Long seen as a good deal for millionaires, residential real estate investment is becoming more popular thanks to crowdfunding, a model that is already well-rooted in the United States, but which is still in its infancy in Quebec. Portrait of a trend that has the potential to bring real estate back to the neighborhood level and align finance with values of social justice.
Dissatisfied tenants just have to invest in real estate: this statement from the Minister responsible for Housing not only aroused indignation last spring, but also earned France-Élaine Duranceau an unenviable relationship with Marie-Antoinette of Austria, the queen of brioches.
However, there is no need to belong to royalty to play in the real estate arena: undoubtedly without knowing it, the elected CAQ member was evoking a possibility which has, for several years, been within the reach of less fortunate people.
Crowdfunding follows the same principle as crowdfunding, that is to appeal to the general public to sponsor a cause or an idea. The notable difference between the two is the lucrative aspect of the first: where crowdfunding seeks donors, crowdfunding solicits investors. The person who invests his money therefore expects, most of the time, a return on his investment, regardless of his initial investment.
At Uncle Sam’s, this way of financing construction sites has been possible since the adoption of the JOBS Act in 2012. “The Obama administration has ensured that crowdfunding no longer only concerns the collection of donations, but also the collection of investments, explains Eve Picker, founder of Small Change, a crowdfunding platform. The idea was to truly democratize investment. »
Equality, fraternity, real estate
Through portals duly regulated by the United States Securities and Exchange Commission (FINRA) and the United States Securities and Exchange Commission (SEC), promoters lacking financing expose their projects to the public in the hope of raising a sufficient down payment to obtain a bank loan.
The majority of platforms of this type attract investors by displaying real estate projects that promise juicy profitability. Often, the initial investments they require run into thousands of dollars: it is, first and foremost, a big-money affair.
At Small Change, it is the vocation of real estate projects and their accessibility to small investors that takes precedence. Anyone with a minimum of $250 in their pocket can contribute to projects that must meet criteria of sustainable mobility, social necessity and racial equity before receiving approval from the platform.
“If someone comes to us with a project to “flip” a house in the middle of the desert, somewhere in Texas, in a suburb without public transportation,” explains Eve Picker, “they have very little chance of competing with a project affordable densification on a lot that has been vacant for years in a disadvantaged neighborhood. Fundamentally, our mission is to support neighborhoods and developers who don’t really have opportunities in a very institutionalized financial world. »
The platform established in Chicago also campaigns to make the real estate world more inclusive. “It’s still a white man’s game,” she explains. If you go to a large real estate gathering, they will make up roughly 99% of the people there. On Small Change, 63% of promoters are either women or minorities. Helping these groups carry out their projects without having to turn to lenders who impose usurious rates on them makes me very proud. »
Beware of scam
“I’m wary of that: it smacks of a scam. » Professor from the National Institute of Scientific Research Pierre J. Hamel does not go out of his way to express his reservations regarding these financial products.
“If someone tells you to invest $1,000 in a building on the corner of your street, it’s like any financial investment: it requires an inspection,” believes this real estate specialist. Who is going to spend $500 to have a building inspected before investing $1000 in it? Nobody, let’s see, it’s ridiculous. »
In Quebec, it is the Financial Markets Authority (AMF) which regulates crowdfunding under the Securities Act. Since 2015, this has provided that any company that wants to raise funds from the public must first produce a prospectus, a voluminous document often containing several hundred pages and which explains the company’s activities in great detail. The objective is to allow investors to make an informed decision before committing their money.
The prospectus must in particular expose the risks associated with the project. By signature, the promoters attest to the veracity of the information: if the document contains false or misleading data, investors have recourse against the company.
“It’s a way to regulate crowdfunding, without stifling this avenue which was, a few years ago, probably more fashionable and popular than today,” explains Sylvain Théberge, director of communications at the AMF. . The challenge was to know how to give life to these initiatives without opening the door wide to fraud. »
The duty has listed only one occurrence of real estate crowdfunding in Quebec: the Novium development at Plateau McCrea, in Sherbrooke. Presented in 2021 as “a first” in the province, the campaign rallied, at the time, the Olympic champion Bruny Surin. The luxurious condominium housing buildings promised at the time have seen the light of day: the KP Management firm behind the collection, however, did not respond to the Duty, who was trying to find out the success of the campaign and the returns granted since then to investors.