The announcement that RealtyShares was shutting down only 14 months after closing a $28 million Series C round caught me by surprise. While I expect to see many failures as the real estate crowdfunding sector matures, I did not expect RealtyShares to be one of the early losers. A venture backed site (over $60 million raised) with good deal flow seemed to be on the path to long term viability.
I had an open investment on ifunding when that platform failed back in 2017 (Crowdfunding Nightmare). This experience made me acutely aware of platform risk. I think the value proposition of real estate crowdfunding is that it allows investors to make smaller investments so they can build a diverse portfolio to reduce sponsor specific risks. However, crowdfunding sites create platform risk where several investments can stop performing because of a single platform failure.
I think for the near term, matchmaker crowdfunding sites like RealCrowd that facilitate investors participating directly with sponsors, rather than buying parts of deals and then repackaging them into smaller pieces for investors, are the best way to participate in real estate crowdfunding. Investors will definitely face higher minimums (25k+) but reduce their counterparty risk by investing directly with the sponsor.
I think the killer application for RE crowdfunding would be a service that creates a distributed ledger that significantly reduces administration costs for the sponsor making it economically feasible to accept a larger number of smaller investors.
Please use the comment section to share your thoughts on your real estate crowdfunding experience. I have included some relevant articles below.
Financial Samurai discusses The Sad Demise of RealtyShares
Ben Lane on Housingwire
Disclosure: While I am member of both platforms, I have not participated in deals on either platform. I enjoy listening to the RealCrowd Podcast.