Reading time: 1.20 min
When I asked my friends about where to invest, I always got the same answer: take the money as a downpayment, get a loan for the rest, and buy an apartment with the goal to rent it. That’s what I did for my first real estate investment, and what I call traditional real estate investing.
My name is Marco Schwartz, I am an online entrepreneur, and I also one of Crowdestate’s investor. In this article, I want to tell you why I now prefer to invest in real estate crowdfunding by telling you the 5 advantages of real estate crowdfunding over the traditional way to invest in real estate.
My story with traditional real estate investing
A few years back, I invested most of my capital into real estate, by buying a small apartment in Germany, which I then rented to good tenants that were paying on time. Even though the yield was not high (around 4%), and it took a lot of my time to manage the property, I was happy to finally have managed to create some passive income for myself.
However, three years after I bought the flat, things started to go south. First, Germany came up with a new law that put the agency fees of finding a new tenant on the owner, and not on the tenant anymore. For me, having tenants that only stayed for one year, it meant losing about 20% of my yearly income.
Worst, my last tenant actually completely ruined the flat by not cleaning all year long, and I actually had to invest most of my earnings of the whole year before this event to put the flat back in a good shape. I was disgusted and ended up selling the flat.
That’s the moment when I discovered real estate crowdfunding platforms like Crowdestate. I didn’t really know what it was at the start, but since then I invested a large portion of my money in real estate crowdfunding, and never regretted it since. Let’s see what makes real estate crowdfunding great compared to traditional real estate investing.
1. It is actually completely passive
The first advantage, and the one that I like the most, is that it is completely passive. With traditional real estate investing, a lot of ‘gurus’ of real estate claim that it can also be completely passive, however, that’s only true if you already have a huge portfolio and enough income to be able to afford a whole team to manage your portfolio for you. For most of us, that’s just not the case. And even if you give your flat to an agency to manage it, you will still have to spend some time managing your property.
Real estate crowdfunding, on the other hand, is passive from the start. Every deal you invest in is completely handled by the platform from start to finish, and the only thing you have to do is to make the initial investment. And even this can be automated with the Autoinvest functions that are available on most platforms, for example on Crowdestate.
2. You can get started with a small capital
What I really don’t like with traditional real estate investing is that you actually can’t even get started if you don’t have enough money for a downpayment (usually at least 20% of the price of the property). And even when you have that, you still need to get a loan for the rest of the amount.
With real estate crowdfunding, the game is completely different. You can get started even with very small amounts, as you invest in each project with hundreds or even thousands of other investors. On Crowdestate for example, you can get started with as little as 100 Euros.
3. You can easily diversify your portfolio
What really frightened me with my first real estate investment is that nearly all my capital was tied into one single investment. If the tenant stopped paying, for example, the yield of my portfolio immediately went from 4 to 0%. And that’s the case for most people that actually invest in traditional real estate, as they usually don’t have enough capital to purchase multiple properties.
This is something you can quickly solve with real estate crowdfunding. Indeed, as the amounts invested are low, you can easily diversify on multiple projects. For example, my own Crowdestate portfolio is currently composed of 12 different projects. So even if one of those has a problem, my overall yield won’t be impacted that much.
4. You get much higher returns on investment
Remember when I told you I got a 4% annual yield with my traditional real estate investment? Well, that was in the best case, where absolutely nothing bad happened during the rental period. If anything broke in the flat, or if I had a bad tenant, this yield would just be crushed.
With real estate crowdfunding, however, you can invest in parts of the world, like where Crowdestate find its deals, where yields are much higher, usually above 10%. Not bad for completely passive investments. That’s nearly three times what I had with my apartment, and I have nothing to worry about at all. My own Crowdestate portfolio for example currently has an expected yield of 13.75%. Note that I actually wrote a detailed review of Crowdestate on my website, in which I show you my personal investments on the platform and which I regularly update with my latest returns on the platform.
5. Professionals do the hard work, not you
When I bought my first apartment, I honestly had no idea of what I was doing. I was interested in real estate, but that doesn’t make me a professional, or an expert of the local market where I was investing. I actually made some capital gain on the later sale of my apartment, but that was pure luck.
Compare that to real estate crowdfunding platforms, where you actually invest in deals selected by experts in their fields, and whose job is actually real estate. This way, you don’t have to do any of the tedious work to learn about real estate & about the market where you are investing: it’s already done for you by people who know what they are doing.
So I hope that those 5 points really showed you the advantages of why to start investing in real estate crowdfunding compared to traditional real estate. If you are someone who is busy, wants to invest in completely passive assets, but yet expect high returns from your investments, then real estate crowdfunding is the right solution for you. And for that, I really recommend using Crowdestate as it’s a great platform proposing high-quality real estate projects.