Commercial real estate investment remains to be one of the most lucrative endeavors for many businessmen. The reason is simple. Shelter remains to be one of the most basic needs of a human being and in like manner, having an office is very beneficial to any business entity. This means that there will always be people and entities that will be looking for a place to stay, rent or buy. The only problem with commercial real estate investment is that it requires a lot of capitalization, something many business-minded individuals lack. ‘
Commercial real estate investment requires a lot of capitalization and it’s a well-known fact that only a few people have the amount required to gamble into such venture. You must have heard stories about people who started at the bottom and made it big in commercial real estate. While many of these stories are true, the narrative always fail to present the entire picture how they were able to accumulate funds to enter into such venture. Some of them had venture capitalists or angel investors behind them who perhaps liked their idea about such commercial real estate investment. Others perhaps got a windfall from a variety of sources, which they used to venture into commercial real estate investment. These instances, however, are exceptional and should not be taken in a general form, meaning, you cannot immediately expect some angel investor or venture capitalist to fund your idea just because they like how it sounded. This is where crowdfunding comes in. It allows individuals to be able to partake of the fruits of commercial real estate investment. In a way, everyone is an angel investor to everyone else, where your equity, however small or big it may be, becomes part of the entire capitalization for the commercial real estate project.
How does crowdfunding work?
Since the concept was introduced five or six years ago, a lot of crowdfunding companies were also born. The major purpose of these entities is to match small and large investors that real estate players are oftentimes unable to access. Crowdfunding companies can make these investors aware about existing commercial properties and let them see its physical presence. Investors can also meet with the developer along with the crowdfunding or holding company and make their assessment on whether such investment is worth their while. The entire process is very transparent, meaning if you place your bet on these commercial real estate investments, you already know what you are getting yourself into. Since you are investing in something that you can really see, like apartment buildings or condo units, your confidence level on you investment is high compared to other types of investments where you only get to see the numbers on screen.
Why Commercial Real Estate?
For so long a time, regular individuals have always equated commercial investments with portfolio investment. While portfolio investment may have its benefits, nothing compares to seeing the physical structure where you put your money into. Think about this. Which one would you prefer? A piece of paper showing how your money was invested and how it can grow to greater proportions or a building that you know exists and is well-maintained because you, and other investors, pooled funds for it? Ask most portfolio investors about how your money can grow through portfolio investments and, unless you are already well-versed in portfolio investments, it may take an hour or so of explaining until you fully understand it. Real estate, on the other hand, is something that most people understand. The moment the building stands on land, there is already value there. Moreover, people have a fundamental idea about real estate because everyone else is a consumer of real estate, whether you are a homemaker or an office lease. So when there is a need to explain the concept of crowdfunding a commercial real estate, there’s no need to go through lengths since people already understand that they are investing in an asset that they can touch.
How will developers benefit from all of this?
Real estate developers have always been plagued with one issue and that is the funding source. For many commercial real estate developers, the only way to go is by issuing equity to investors or securing debts either from banks and other financial institutions, or by issuing investment bonds. While this may have worked for a long time, it should not stop developers from exploring other sources like crowdfunding. It is a logical way of raising funds for a commercial real estate development and does not become a noose that tightens on the neck of the property owner or developer. Some are even finding it easy to secure a crowdfunding company as a source of their funds than go through the process of applying for a loan from the bank or other financial institutions.
Crowdfuding commercial real estate investment is an attractive alternative to many other types of investment opportunities. If you have been dealing with portfolio investments in the past, you will find that the capital structure of commercial real estate investment is similar to that of other types of popular investments. The only difference is that you can see its physical structure and not only some numbers on screen or on paper. Whether you are a property developer or an investor looking for a new type of investment opportunity, then you might want to consider crowdfunding in your commercial real estate investment decision.