Help me understand how crowdfunding works.
I recently saw [an article about a crowdfunding startup in Atlanta](http://www.atlantaintownpaper.com/2013/12/real-estate-crowdfunding-startup-launches-midtown/). I checked out the [website for the property](https://www.groundfloor.us/investments/1) and it piqued my interest. 

Can someone help explain how deals like this work?
[{"id": "ceeh7a8", "text": "My guess was as follows:\n\n**Investors**\n\nThey make 8.25% on their money. If they invest $1,000 one year later they receive $1,082.50. \n\n**Developers**\n\nThey receive $300,000 from investors and use it to fix up the property. In the end, they owe $324,750 and own a rental property with 4 units. \n\nAccording to their website \"Rental rates are expected to range from $750 to $1,400 per unit per month based on area comparables.\"\n\nSo assuming there are two big units at $1,400 and two small units at $750. That's $4,300 per month and $51,600 annually.\n\nSo what I don't get is when they hit the one year mark, do they go get a new mortgage for the $324,750 and pay all of the investors back? If so, assuming the interest rate is around 5%, is their take the 10% difference between the interest rate and the rent they collect? I guess that if the building ends up being worth more than $324,750 they would also have that equity. And this also doesn't take into account any transaction fees. \n\nIt seems like a great deal for the developer as long as they pick a good house and don't screw it up. They essentially make $51,000 annually and put up $0 up front. Is this right? What is the long term commercial mortgage that they mention on their website?", "replies": [{"id": "ceh9i6i", "text": "&gt;It seems like a great deal for the developer as long as they pick a good house and don't screw it up. They essentially make $51,000 annually and put up $0 up front. Is this right? What is the long term commercial mortgage that they mention on their website?\n\nThat's pretty much it. It's just like hard money lending. You get money loaned to you for a short period of time until you can secure the investment with a long-term loan. A long term commercial mortgage is just a regular 15 or 30 year commercial mortgage that they're most likely getting from a bank. \n\nThis deal's actually pretty good for both sides. One side spends $24,750 to get a long-term property that most likely cash flows well and the other gets an 8% return on their money as long as everything goes according to plan.", "replies": [], "depth": 2}], "depth": 1}, {"id": "cehyb50", "text": "This is unsecured lending. There is nothing that stops the developer from mortgaging the property and getting more money. I would not do it. Too much risk for a paltry 8%.", "replies": [], "depth": 1}]