Crowdfunding: A Viable Option?

National Real Estate Investor recently published an article titled Real Estate Crowdfunding Firms Push Further into the Mainstream, in which the writer argues that although first questioned, crowdfunding continues to gain a base of active sponsors and investors. One sponsor, using the CrowdStreet platform, says “it serves as a consistent, recurring source of equity, as well as a capital source that is accessible for smaller dollar amounts, under $3 million.”

Crowdfunding: Who’s in the Crowd?

Here’s what I think about crowdfunding: I like to enter a deal with the fewest, financially-qualified partners as possible. Either directly and indirectly having a large number of unknown partners pretty much scares me. I assume this approach works well when the market is good and properties are performing well. But I am always thinking ahead. What happens in a market slowdown, and a property funded by crowdfunding gets into trouble? The results could be very messy.

What’s the Attraction?

I can understand why small investors might want to use this platform, but when trouble hits, they are also the ones who will scream the loudest and will probably understand potential outcomes the least. Also, with so much capital currently chasing deals, I do not understand the experienced sponsors’ attraction to this format.

What is your opinion of crowdfunding firms? Have you had a positive or negative experience using crowdfunding?