However, not every deal opportunity is equal. In addition to thinking critically of their objectives, Forbes.com recommends that investors also look into such considerations as how long the portal or platform has been, and seems likely to be, active; how it functions (a mere listing service versus working closely with a broker-dealer, who may or may not also be a concurrent investor); if it has venture backing and/or is sufficiently capitalized to meet obligations; how the crowdfunded money is handled by the portal or platform; and the portal's due diligence and vetting processes for its listed opportunities. Notably, Bloomberg.com cited Ian Ippolito, a Florida-based entrepreneur and founder of The Real Estate Crowdfunding Review, as determining “only one in five of [real estate crowdfunding] sites [pass] the sniff test [of being attractive],” after he evaluated more than 100 such sites for transparency, fees, investment opportunities and venture capital backing. Ippolito opined: “Real estate crowdfunding is still in the hype phase…it will [take time] before the expectations become more realistic. In the meantime, hordes of these platforms feel that 'if I build it they will come.'”

Accordingly, a prospective crowdfunding investor should take the usual precautions such as limiting the exposure of their investment portfolio and not investing funds that they need in the short-term or are unwilling to lose. “There's going to be very little liquidity [in investing in real estate through crowdfunding investments],” continued Ryan Feit, chief executive of SeedInvest, to Forbes.com, “so unlike investing in a public stock where you can trade your shares the next day if you change your mind, when you're investing in a private company, you're holding on for the long-term, until an acquisition or an [initial public offering] occurs.” In other words, the more direct nature of crowdfunding investment should not alter an investor approaching it as a calculated risk that should be thoroughly appraised.

Finally, it is critical for investors to understand the limited exit strategies. As pointed out by Crowd101.com, the terms and valuation should be included in the documents presented at the time of the initial investment. Such disclosed terms should include any mandatory hold periods and amounts of required investment, and when coupled with the above research of an investor's goals, risk tolerance, and vetting of platform, entity being invested in, and each specific deal, then the prospective investor should be in a much stronger position to make the best individual investment.

Despite the inherent risks, it is clear that the crowdfunding culture is here to stay. And as the crowdfunded real estate industry continues to grow and evolve over the next few years and more information becomes widely available about the more trustworthy players, prospective and current investors should also work closely with their attorneys and professional advisors to fully evaluate and understand the opportunities and risks—financial and legal—that come with navigating such investments.

Manatt, Phelps & Phillips LLP

LOS ANGELES—It is the shared economy, expanded. “The ubiquity of crowdfunding websites like GoFundMe and Kickstarter, coupled with Title III of the Jumpstart Our Business Startups (JOBS) Act going into effect earlier this year and opening up public, online crowd capitalism, made it almost inevitable that crowdfunding platforms geared towards real estate investments would also explode.” That is according to Hana R. Hong, an associate and Michael Polentz, co-chair of the real estate and land use practice group at Manatt, Phelps & Phillips LLP in this exclusive commentary on the subject.

The views expressed in the commentary below are the author's own.

Forbes.com has reported that hundreds of millions of dollars were raised through crowdfunding for real estate in 2015, and Crowdsourcing.org's inaugural report on real estate crowdfunding, 2015CF-RE Crowdfunding for Real Estate, projected that real estate crowdfunding would reach $3.5 billion in 2016, mainly from North America. Clearly, the fervent interest is there for real estate crowdfunding sites like Fundrise and GroundFloor—but in such a young, untested industry, what are some things an interested investor can do to better protect their interests?

First, a prospective crowdfunding investor should have a clear idea of their objectives before buying into an investment and vet, as much as possible, the probability of satisfactorily return on such objectives from the platform they ultimately select. When chosen well, a crowdfunding real estate investment can be an excellent way for an investor to test out a market or property class without investing as much time or resources as they would with a direct real estate purchase. This can especially appeal to non-accredited investors (people earning less than $200,000 annually or have net worths of less than $1 million). These individuals can now participate in crowdfunding opportunities to invest in real estate without meeting one or more of the traditional aspects of real estate investing, such as higher buy-in requirements, additional capital calls during the period of investment, or having accredited investor status.

However, not every deal opportunity is equal. In addition to thinking critically of their objectives, Forbes.com recommends that investors also look into such considerations as how long the portal or platform has been, and seems likely to be, active; how it functions (a mere listing service versus working closely with a broker-dealer, who may or may not also be a concurrent investor); if it has venture backing and/or is sufficiently capitalized to meet obligations; how the crowdfunded money is handled by the portal or platform; and the portal's due diligence and vetting processes for its listed opportunities. Notably, Bloomberg.com cited Ian Ippolito, a Florida-based entrepreneur and founder of The Real Estate Crowdfunding Review, as determining “only one in five of [real estate crowdfunding] sites [pass] the sniff test [of being attractive],” after he evaluated more than 100 such sites for transparency, fees, investment opportunities and venture capital backing. Ippolito opined: “Real estate crowdfunding is still in the hype phase…it will [take time] before the expectations become more realistic. In the meantime, hordes of these platforms feel that 'if I build it they will come.'”

Accordingly, a prospective crowdfunding investor should take the usual precautions such as limiting the exposure of their investment portfolio and not investing funds that they need in the short-term or are unwilling to lose. “There's going to be very little liquidity [in investing in real estate through crowdfunding investments],” continued Ryan Feit, chief executive of SeedInvest, to Forbes.com, “so unlike investing in a public stock where you can trade your shares the next day if you change your mind, when you're investing in a private company, you're holding on for the long-term, until an acquisition or an [initial public offering] occurs.” In other words, the more direct nature of crowdfunding investment should not alter an investor approaching it as a calculated risk that should be thoroughly appraised.

Finally, it is critical for investors to understand the limited exit strategies. As pointed out by Crowd101.com, the terms and valuation should be included in the documents presented at the time of the initial investment. Such disclosed terms should include any mandatory hold periods and amounts of required investment, and when coupled with the above research of an investor's goals, risk tolerance, and vetting of platform, entity being invested in, and each specific deal, then the prospective investor should be in a much stronger position to make the best individual investment.

Despite the inherent risks, it is clear that the crowdfunding culture is here to stay. And as the crowdfunded real estate industry continues to grow and evolve over the next few years and more information becomes widely available about the more trustworthy players, prospective and current investors should also work closely with their attorneys and professional advisors to fully evaluate and understand the opportunities and risks—financial and legal—that come with navigating such investments.