Abstract

The emergence of real estate crowdfunding (RECF) in recent years has provided an appealing opportunity for investors to contribute to a real estate investment with a small amount of money. In response, this study focuses on two major issues. First, it is examined whether sponsors select the location of RECF properties prudently. The differences between neighborhoods containing RECF properties and the adjacent neighborhoods in the metropolitan statistical area (MSA) are compared. Second, the relation between the attractiveness of the selected counties and the sponsor’s distance from the RECF property is examined. Since some RECF sponsors select properties that are at a considerable distance from their headquarters, they do not have thorough information about the target market, and so need to compensate for the information asymmetry and monitoring costs by selecting properties in more attractive locations. A set of RECF properties was manually gathered from seven leading U.S. real estate crowdfunding platforms, while market information and socio-economic data about the properties were extracted from CoStar and the U.S. Census Bureau, respectively. The empirical results demonstrate that RECF properties are found in neighborhoods that are more attractive than the average neighborhood in the same MSA. The results also support the argument that sponsors’ increased distance from their RECF properties lead to their selection of more attractive counties with the better socio-economic conditions than the average county in the MSA. This causes sponsors to benefit from the potential price appreciation of RECF properties provided by an attractive real estate investment location.