A new dimension to the classic real estate transaction and funding will soon be available courtesy of SEC rule changes. Delaware residents who have traditionally found participation in commercial real estate investments out of their reach are being given the chance to buy in through crowdfunding at starting rates as low as $5,000. This novel opportunity, like all investments, brings with it some risks.
Crowdfunding of everything from middle-income residential developments to retail and office buildings in high-end markets makes it possible for more people to participate in investments that under the right circumstances can present attractive yields. Unlike publicly-traded stocks, however, those who enter this market may be subject to holding periods and face difficulty when trying to sell their position.
The risks of participation are different from some more traditional options. On the one hand, these types of real estate transactions require far less cash to be put up by a prospective investor. On the other hand, risks are not being evaluated by credit rating agencies. Transparency of these initiatives is still an unknown, and those without experience in the real estate market may want to wait and watch for proven stability.
Novel opportunity and safe investment are not terms often found together for a reason. Even investors with experience in local markets may have legitimate concerns about diving into the world of crowdfunding. Beyond the due diligence of researching markets and construction developer histories, anyone looking to participate in this type of real estate transaction may want the assistance of an attorney to further understand the risks and rewards of such an investment.