Creative Financing: Using Crowdfunding To Finance Real Estate Projects

Although the economy is showing signs of recovery in fits and starts, the traditional commercial real estate lending market is still tight for many developers. A number of non-traditional, non-bank financing sources have blossomed in response, with crowdfunding at the forefront.

"Crowdfunding" takes its name from crowdsourcing, and is based on a similar model. A crowdfunded project is financed by a large pool of backers, who each contribute a small amount towards a development goal. Crowdfunding typically takes place on a web-based platform, such as RealCrowd, Groundfloor, and FundRise, allowing developers to reach a huge number of contributors.

Unlike the traditional development model, which requires large lump sums of cash, crowdfunding has a low-capital entry requirement (often allowing pledges of $100 or less), and gives investors greater control over which projects get funded.