California: A Popular Spot For Real Estate Crowdfunding

Real estate investors love snatching up good deals and letting their purchased properties make money for them over both the short- and long-term. There are plenty of ways to invest in real estate, and one of them is crowdfunding.

This method is certainly a hot method in California among real estate investors, who are pooling their money with other investors to buy properties in various parts of the state. California has been one of the most popular states in the whole country for crowdfunding.

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Online Crowdfunding Platforms Making Crowdfunding More Streamlined

RealtyShares, an online marketplace that helps institutional and accredited investors to network with other like-minded investors for real estate investment opportunities, recently released information about crowdfunding in California.

Over $53 million has been raised across 90 properties in California on this online platform, connecting more than 20,000 investors that have poured money into various types of real estate properties, including fix-and-flips, multi-family residences, and commercial equity investments.

L.A. Leads the Pack

While investment deals involving crowdfunding are happening all over the country, the Los Angeles area is the most active, with 46 deals crowdfunded for over $28.8 million on the site.

The majority of those funds have honed in on fix-and-flips and residential debt deals. Not far behind L.A. is San Francisco and the Bay Area with 24 deals for $17.6 million, and coming in third is the Sacramento area with more than eight properties for $3.8 million.

These number are reserved just for RealtyShares; there is plenty more money pooled with other investors on various other real estate crowdfunding sites, including FundRise, Money360, and Realty Mogul.

Why is Crowdfunding So Prevalent in California?

The demand for California real estate has been strong for years, due largely in part to the lack of inventory. With such a strong demand for real estate in California, good deals have been tough to find. Crowdfunding has been a viable way to effectively deal with this scenario. By tapping into the financial resources of investors, the possibility of snagging profitable investment properties across the state is much stronger.

Californians have been among the first in the country to make use of crowdfunding in real estate. The tactic has already been used in other industries with great success for decades, and visionaries have seen the real opportunities for crowdfunding to work quite well in the real estate sector, particularly in California. And with technology making these efforts much easier, such as online platforms like RealtyShares and others, crowdfunding has become even more convenient at bringing properties and investors together.

In particular, there has been plenty of opportunity in California for cost-effective, sub-institutional equity products in the commercial sector, and crowdfunding channels such as RealtyShares are offering real opportunities to fill this void.

Another reason for such a preponderance of real estate crowdfunding in California is the prevalence of these accredited investors in the state. While about 7 percent of the entire US population is considered accredited, that number is higher in California. Orange county, in particular, has 12% to 15% of these types of investors.

What makes an accredited investor? According to the Securities and Exchange Commission, an accredited investor is one with an annual income of at least $200,000, or net worth totalling $1 million or more (not including their primary residence).

The Appeal of Crowdfunding Versus REITs

Before crowdfunding in real estate became more mainstream, investors used to focus more on putting their capital in real estate investment funds (REITs), which involve buying stocks to get a piece of a portfolio of large-scale investment properties. However, investors don’t typically know  which projects are in the works.

On the other hand, crowdfunding allows investors to choose a specific property to invest in, instead of purchasing a piece of the pie of the company that’s developing the property. This gives them a little more knowledge power when it comes to choosing the best type of property and entity to invest in.

The Bottom Line

Like any other type of investment, crowdfunding has it risks. Yet California seems to have the right mix of factors to make crowdfunding a real money-maker for investors in the state. Investors would be wise to work with a crowdfunding platform that is made up of a team of experts in the real estate world to closely asses each and every sponsor and opportunity.