Crowdfunding Real Estate Growing, But Remember to Research Before Investing: Experts
TORONTO – Across the bridge from Granville Island, British Columbia, sits a 45-apartment building atop a Subway restaurant and nail salon. While the Lex may look like its neighbors, its future investors are hardly the norm.
TORONTO – Across the bridge from Granville Island, British Columbia, sits a 45-apartment building atop a Subway restaurant and nail salon.
While the Lex may look like its neighbors, its future investors are hardly the norm.
More than 1,000 people are expected to pay as little as a loonie for an equity stake in the building through Addy – a Vancouver-based company offering crowdfunded real estate investments to help even less expensive Canadians. more cash-strapped to take advantage of the housing market.
Since 2018, Addy has offered investments in six properties and will soon add 16 more, but faces competition from North American rivals NexusCrowd, Fundrise and RealtyShares, which offer real estate opportunities based on crowdfunding.
Industry watchers predict more are on the way as house prices soar in Toronto and Vancouver, but say potential investors should do their research – even if it is a nominal amount.
âLike any new product or concept that comes out, it requires due diligence on the part of any investor,â said Tina Tehranchian, senior wealth advisor at Assante Capital Management Ltd.
Like most crowdfunding real estate companies, Addy begins by identifying investment opportunities and subjects them to a due diligence process that includes a line-by-line review of financial statements and approval of an investment committee for s. ‘ensure that every property has a healthy economy.
Once the property is obtained, it divides the investment in equal increments of $ 1. For example, a $ 500,000 opportunity is divided into 500,000 units.
Once they have purchased a subscription for $ 25 per year or $ 500 for five years (which promises various benefits), investors are advised to put as little as $ 1 or as much as $ 1,500 into each building. Investments are blocked for periods which vary depending on the building.
There are no fees on transactions, acquisitions or withdrawals because the platform’s goal is accessibility, said Addy co-founder Stephen Jagger.
âThere is no opportunity where we would ever win on a property and (investors) lose,â he said. “One of our core business values ââis win-win or no deal, so we’re completely aligned with our customer base.”
Addy was created after a developer approached co-founder Michael Stephenson about investing $ 1 million in real estate. Stephenson asked if he could make the investment with friends.
The developer agreed and the minimum contribution was set at $ 50,000, which disappointed someone looking to contribute $ 10,000.
âIt kicked off that first conversation,â Jagger said. “Maybe there is a better way and maybe you can use technology to unlock real estate, remove barriers to entry, and allow everyone to participate, not just the rich.”
So they started Addy with properties in British Columbia, Ontario and Alberta and quickly attracted young investors who were priced off the market but eager to get into the real estate game. Some have invested in the buildings they live in, while others have looked for them in nearby or hot markets.
If you want to join them, start by reading the offering memorandum attached to a property, said Stephanie Douglas, partner at Harris Douglas Asset Management.
Addy’s includes information on how invested funds will flow through the business and other entities, costs associated with properties, short-term goals and expected returns.
Pay attention to who is listed as managing the investment, as projects will depend heavily on it, and look at the options you have if something goes wrong, Douglas said.
The Ontario Securities Commission does not offer specific advice on platforms like Addy, but said that crowdfunded investments âcome with increased risks, including the possibility of losing the entire amount invested, a lack of details generally available in a prospectus and possible restrictions on resale. “
Canadians, he said in an email, should always check to see if anyone selling them an investment is registered with the Canadian Securities Administrators at checkbeforeyouinvest.ca.
Harris also suggested searching for terms as crowdfunding offers often prohibit investment withdrawals for a certain period.
âMake sure that, if you’re investing in something like this, it’s not cash that you need in the short term,â Douglas said.
Meanwhile, Tehran believes people should set realistic expectations and consider what might happen if the markets get colder.
âWe’ve been in a bull market for the past two decades, but if we encounter a bearish cycleâ¦ it could mean that prices could go down for 10 years or more before they start to stabilize and recover, and you may have to hold onto the investment longer than you think, âshe said.
But that does not mean that the model is without advantages.
Its clients often put their money in properties or real estate investment funds, but a REIT can be “like a black box,” Tehranchian said.
Investors may not know which properties are owned by a REIT, but a crowdfunding model comes with transparency and tangibility.
âYou can drive past the property and brag to your friends that you have a share in that property,â she said.
“It’s that pride of ownership that … you don’t get when you invest in a REIT.”
This report by The Canadian Press was first published on May 27, 2021.
Tara Deschamps, The Canadian Press