“Whereas traditionally, Commercial real estate investment has been reserved for those who could afford a five- or six-figure minimum buy-in — hence institutional investors’ dominance of the space — crowdfunding enables an individual to get started with as little as $5,000” writes Richard Sarkis, Co-Founder and CEO of Reonomy, for Entrepreneur.
Commercial real estate or CRE investment has never been a large part of investment portfolios in the United States. Institutional investors combined manage over $25 trillion of financial assets through investment funds. But until 1975 they only invested in the big three – stocks, bonds and cash. Commercial real estate was not an accepted asset class. In the 1980s and 90s institutional fund managers began to move away from the big three asset classes and commercial real estate took fourth place. Today a typical investment portfolio allocation would be approximately 10 percent in commercial real estate.
For small-scale investors, investment in commercial real estate was generally only available through Real Estate Investment Trusts (REITs), not as a direct investment into a particular real estate project. Real estate investments were reserved for those with deep pockets and connections to developers who permitted them to invest. For these reasons, private investment in this asset class has not seen much growth.
Thanks to crowdfunding, this is changing. In 2012 the JOBS Act paved the way, allowing the marketing of investment opportunities online, to anyone over the age of 18. Now you can get started investing in commercial real estate with as little as $5OO on platforms like Small Change. Real estate investment crowdfunding now represents an exciting opportunity for individual investors to take back control of their portfolios with the democratization of investment.
For those investors who want to take an active role in their investment decision-making, crowdfunding allows them to delve into a previously prohibitive investment space for very little outlay. Importantly, it gives individuals the opportunity to invest in commercial real estate in their own communities, building value where they live both for their communities and themselves.
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