Success Drivers of Online Real Estate Crowdfunding Using Platform Data

Abstract

Real estate crowdfunding, the raising of a number of relatively small amounts of capital from a large number of people (the "crowd"), has gained widespread popularity in recent years and has the potential to provide financing for an increasing share of real estate. While real estate crowdfunding is the fastest growing segment of the global crowdfunding industry, stakeholders have little guidance on what are the success drivers which motivate backer's investment decisions. The purpose of this exploratory study is to gain insight into the relevant factors that influence both funding success and the amount of days it takes a solicitation to meet or exceed its target commitment amount based on the data provided to potential investors on the online crowdfunding platforms. This research utilizes an open source preprocessing tool and machine learning algorithm collection in a multiple step knowledge discovery process. The data-set consists of 275 debt offerings with 16 attributes from a leading real estate crowdfunding platform in the United States. This study is the first to use data mining of platform data to explore the success drivers for online real estate crowdfunding, providing owners, developers, managers and the crowdfunding platforms with insights that can support the decision to use crowdfunding and how to design projects and offerings for funding success. Results reveal the subset of factors which are most and least relevant to motivating backers and indicate that the factors which are relevant differ between residential and commercial real estate offerings. Findings also reveal that the criteria for motivating backers in a crowdfunding context are different from other real estate investments and that real estate crowdfunding has some similarities and differences compared to equity and reward crowdfunding.