December 2015

The Pros and Cons of Commercial Real Estate Investing through Crowdfunding

Technology today allows one to stay home and never leave.  We can work from home, pay bills, purchase groceries, clothes, cars, homes and even commercial real estate now with our cell phones without leaving the confines of our comfortable house or car.

Online crowdfunding, such as RealtyMogul.com allows investors to invest in commercial real estate all on the computer.  Investors scroll through pictures of properties and invest in the ones they want.  Payment is done online without talking to partners or banks.  The participants receive distributions according to what type of property they invest in.  Developing properties take longer to get a return than rented multi-family occupied apartments.

The investor may invest in an LLC holding company solely for commercial real estate.   The positive aspects of crowdfunding in commercial real estate compared to traditional partnerships is that investors don’t have to communicate with all the different partners in the LLC or deal with the day to day management of the property.   The LLC handles all aspects of the real estate for them.

However, the negative aspects of investing in crowdfunding in commercial real estate compared to traditional real estate investments are that the investors don’t know who the other partners involved are, and they have no control over the property or their money.  They don’t have a voice in any of the day to day operations of the property or whether or not they want to sell and when they want to sell it. In addition, the investor may not get out of the investment anytime if he or she needs money.  They are locked in for a certain amount of time or may have to take a substantial discount of their investment if they need to get out.

In traditional LLC investments an investor will get together with family members or friends they know well to invest in commercial property.  They form an LLC or partnership to purchase land to develop or property already developed and leased.  If a partner wants to sell, the other partners can buy him or her out or sell if they agree.  At least the investor has some control over their money.

Another way one can invest in commercial real estate with more control over their money is through a Real Estate Investment Trust (REIT).  Investing in a REIT is like investing in the stock market.  An investor can invest in a Health Care REITS that only invests in commercial real estate leasing to health care management facilities.  The REIT investment goes up and down just like any other stock; in addition, the person can buy or sell their REITS anytime.  As a result, they have more control over their money.  Crowdfunding commercial real estate funding locks the investor in for 0 to 5 years however long one chooses to invest; consequently, there is more of a risk.

“I have known Lee Segal for more than 30 years, and I respect him enormously both professionally and personally. His unwavering honesty combined with his keen understanding of the nuances in the real estate field, has made him highly regarded by friends and colleagues alike. You can always count on him to be moral and upright in any circumstance.”   Sheldon Katzer, The Rosalinde and Arthur Gilbert Foundation
Sheldon Katzer, The Rosalinde and Arthur Gilbert Foundation