In Oakland and many other cities hit hard by the foreclosure crisis, investors swooped in with bags of cash and scooped up distressed properties to rehab and flip. Much of this investment came from foreign nationals and large US corporations such as Blackstone Group (which spent $8 billion gobbling up 43,000 properties in the past two years, according to Bloomberg). A real estate crowdfunding startup based in San Francisco aims to change the face of those investors.

“We like working with local operators,” says Nav Athwal, Co-Founder and CEO of RealtyShares. The two borrowers for three Oakland properties funded by RealtyShares so far (it started operations in early 2013) are both Oakland residents. Crowdfunding is “a way to access capital that’s much quicker than banks and much cheaper than private money lenders,” he says, noting that the private money lenders are “sort of like a loan shark for real estate,” charging much higher rates than banks.

RealtyShares offers investors a chance to choose which communities and which properties to fund. “We’re still providing a way for investors to access their community,” Athwal says. “A lot of our investors in Oakland [properties] are from the Bay Area.”

Federal rules on real estate investing currently limit the crowdfunding site’s participants to what are known as Accredited Investors: a person or couple with a net worth of over $1 million, excluding principal residence, or an individual with annual income of more than $200,000 or couple with income over $300,000. While this eliminates many Oakland residents, the $5,000 minimum and the ease of use of the platform open real estate investment to a much wider segment of the Bay Area. “Crowdfunding provides a much better access point for lawyers and doctors” and other professionals, Athwal says, noting that a typical minimum for this type of investment is usually $100,000.

RealtyShares aims to make it easier for smaller investors to participate in the real estate market.

RealtyShares aims to make it easier for smaller investors to participate in the real estate market.

“The original thought was this was a platform where anyone could access real estate,” he says. He was forced to tweak the model to work solely with Accredited Investors and list properties behind a firewall. Although he is “trying to figure out ways to expedite the passage of the crowdfunding” rules due from the SEC, Athwal says, “I’m not holding my breath.”

As on other crowdfunding sites, RealtyShares investors put money on a specific property, based on the description on the site. If the property meets its funding goal within the deadline, the borrower gets the capital. If not, all the money is returned to investors.

While Athwal says some amount of loan default is inevitable, the crowdfunding site has had no defaults so far in the 50 properties they have funded during the past 15 months in 12 states.

Athwal believes that real estate investors benefit communities by taking dilapidated houses and rehabilitating them, adding value to neighborhoods. RealtyShares has also been directly involved in building social equity: it funded an affordable housing project through the National Community Stabilization Trust, where local operators were given first access to bank-owned properties if they agreed to sell them to people with lower incomes. “We’ve had conversations with the Trust about how we could do that on a larger scale,” he says.

“Real estate is part of everyone’s life,” Athwal notes. He wants to make real estate investment available to more Bay Area residents. “We’re very bullish on crowdfunding real estate,” he says, adding, “We definitely intend on continuing to be active in Oakland.”

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