Recently Forbes.com featured a very interesting article about the increasing role that banks are taking in commercial real estate lending. With loss rates plummeting and the economy seemingly on the rise, are we on the verge of a borrowing bonanza?
There’s no doubt, real estate crowdfunding has arrived in a big way… at least according to articles like this one.
On the surface, crowdfunding sounds like a low-cost way to “get in the game,” without the nebulous nature of joining a REIT. But before you join the crowd (sorry, I couldn’t resist… won’t happen again), I have a few thoughts on some of the posited advantages of this trendy new funding method.
On Crowdfunding vs. REITs:
First, with crowdfunding, you know exactly what property or building you are investing in, giving you more control over your investments. You know exactly where your money is going. When you invest in a REIT, it’s possible you are investing in a company with a bunch of properties that you know little about.
- You may not know the investor
- You have no control over your investment once it’s made
- You have no liquidity
The price of REITs tends to be driven by market sentiment, rather than the actual value of the company’s assets. REITs are vulnerable to a market downturn, just like other stocks. For these reasons, real estate crowdfunding could make for a better investment than REITs.
Again, good points all. And yet, here come a few more of those patented Pliskin bullet points to shoot a hole or two. With a REIT stock, you get:
- A cash flow
- A capital appreciation
- A public company that has been vetted, presumably, by numerous analysts.
While I personally haven’t dabbled in crowdfunding, that I would be a lot more confident buying shares in a REIT. Sometimes the tried and true method is that way for a reason.