As per most investors, the Real Estate development realm is alluring and daunting. Add the perceived perception that it’s full of sharks, and it might sound like a path filled with uncertainties. Nonetheless, and as per various aspects of life and business, thoughts can be deceptive.
Real estate investing is an excellent way for individuals to build wealth. It gets better, especially for investors with a compelling urge to venture into real estate but is short on cash. Real estate crowdfunding, a relatively new option in the crowdfunding domain, allows investors to take part in and gain from the real estate market with fewer risks than funding a project on their own.
Akin to other types of crowdfunding, through the internet and social networks, individuals can reach out to potential backers to raise capital to acquire a home, buy rental properties, and in general, anything relatable to real estate. Still, there is more to that. Here is everything you need to know about real estate crowdfunding.
Everything You Need to Know About Real Estate Crowdfunding
As already outlined, Real estate crowdfunding is a relatively new addition to crowdfunding and is progressively gaining ground. Basically, individuals reach out to the public, specifically to investors, to raise funds for investments in real estate assets. They may include apartment buildings, raw land, retail and industrial buildings.
Alternatively, several investors pool their money together to invest in properties or projects that are a bit high-end and could be unfeasible to afford on their own.
Overall, whether as an investor or an individual with the urge to explore realty, real estate crowdfunding might be a viable and streamlining option.
How Real Estate Crowdfunding Works
Through various online platforms, real estate developers can raise funds, primarily in equity investments or debt financing (peer-to-peer lending). Consequently, intrigued backers begin to invest money in those projects.
First and foremost, it would be best to structure your crowdfunding process. What we mean is, considering real estate crowdfunding is a recent entry to the market, legal assistance, and guidance from a lawyer could prove vital down the process.
You have to scrutinize all the options at your disposal. For instance, will the backers get a percentage of their investments back, what’s the span for repayment or what percentage of equity will they obtain from the investment? As you can imagine, it might be overwhelming, especially for a beginner, and legal acumen could play a significant role.
After structuring your crowdfunding process, you must choose the right real estate crowdfunding platform that aligns with your goals. As a starting point, the platform should ensure a deal meets specific standards, broadcast deals to several prospective backers, ensure investors match the investment requirements and handle regulatory issues.
Other factors you ought to consider include:
- The fees the platform charges for a successful campaign.
- The duration to receive the raised amount.
- Can you access the funds before meeting specific fundraising goals?
- If you fail to hit your target, what other alternative lending options can you consider to close the financial gaps?
Also, some real estate developers opt to create their crowdfunding platforms. This applies to tech shrewd individuals. In a nutshell, they set up websites and send email broadcasts to prospective investors, directing them toward a payment page.
It’s worth mentioning that you have to be accredited before investing in most real estate crowdfunding platforms. For instance, investors with deep pockets or high enough capital resources preferably having a net worth of $1 million.
Progressively, real estate developers can attract potential investors through the preferred website. It may take some time before finding the perfect fit for your project. However, with an apt portfolio, displaying your proficiency can go a long way in attracting investors. Intrigued backers will contribute to the project for a share of the profits the deal produces.
Having met the crowdfunding goals, the platform releases the raised funds, and real estate developers can go ahead and acquire the property. Investors can then enjoy their returns on investments. For a successful real estate crowdfunding campaign, scrutinize the percentage entitled to each investor, the project’s total cost, and any possible capital tax gains before launching the campaign.
To sum it up, Real Estate crowdfunding platforms connect real estate developers in need of capital to investors who have it.
Pros of Real Estate Crowdfunding
As mentioned, real estate crowdfunding is progressively gaining popularity and setting up as a feasible alternative for real estate developers and investors. It’s not complex to gather why many individuals are riding on this bandwagon.
Real estate crowdfunding eliminates middlemen, primarily bankers. As a result, investors get higher return rates on their money, and real estate developers benefit from enjoying low-interest rates.
Other benefits include:
- Akin to other forms of crowdfunding, there are lower costs.
- Both investors and developers get to choose investment opportunities that align with their goals.
- With the right crowdfunding platform, you can track the performance of your investment, consequently keeping track of your money.
- Non-accredited investors can generate cash flow without the volatility risk of the stock markets.,
- Investors can team up and invest in substantial projects that might have been impossible to venture independently.
- Lastly, Real estate crowdfunding offers more control than what Real Estate Investments Trust allows. For instance, investors can invest in local, single-family, fix-and-flip projects.
Why Real Estate Crowdfunding Might not Be The Perfect Choice For Your Project
- There is a likelihood that the expected returns might not be high as projected. Or, for some worse scenarios, though rare, there is a possibility of losing your investments.
- Projects are highly illiquid.
- In most cases, one has to be an accredited investor.
- Without a qualified accountant, one might end up paying undesirable tax rates.
Popular Real Estate Crowdfunding Crowdfunding Platforms
As already outlined, choosing a website can be pretty overwhelming. Whether as an investor or a developer, a reputable platform with the appropriate measures, including security and favorable fees, should be your focal point.
The following are some reputable and critically acclaimed crowdfunding sites for real estate.
- Fundraise
- Crowdstreet
- DiversifyFund
- Equity Multiple
- Origin Investments
Real estate crowdfunding sites are a perfect way to diversify financial portfolios while minimizing the risks they take. Also, project managers with a convincing pitch and lucrative ideas can raise the capital they need to flip a home or purchase a rental property.
