When I asked my friends 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 of renting it. I did that for my first real estate investment, which I call traditional real estate investing.
My name is Marco Schwartz. I am an online entrepreneur and an investor in Crowdestate. In this article, I will explain why I now prefer to invest in real estate crowdfunding and the five advantages of this method over traditional real estate investing.
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 who 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 created some passive income for myself.
However, three years after I bought the flat, things started to go south. First, Germany passed a new law that shifted the agency fees for finding a new tenant to the owner and not to the tenant anymore. Having tenants who only stayed for one year meant losing about 20% of my yearly income.
Worst of all, my last tenant completely ruined the flat by not cleaning it all year, and I had to invest most of my earnings from the whole year before this event to put it back in good shape. I was disgusted and ended up selling the flat.
That’s when I discovered real estate crowdfunding platforms like Crowdestate. I didn’t know what it was at the start, but since then, I have invested much of my money in real estate crowdfunding and have never regretted it. Let’s see what makes real estate crowdfunding great compared to traditional real estate investing.
1. It is actually wholly passive
The first advantage I like the most is that it is entirely passive. With traditional real estate investing, many real estate ‘gurus’ claim that it can also be completely passive. However, that’s only true if you already have a considerable portfolio and enough income to afford a whole team to manage your portfolio. 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. The platform handles every deal you invest in from start to finish, and you only have to make the initial investment. This can even be automated with the Autoinvest functions available on more advanced platforms like Crowdestate.
2. You can get started with a small capital
I dislike traditional real estate investing because you can’t even get started if you don’t have enough money for a downpayment (usually at least 20% of the property’s price). 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 entirely different. You can get started even with tiny amounts as you invest in each project with hundreds or thousands of other investors. On Crowdestate, for example, you can get started with as little as 100 euros.
3. You can quickly diversify your portfolio
What really frightened me about my first real estate investment was 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%. That’s the case for most people who 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 promptly diversify on multiple projects. For example, my Crowdestate portfolio is currently composed of 12 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? That was the best case, where nothing wrong happened during the rental period. This yield would be crushed if anything broke in the flat or I had a bad tenant.
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%. It’s not bad for completely passive investments. That’s nearly three times what I had with my apartment, and I have nothing to worry about. My own Crowdestate portfolio, for example, currently has an expected yield of 13.75%.
5. Professionals do the hard work, not you
When I bought my first apartment, I had no idea what I was doing. I was interested in real estate, but that doesn’t make me a professional or an expert in 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 invest in deals selected by experts in their fields and whose job is real estate. This way, you don’t have to do tedious work to learn about real estate and the market where you are investing: it’s already done for you by people who know what they are doing.
I hope those five points showed you the advantages of investing in real estate crowdfunding compared to traditional real estate. If you are busy and want to invest in entirely passive assets but expect high returns from your investments, then real estate crowdfunding is the right solution for you.
I recommend using Crowdestate, a marvellous platform providing high-quality real estate projects.
