Crowdfunding: What’s in it for investors?

As many U.S. investors cash in on real estate opportunities through crowdfunding, Canadian investors are also taking advantage of the alternative financing option here at home.

Tim McKillican, president of Open Avenue, one of Canada’s first real estate crowdfunding platforms, said: “We’re seeing more investors getting involved in crowdfunding real estate deals and we’re expecting that the Ontario Securities Commission (OSC) will make regulations to allow casual investors to participate in deals in Q1 of 2015.

"Crowdfunding enables the casual investor to get involved in real estate in a way they're comfortable, so they don't need to do it all on their own.

"Investors don't have to deal with midnight phone calls or debt financing, and they can partner with an experienced [developer] to manage the property."

Crowdfunding has grown dramatically over the past few years. According to figures from the National Crowdfunding Association of Canada (NCFA), $1.5 billion was raised globally in 2011 and more than $5 billion was raised in 2013.

Crowdfunding real estate has also been a hot-button topic in the U.S. with the launch of a new iFunding program, which allows investors to make equity investments in real estate.

Currently, throughout most of Canada, crowdfunding for real estate opportunities is only open to accredited investors, meaning investors must own financial assets (excluding real estate) worth at least $1 million, have net assets of at least $5 million, or have a net income of more than $200,000 in the last two years.

Partnering with someone requires due diligence and a certain level of trust, so Open Avenue provides investors with real-time updates, including rental incomes and up-to-date expenses.

McKillican hopes that the company will be able to attract real estate agents and work with them to draw additional investors. "We can leverage that transparency to bring the investment to investors," he said. "You can connect in real-time to the property and its performance."

However, Derik Rehou, a mortgage broker at The Mortgage Centre, is skeptical about crowdfunding because it will demand a strong regulator action from the OSC to protect investors. However, he did acknowledge that investors and others are looking for new, creative ways to finance real estate.

"The available pool of investors is smaller [in Canada than it is in the U.S.]," he said. "The same regulators that held Canada back from the sub-prime mortgage crisis will be very diligent in overseeing any open-market investment plan of this type.

"That said, [this is] a changing marketplace and traditional financing, through banks, is no longer the only option for people looking to buy property as an investment. If it develops into a trend that forces banks to lower interest rates and conditions for mortgages to average people, that would be a great development."




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