Here’s the offer: a new startup company of tech experts and lawyers will let you invest up to $1,500 in a new condo development being built in, say, Montreal or Quebec City. Or Vancouver, Moncton or even Halifax.
The targeted return on your investment is between eight and 12 per cent, within one to three years. That’s much better than a government-issued bond or certificate, and in many instances better than a ETF, too.
Do you take the deal?
And what about a real estate developer looking to fund a new project in a time when banks are more hesitant than ever to lend on anything less than difficult terms? Would a developer jump on a better offer than private lenders taking between 15 and 25 per cent interest?
For both parties it seems like one heck of a deal. It’s one that Montreal and Quebec City-based real estate crowdfunding platform Realstarter is happy to offer.
Founded this year by computer engineer Do Nguyen and lawyer Jean-Sebastian Drolet, Realstarter allows people to invest up to $1,500 in real estate projects driven by experienced developers. Dictated by rules from the l’Autorité des marchés financiers (AMF), the developers can raise a maximum of $500,000 in one year.
In return for their investment the participant receives a return in the form of equity or debt. They’ll own shares in the company through a loan that the developer takes from the individual, Nguyen told La Presse’s Jean-Michel Genois Gagnon Monday.
RealStarter will be available in Quebec, British Columbia, Nova Scotia and New Brunswick. The startup wants to get a second license from the AMF that would allow developers to raise $1.5 million instead of $500,000, bumping up each individual maximum investment to $2,500. And under this second license, accredited investors would be able to pitch in a maximum of $25,000 to projects.
Since its inception in 2011, crowdfunding has increasingly become a real estate fundraising solution throughout the world, primarily in the United States, England and France. In 2015, the global market was valued at $ 2.54 billion. In Quebec, the AMF serves as the regulatory body for equity crowdfunding.
And at a time where it’s really hard for people to borrow money, whether it be for buying a house or developing a couple condo buildings, one developer told La Presse that startups like Realstarter are a boon.
“In 10 years…buying property and developing land, I’ve never seen funding this hard to get,” said Yanik Guillemette, the president of Guillemette Properties. “RealStarter is refreshing the market.”
Guillemette posted a project on Realstarter asking for $250,000 over three years to execute the first phase of a a development of thirty micro-chalets in Saint-Tite-des-Caps. Guillemette is promising investors a minimum return of 8 per cent per year.
“The social economic factors are very much favouring us right now to get in the ring of financing real estate projects,” Nguyen, a graduate of both Concordia University and Laval University, told MTLinTECH. “If anything, we’re a little late. The equity crowdfunding market has been really successful for six years in France the UK and the US.”
Realstarter earns money through a five to nine per cent commission on the campaigns. Each campaign lasts 90 days. “And if the goal is not reached, return the money to investors,” Nguyen told La Presse.
The only thing left, really, is for the average Joe to be able to trust young, unproven companies like Realstarter. For Nguyen that means establishing a positive track-record right off the bat. He said it’s imperative that the site’s first few projects need to be successful projects by developers with solid reputations.
“The company also needs to do a lot of education that there’s another way to invest money in real estate. You don’t have to have a big amount of money to start with. And of course we need some early adapters to trust us and invest, and then with a few projects under our belt we hope the masses will come.”
PHOTO: Realstarter cofounder Jean-Sebastian Drolet.