment and let us discuss about them.

Experience

The crowdfunding concept has to establish a long track record of success which will certify that it is a viable alternative form of real estate investment.

As investors in the commercial real estate sector are a bit wary about a new form of investment and many investment methods take years to become standard practice.

Quality control

One of the most significant challenge to the success of crowdfunding is as it is a new method there is no established controls or standards to govern it.

Moreover, there is no denying the fact that it has enjoyed some measure of success to date but the reliability of the decisions taken under the crowdfunding method is questionable.

Furthermore, there is no clarity in its working process and what are the parameters upon which a property is selected for investment.

Lack of risk-hedging

It is true that most investments cannot give guarantees that they will pay off as per expectation but with crowdfunding, the risk increases manifold because the method is not time-tested.

Moreover, due to this, you cannot get a good, reliable advice and there will not be enough evidence for most investors to rely upon.

However, as there will be many individual investors, they can insure you against any risks but this will cut down on your individual return rate.

Regulations

The regulations passed in 2012 has legalized equity crowdfunding where companies can raise a considerable amount of money from investors who have a net worth of at least $1 million or annual income of $200,000.

However, despite this new regulation covering all types of crowdfunding business, only about 3% of people participate in crowdfunding.

Finally

The above-mentioned factors are some of the challenges faced in commercial real estate crowdfunding.

The concept of crowdfunding in commercial real estate investment is facing challenges but it will only keep growing in the future.