SAN FRANCISCO (KGO) --A change in federal law has made it legal to set up crowdfunding for real estate. That has an Internet investment land rush. But before you jump in, there are some things to consider.
One industry review website estimates more than 100 real estate crowdfunding sites are now operating. Should you get involved?
Real estate flipping TV shows have become a national obsession.
"I watch that too," said Amy Cheng. Cheng says her interest in house flipping goes far beyond TV viewing. She is an online real estate investor using platforms like realtyshares.com.
"This is the first time I have ever done any investments in real estate like this," Cheng said.
Using these sites, she is hooked up with developers like Alvaro Sanchez. He's showed 7 On Your Side a house he flipped in San Jose with help from Realty Shares.
"They just moved in this week and they are happy. And they are happy," Alvaro said.
Alvaro said he finds more than just money for a deal.
"It also gives me the opportunity to establish a long term relationship," Alvaro said.
Sounds good for both sides, and with so many real estate investment platforms out there it begs the question: what's the catch?
"These platforms have only been around for three years or less and this is a time when home prices have been appreciating, so there is no meaningful historical track record behind it," said Consumer Action's Joe Ridout.
And that is just the beginning, Ridout points out the government restricts who can invest in these deals.
"To be a qualified investor you have to have some serious bank behind you. You are talking about $1 million net worth or $200,000 in income per year that you can demonstrate before you can participate in this," Ridout said.
But if you meet the threshold, you can invest much less. With Reality Shares, as little as $5,000.
Mark Masterson is the platform's director of investments. "We are vetting each and every sponsor, we're running credit background checks, verifying the track record, doing all of the diligence up front, so that investors know when they're looking at a platform it's been through a process, that the opportunities they are looking at are good opportunities," Masterson said.
Which brings us back to Cheng. She says you really have to do your research; it is not a sure thing. She has lost money on some deals and made money on others.
Finney: "Is this like online dating?"
Cheng: "Yes, you could say it is online dating for online crowd funding. You have to find the right match and not every match is a good investment."
Cheng says this is high-risk and high-reward. Ten percent returns are not uncommon, but investors can be hurt. The SEC only lightly regulates, so it is investor beware. There are no guarantees and investments are not FDIC insured.
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