Myth 2: Crowdfunding brings together thousands of investors.
When you think of crowds, the assumption is you’re dealing with a lot of people. Add in the word “funding” and it’s easy to assume there’s a large crowd of investors funding projects in increments of $50, $100, and $200. That happened when 91,585 backers contributed $5.7 million to turn the Veronica Mars television show into a movie. But that’s generally not the case for real estate.
“The myth is that you will have someone put $100 or $500 in,” says Jake Seid of Auction.com. “I don’t think that is how this evolves.”
Specifically, the overhead would be too burdensome on a structure with many, many smaller investors. “This is something that’s more in the sweet spot of bigger sources of capital and high–net worth individuals versus somebody who is putting in $100 and owning one one-thousandth of that apartment building,” Seid says.
Jilliene Helman, CEO of Realty Mogul says large numbers of investors also spook the operators of the real estate. “People think you’re going to have a billion investors in a transaction,” she says. “None of these sponsors want to have that many investors.”
Crowdfunding brings together thousands of investors.