What is Crowdfunding Real Estate?
Crowdfunding real estate is the process of raising smaller amounts of money than traditional investments from a group of people to fund the development of a property or buy an existing property. This is a type of equity-based crowdfunding that is usually completed through an online platform.
This relatively new type of alternative financing and investing is making waves and achieving rapid growth. A report by Massolution calculated that crowdfunding investment in US real estate will have exceeded $2.5 billion in 2015, a large increase from the $1 billion worth of the industry in 2014. The number of crowdfunding real estate companies in the US is already above 150 and the impact of these companies is on the rise.
How does it Work?
A number of investors contribute to the development or purchase of a building, rather than just one ultra-high net worth individual or large company. For instance, with Prodigy Network, US accredited investors can provide minimum investments of $20,000 to invest in one of the company’s commercial real estate projects. After the funding goal is reached, the developers complete the project and the investors are given returns on their original investment. These returns usually exceed the average returns from traditional investments, such as the stock market.
What are the Benefits of Crowdfunding for Real Estate?
The biggest benefit that real estate crowdfunding offers is that it provides access to small and medium-sized investors to investments that were previously accessible only to large financial institutions or high net worth individuals. Traditionally, investing in real estate has been expensive and, therefore, available only to those that have ample amounts of capital. Through crowdfunding, the same figures are able to be achieved by pooling together multiple investors who invest smaller amounts of capital, providing them with access to these kinds of investments and their attractive returns.
Why is Prodigy Network the Leading Real Estate Crowdfunding Platform in the US?
There are three main reasons why Prodigy Network is the leading real estate crowdfunding platform in the US. First and foremost, the type of assets in which Prodigy Network invests: prime commercial properties located in Manhattan – one of the largest and most competitive real estate markets in the world and one of the most profitable, given the extreme demand for space that exists on this island.
Second, the size (Prodigy Network’s current portfolio is valued at $950 million) and strength (backed by major financial institutions including Bank of America, CIBC, and Deutsche Bank, and more than 6,200 investors located in 22 countries) of Prodigy Network allows it to have access to deals of such high caliber and cost. Smaller platforms don’t have access to these types of projects and their implicit returns.
Third, Prodigy Network co-develops all of the projects it runs crowdfunding campaigns for (with the exception of BD Bacatá, its first project in Colombia), which allows it to have more control over the development process and also over the returns that it provides its investors.
In summary, Prodigy Network’s projects of premium assets located in one of the most attractive real estate markets in the world offer attractive return rates. For example, Prodigy’s latest project The Assemblage / 25th Street will provide an estimated annual IRR of 10-14% in approximately 3-4 years.
To learn more about crowdfunding real estate or to check out Prodigy Network’s projects, please contact us.