Real Estate Crowdfunding
According to the “Crowdinvesting Marketreport 2016” the real estate sector has become the largest crowdfunding borrower. Reason enough to let Professor Dr Jochen Panzer explain this phenomenon.
Crowd financing, which also includes crowdfunding, is a type of financing in which a project is financed by a large number of investors, the so-called crowd. Depending on the design, the investor receives financial or material compensation for their contribution (the money he/she makes available).
Despite small amounts, many benefits
The topic is definitely getting a lot of hype lately. Crowd financing is actually especially suitable for smaller, young companies because they tend to raise smaller financial amounts. However, for borrowers there are also solid reasons that make crowd financing an attractive option: the advantages of refinancing equity, avoiding creditworthiness checks by banks, a high degree of control by the initiators and positive marketing and communication effects can all exceed the actual financial contributions.
Everyone can participate
Basically, anyone can participate in crowdfunding projects via platform sites such as Kickstarter or Startnext (for an overview of crowdfunding platforms see: Crowdfunding.de). If the crowd financing involves large sums of money for investment, as is the case in financing real estate or gastronomy ventures, the platform operators expects investors to understand the risk of total loss. For this, previous use of financial service products is assessed and documented and the investor receives extensive information about the product. Because the amount the investor has provided is usually subordinated capital, there is little chance that it will be repaid if the project fails to achieve the hoped for success.
Attractive potential returns
Above all, there are opportunities for attractive remuneration and interest. Emotional involvement in the project also should not be underestimated. For example, investors in Frankfurter Brauhaus im Henninger Turm not only receive interest, but also enjoy a 10% discount on their food bill when it exceeds a certain amount. Customer loyalty can also be nice for the customer.
More information about this topic can be found in Immobilien & Finanzierung 9/2017, page 24-26: “Crowdfinancing aus Sicht von Kapitalnehmern” by Prof Dr Dirk Schiereck, Prof Dr Jochen Panzer, Rias Wardack