Meet Collaperty, a website dedicated to funding real estate investments from multiple parties. Basically, it’s a mix of P2P lending and crowdfunding.
Investors can find other real estate investors who are willing to put up the capital to partner on individual real estate investments.
I’m basically giving them a free ad today, hoping that maybe we’ll get a few answers into how they plan to develop the service and how it can work to fit new crowdfunding legislation.
Real estate made easy
Collaperty is in its early stages. So far, the service works only to connect accredited investors (you gotta be rich!) to one another. It provides little servicing, unfortunately, recommending that deals be worked out between two parties offline, not through its website. For now, it is mostly a listing service.
That’s a bummer, but it’s a step in the right direction.
If nothing else, it’ll get the idea out there that multiple parties can come together through the internet to purchase real estate. Here’s what I’m hoping for:
- Crowdfunding exploitation – A new law allows businesses to raise equity financing from individuals who are not accredited investors. The law gives a cap of 2,000 shareholders for up to $2 million.
- More participants – The crowdfunding law allows for people to invest as much as $2,000 or 5% of their income in the equity of a small business. A small business could be a piece of real estate slapped into an LP with the Collaperty “sponsor” member being the GP. Why they aren’t opening this to more people, I’m not sure. I bet that’s the next step; right now they want to target the big money, and I can’t blame them.
- More liquidity – Prosper and LendingClub allow you to sell notes at any time. Collaperty could easily divide projects into shares and allow homes to trade on an exchange. Make the minimum share something like 1% of the equity value in the property, which would be sizeable enough to avoid mass participation but small enough to be manageable for anyone with a remotely serious desire to get into real estate.
Ultimately, this service could really change the way real estate works. Real estate is tremendously illiquid, and this could really wrap up all the smaller parts of the real estate chain.
Flippers could use the service to sell a home quickly to investors who have a lower cost of capital. Community banks holding scores of foreclosures could list the properties for investors and sell equity in piecemeal. Property management companies would find it easier to attract long term contracts by buying homes and selling them to investors with embedded contracts for their preferred, low-capex part of the real estate pie.
Would you invest in other people’s real estate projects?
I know there are more than a few real estate investors – past and present – who read this blog. Knowing only what I know about them, I’d be willing to throw in a pile of cash on a deal with them, even if I were only going to be a limited partner. Why not? All-cash returns are probably in line with P2P lending returns, but with the safety of a hard asset and cash flows that should increase in line with inflation. Nothing wrong with that!
At the end of the day, I think the benefits of diversification outweigh the control issue of being an LP. Collaperty could quite easily collect historical information from seasoned real estate investors, which would stand as a resume for someone’s real estate credientials. Let the market decide!
On the retail investor side, I can’t help but think that Dave Ramsey fans would love this. Ramsey advocates unlevered investments in real estate, which despite being a position I’ll never wrap my head around, is a popular idea that could be exploited by Collaperty. There’s your man, Collaperty! Take it to the masses with Dave!
This is an idea worth developing. I know with certainty that I would happily invest in real estate projects if I had the opportunity to shop various opportunities in my area and around the country. If there were a liquid market post-IPO, I’d probably stop poking around in the stock market all together.
So I’m curious to know – would you invest in other people’s real estate as a limited partner? How small would each share have to be to pique your interest?