I was reading about a fascinating approach to real estate investing the other day in a local Victoria publication. A tech startup was offering real estate ownership stakes for a little as $1 on Vancouver Island, and people were debating whether it was a democratizing tool for wealth, or another contributor to the province’s affordable housing crisis?
As Capital Daily reported, Addy lets regular folks invest small amounts in residential and commercial real estate. It recently bought a slice of a small 1960s apartment building, with 947 investors averaging $345 each.
“What we’re doing is essentially breaking that down so everybody can invest the way a wealthy individual can invest,” Addy co-founder Steven Jagger said.
I hadn’t heard about this version of crowdfunding before, so I headed for the startup’s website, which explained how it works.
FIrst the company identifies an opportunity. Then it divides the investment into increments valued at $1. A $500,000 opportunity, for example, would be divided up into 500,000 units, which are then listed for sale on our platform. Potential investors can decide how much they want to invest ranging from $1 to $1,500 per property.
There are pros and cons to everything, of course, and real estate crowdfunding is no exception. This blog post by Addy earlier this month explained them.
I’ve been watching how crowdfunding is being used for a lot of things, like solar power projects in southern Africa, for example, but I found it fascinating that the concept was being applied to real estate.
So I wondered – is there a lot of this going on? Apparently, it’s been going on for a while. I found articles dating back to 2013 talking about real estate crowdfunding, and one article noted that ‘real estate syndication’ was its offline ancestor. The difference seems to be that social media has made it possible to share information about the opportunities far more widely than before.
Real estate is not the only area in which crowdfunding is growing. COVID has accelerated crowdfunding in many areas, according to a recent report.
Crowdfunding raises capital for a project, business or charitable cause with small contributions from a large group of individuals, and is done primarily online through websites and social networking platforms. Considered a scalable, flexible and efficient fund-raising solution as compared to conventional methods, it eliminates the need for banks or venture capitalists.
”By bringing together real estate companies with investors, real estate crowdfunding has certainly helped disrupt the way people find and invest in properties,” according to Realty Mogul, one of the leading real estate crowdfunders. It had reached $1 billion in 2014 and was headed for $3.5 billion by 2016 and was likely to continue its growth, according to one article. One of the other real estate crowdfunders is Fundrise.
In Canada, there are at least two of these real estate crowdfunders – Addy, and Willow. In a blog early in January, Addy compared their approaches.
(Featured image by cottonbro from Pexels)
Updates:
I just found this fascinating story shared by Reasons to be Cheerful, Feb. 4, 2022: The City Owned by Locals.