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How crowdfunding impacts investment portfolios

On Behalf of | Dec 4, 2018 | Commercial Real Estate

In the 21st century, institutional investors in Texas and throughout the country have increasingly invested in commercial real estate (CRE). In 2000, CRE made up about 4 percent of the average portfolio. From 2010 to 2015, it grew from 5.6 percent to 9.6 percent of the aggregate institutional investment portfolio. Although it has become more popular for institutional investors, CRE has not necessarily been as popular for private investors.

One reason that individual investors don’t put a lot of money in commercial properties is that it can be expensive to gain exposure to the sector. However, crowdfunding platforms are being created that allow access to this sector for as little as $5,000. This compares to the tens or hundreds of thousands of dollars traditionally required to invest in CRE. These platforms are allowed to exist because of Title III of the JOBS Act.

In 2015, the Securities and Exchange Commission (SEC) allowed both accredited and non-accredited investors to take part in crowdfunding efforts. Those who are simply looking for passive exposure to CRE may benefit from investing in real estate investment trusts (REITs). Since 1971, REITs have returned 9.72 percent per year across all REITs offered in the United States, according to U.S News. However, the one potential downside of a REIT is that an investor doesn’t have control over which properties their money is used to purchase or develop.

There are many different ways to gain exposure to commercial real estate, such as buying shares in a REIT or being a commercial landlord. Those who own rental commercial properties may benefit from having their commercial leases reviewed by an attorney prior to creating them. This may allow an individual to maintain maximum control over a property while limiting the liability that a property owner may otherwise incur.


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