In recent years, real estate crowdfunding has become increasingly popular, propelled in part by new exemptions in the 2012 Jumpstart Our Business Startups (JOBS) Act. Crowdfunding is one of the many ways people can aim to capture the compelling benefits of real estate investments, such as portfolio diversification and potential for long-term appreciation alongside steady cash flow.
Let’s look at how real estate crowdfunding works—and how our approach at Trion Properties is different.
What is real estate crowdfunding?
In the broadest sense, crowdfunding is a financing method in which money is raised through soliciting relatively small individual investments from a large number of people. In the U.S., crowdfunding via online platforms is a popular way to raise money for everything from charitable causes to art projects.
Specific to real estate, crowdfunding enables individuals to participate in private market real estate investments, including individual properties as well as private REITs and funds. It allows a developer or deal sponsor who has identified an attractive investment to raise the necessary capital from individual investors in exchange for financial interests in the project. Crowdfunding falls into the “passive” category of real estate investing, meaning investors contribute capital while the sponsor shoulders responsibility for managing the assets and delivering an attractive return.
How does real estate crowdfunding work?
There are three main types of participants in a real estate crowdfunding campaign:
- Sponsors – Capital that is raised goes to the real estate developer or sponsor. The sponsor is responsible for identifying, acquiring, managing and selling the real estate investment(s).
- Individual investors – These are the members of the crowd who pool together their funds. Accredited investors can typically participate in any type of real estate crowdfunding investment; non-accredited investors can participate in a more limited scope of opportunities.
- Intermediaries – Online entities such as registered broker-dealers and funding portals act as the link between potential investors and sponsors seeking funds. As the middlemen, platforms advertise deals, manage regulatory issues and collect funds from individual investors on behalf of the sponsor.
The process starts when the sponsor plans a proposed campaign and submits it to a crowdfunding platform. Platforms typically conduct due diligence on the investment before making it available to individual investors. Once the deal is posted to the platform, investors can review the related materials and choose to contribute funds.
The Trion Properties approach
Real estate crowdfunding is beneficial in the sense that it removes barriers for more members of the general public to invest in real estate. For some, it’s an appropriate way to passively invest in real estate. However, crowdfunding isn’t necessarily the right real estate strategy for every investor.
At Trion Properties, we manage private equity funds. We pool together money from accredited and institutional investors (known as limited partners, or LPs) to deploy across real estate projects in alignment with the goals of the fund. Our multifamily real estate investment strategy is focused on acquiring opportunistic properties in need of moderate to heavy rehab, with a mid- to long-term investment horizon.
In this model, LPs invest directly in our fund—there are no intermediaries. As a result, our LPs don’t pay platform fees to any middlemen. The absence of intermediaries also means our LPs get their information straight from the source. We communicate directly with potential investors and existing LPs about our investment strategy, track record and current opportunities. This clear line of transparent communication also extends to reporting: We regularly provide our investors with detailed reports featuring key metrics and qualitative updates.
Because our funds are open only to accredited investors, our client base is meaningfully smaller than most crowdfunded investments. This enables our dedicated team to provide personal, high-quality service to each and every investor. No one is lost in the crowd.
If you’re interested in learning more about Trion Properties and our approach to multifamily real estate investing, we invite you to reach out to us by phone or email.