The general idea behind real estate crowdfunding is that when a developer or experienced real estate professional identifies an investment opportunity, they don’t always have the ability (or desire) to completely fund the investment on their own. So, they’ll allow individual investors to contribute some of the project’s capital in order to raise enough money to execute their plan. There are three key players in any crowdfunded real estate investment opportunity. First, the sponsor is the individual or company that identifies, plans, and oversees the investment itself. The deal’s sponsor will facilitate the purchase of the asset, arrange for any contractors or other needed work, arrange financing, and take responsibility for the eventual sale of the property. Deal sponsors generally contribute some of the project’s funding themselves and are also entitled to a certain share of any profits they earn for the deal’s investors. Second, the crowdfunding platform is where the sponsor finds investors to raise the necessary capital for a project. Think of the platform as the middleman between investors and sponsors. The platform will ensure a deal meets certain standards, advertise deals to potential investors, guarantee that investors meet the requirements for investment, and deal with regulatory issues. The platform will also collect investors’ funds on behalf of the sponsor. Finally, the investor (that’s where you come in) contributes some of the deal’s required capital in exchange for a share of any profits the deal produces. An investor may get some sort of income distributions and/or be entitled to a proportional payout from an eventual profitable sale. Here’s a simplified example of how this might work: Let’s say that an experienced real estate developer — the sponsor — identifies an office building that is outdated and lacking modern amenities — and is only 50% occupied — for sale at a price of $5 million. After a thorough analysis, the sponsor determines that they can invest $3 million in renovations and improvements, lease up the vacant space, and triple the property’s rental income. Not only that, but once occupancy is stabilized in three or four years, the building will also have a market value of $12 million, at which time the sponsor will sell the property.