A Beginner’s Guide to Real Estate Crowdfunding
Are you an investor who already has a portfolio of stocks, and you are looking for ways to diversify it? Or are you are just looking for opportunities for investment? Whichever of the two, you will, soon or later, have to learn about the real estate crowdfunding.
WHAT IS A REAL ESTATE CROWDFUNDING?
We all know what crowdfunding platform is. Those are the places where people come together to fund something they like. Real estate crowdfunding is similar.
In the US, most platforms are open only for accredited investors but since the JOBS Act, opportunities have opened up for non-accredited investors too. An accredited investor is considered to be someone who has a high net worth. It is worth mentioning that crowd investing in the US is also open to non-US citizens.
In the USA, platforms like CrowdStreet and AlphaFlow have been the leaders on the market. Their minimum investment requirements, however, have prevented a lot of middle-tier investors to join. For instance, CrowdStreet has a minimum of $25,000 on most individual projects. Of course, it is good to remember – the less you invest, the lower will be your profit.
HOW TO MAKE MONEY CROWDFUNDING REAL ESTATE?
There are a couple of options to consider when choosing real estate crowdfunding opportunities. You can invest in a project that will buy a property that will be later on rented out.
Every crowdfunding project involves a sponsor and investors. The sponsor is the one who provides limited financial investment, and investors are the ones providing most of the funds. The investors are not involved in everyday operations, such as planning and marketing.
Usually, the crowdfunding sponsor will be taking care of preparing the property for rent, finding suitable tenants, and signing rental agreements. In this case, you and other investors will profit from the rental income. This profit will be paid as dividends on your shares in the company.
Another option to consider is investing in a property that might increase its value over time. This type of investment needs a greater knowledge of the property location and development plans for the surrounding area. Once the property is sold, the crowd investors will be paid a profit on the proportion of shares owned.
While we can write a long list of the pros and cons of real estate crowdfunding, there is one thing that you should keep in mind – the liquidity of this type of investment is low. Due to the lack of a secondary market for this kind of deals, it might be hard to pull out and sell your share if you had to.
IS REAL ESTATE CROWDFUNDING WORTH IT IN 2020?
There is no right or wrong answer to the question of whether one should or shouldn’t invest in real estate crowdfunding. Investing in real estate, like in every other industry, comes down to research and calculations. Real Estate crowdfunding is a relatively new business idea. It has been trending for a couple of years now, and despite the risk factors, people are embracing it and trying to take advantage of this relatively new market opportunity.
Before taking the step towards crowd investing, learn all about it. Get to know the sponsor. Even if you never meet him or her in person, it is a good idea to find out about their past projects – do they have any or is this their first project, find out how much have they invested so far in this current project. What return are you expecting? How much are you willing to invest?
WHAT ARE THE MOST POPULAR PLATFORMS FOR REAL ESTATE CROWDFUNDING?
- CrowdStreet is a big player on the market, offering a potential for high returns. It allows accredited investors to sign up, with very limited opportunities for non-accredited investors. The platform has established higher minimums for initial investing – ranging from $25,000 to $50,000.
- RealtyMogul is one of the most popular real estate crowdfunding platforms because it is easy to use, and it also allows accredited as well as non-accredited investors. Another big plus with RealtyMogul is the lower minimum initial investment.
- Groundfloor is a platform that is mainly targeting the middle-tier investors. As a matter of fact, you can invest as low as $10.
- EstateGuru – Up until recently, they have been offering development loans and construction loans mainly in Estonia, where they are based, but they have been gaining popularity in other European countries as well.
- Housers is another European real estate crowdfunding site. Their main target is the real estate market in Spain, but they have also been expanding and including neighboring countries.