Crowd funding has been the buzzword in the last few years when it comes to startups, prototype development and other types of projects. Well, guess it was a matter of time before it came to real estate. I thought it is quite a novel idea though to have the downpayment crowd funded in exchange, the owner gives up some equity in the house when they sell. The in depth article can be read here.
Of course as an investor I cannot but help wonder a few things
1. What happens if the owner defaults and goes into foreclosure? Do the crowd funders have first right to take over the property?
2. What happens if the value of the house falls? Do the investors take a share of the loss as well?
3. What happens if the owner wants to sell at a loss to move due to some sort of emergency? do the investors have the right to veto the decision to sell at a loss?
4. can the homeowner take out home equity against the amount put in my the investors?
For myself, I like to keep my deals simple so everyone knows where they stand and what they’ll get back with the risk of loss being minimized. But I still think it is a fascinating and novel idea.
