Real Estate Crowdfunding Brings Promise and Peril

As a financial reporter a few years ago, I watched real estate morph from the great creator of Main Street riches to the primary weapon of global economic mass destruction, all in the course of about 18 months. So few things trigger my skepticism like the proliferation of real estate crowdfunding sites that promise amazing investment opportunities and a simple path to wealth creation.

These platforms say they’re tech companies because they use proprietary algorithms to vet real estate developers. A few, like Realty Mogul and RealCrowd, have raised venture capital funding; Asset Avenue recently hired Indiegogo’s first employee, Adam Chapnick, to lead strategy. They describe themselves as similar to REITs—companies that own commercial real estate, collect the rents and distribute the proceeds to investors. But some crowdfunders are also reminiscent of the real estate lending clubs of a decade ago, whereby people pooled money and flipped homes. These clubs didn’t cause the crisis, but they sure were indicative of froth.