Advantages of Real Estate Crowdfunding Over REITs?August 3, 2015
In simple terms, Crowdfunding is not a financial instrument. It is a direct property investment, which is susceptible to sentiment, but certainly not the volatility of the stock market — which is at the highest it has ever been all over the world. Funds and REITs have a 0.7 correlation with the stock market and therefore, one can expect massive volatility in the coming years. That is why the super wealthy are investing in direct property, something crowdfunding now allows to all.
On top of this, the returns investors can expect are on average double that of what one can expect from the traditional funds and REITs, due to their excessive fees. I am not talking about share price growth which is not directly related to net asset value, I am talking about the traditional fundamental returns of a direct real estate asset. Technology provides transparency, and so you know exactly what you are investing in and who is making what fees. That is changing the landscape of this very murky environment where investors are basically kept in the dark so that the traditional players can earn as many fees as possible. There is a reason that the only people who get wealthy from funds or REITs are the people who set them up and run them. We have conducted research on this, and the average fund or REIT in USA has 16 fees involved, whereas crowdfunding has full disclosure and investors know exactly where every cent is being spent.
Finally, Martin Luther King said, “There are only two laws in the universe, those made by our creator and those made by man. Which do you want to follow?” Crowdfunding is using technology to follow nature’s laws and ancient successful investment methodologies of trust, transparency, and the interests of all parties being aligned. It creates a sustainable ecosystem where everybody wins.
Real estate is sometimes thought of as a way to counterbalance volatility in the stock market, but recent research showed that since 2006, REIT correlation to the stock market jumped to nearly 80 percent — do you think that’s something that will continue in the future? And if so, is that something that may entice people to invest in real estate crowdfunding?
Interesting as I said above our research shows a 70 percent correlation. I think that Funds and REITs are financial instruments and crowdfunding is a direct property investment. They are completely different and it is why the wealthiest, according to McKinsey, are increasing their allocation to direct property to manage the risk of the impending volatility which is coming.
Author credit: Scott Picken, founder and CEO of crowdfunding platform Wealth Migrate