Historically, investing in real estate has been a privilege for institutional investors, corporations, and ultra-wealthy individuals. Smaller investors’ options have been limited to buying residential properties or investing in real estate investment funds.
At the same time, the idea of crowdfunding – pooling money from similar investors to make a joint investment – has been around for centuries. Neighbours have bought property together, and the members of one family – husbands and wives, brothers and sisters and cousins – have made collective real estate acquisitions.
The emergence of digital technologies and borderless finance has created the modern real estate crowdfunding industry. Real estate crowdfunding platforms like Crowdestate provide their investors with 24/7 access to the deal flow, and the secure conclusion of investment contracts takes just a few clicks on the platform. Instead of spending valuable time and money doing due diligence on hundreds of potentially promising real estate investment ideas, crowdfunding investors can browse carefully selected and pre-vetted investments published on the platform.
Real estate crowdfunding platforms allow tens of thousands of individual investors to pool their money to invest in large real estate projects collectively. Depending on the specifics of the real estate project, crowdfunding investors could be either secured or unsecured lenders or take an equity position and participate in sharing the project’s profits.
It allows you to invest in various properties, from residential developments to commercial ventures, without the traditional hassles of mortgages, contractors, and property management. It’s a win-win for both investors and real estate developers.
Exploring Investment Options: Equity vs. Debt
Real estate crowdfunding offers two primary investment options to cater to your preferences:
- Equity Investments: Become a part-owner of a property and enjoy the potential for higher returns through rental income and property value appreciation. However, equity investments have a more extended holding period and a higher risk profile.
- Debt Investments: Essentially, you’re lending money to the developer in exchange for fixed-interest payments. Debt investments offer lower risk and shorter holding periods, but the returns are typically fixed and may be lower than equity investments.
What are the benefits of real estate crowdfunding?
The number of benefits real estate crowdfunding provides to investors is extensive, and here’s the list of the most important ones:
- Real estate crowdfunding is available to everyone looking to invest in real estate. Investors do not have to be sophisticated, accredited or have high net worth to be able to invest on real estate crowdfunding platforms.
- Investors can pick their deals and ultimately control their investment decisions. This allows investors to build a real estate investment portfolio tailored to their return expectations and risk tolerance.
- Investors have access to institutional-quality real estate investments that require large amounts of capital and would remain unattainable to them without being crowdfunded.
- Investors have access to a geographically broad range of real estate investments. Historically, investors have been limited to their home town or county, and thus, the selection of available real estate investments has been minimal. Also, keeping the investments concentrated in a minimal geographic area results in an unnecessary diversification risk.
- Investors can remain passive and focus on making suitable investment decisions and collecting returns. As a real estate company raises crowdfunded capital, it will remain responsible for executing the business plan and managing the project daily.
- A low minimum investment per project allows one to quickly build a geographically and asset-diversified real estate investment portfolio. Crowdestate, for instance, has set the minimum investment per project at just 100 euros.
- The secondary market provides liquidity to investors’ real estate investments if needed. Typical real estate investments are relatively illiquid. The urgent need to turn some of them into cash might take several months or result in a deeply discounted exit price. Leading real estate crowdfunding platforms have created highly liquid secondary markets where investors can buy and sell their real estate investments.
Understanding investment risks
Every investment has inherent risks, and real estate crowdfunding is no exception. Here’s a breakdown of the key considerations:
- Market Risks: Property values can fluctuate with any real estate investment.
- Developer Default: There’s a possibility that the developer may not be able to fulfil their financial obligations.
- Liquidity Limitations: Real estate crowdfunding investments typically have longer holding periods, meaning your money might not be readily accessible.
Takeaway
Real estate crowdfunding presents a compelling opportunity to diversify your portfolio and achieve attractive returns. However, remember, it’s not without risks. By carefully considering your investment goals and risk tolerance and choosing a reputable platform like Crowdestate, you can confidently navigate the exciting world of real estate crowdfunding.
Happy investing!
