Crowdfunding for real estate is gaining more attention among real estate investors. As a potential real estate investor, you too will know exactly what crowdfunding is about and how to jump on the bandwagon.
In this guide you can find all about real estate crowdfunding if you are new to the game!
What Is Real Estate Crowdfunding?
The basic concept behind crowdfunding is using social media platforms to raise funds for a project. This helps to promote projects to other people, who would otherwise have no idea how to access them and score great real estate deals.
In this way, it makes sense that investment in real estate and crowdfunding have come together. Real estate investors and developers now have means of selling private property developments to other buyers that may not normally have had access to them. Investors in real estate select what investment opportunities to seek and then benefit from their return on investment.
What Are the Types of Investments in Real Estate Crowdfunding Deals?
Buying investment property means that real estate investors have full ownership of the property and are investing in its interest. There are two types of investments with real estate crowdfunding: equity investment, and debt investment.
Investment in commercial or residential real estate means a real estate investor must hold an equity interest in the investment property. The return on investment would come from the investment property in the form of a part of the rental income.
Debt investments mean real estate creditors are investing in the property’s mortgage loans. The return on investment comes from a proportion of the loan interest payments.
Why Choose Crowdfunding in Real Estate?
If you are an investor in real estate or someone trying to borrow money for a real estate investment project, crowdfunding has several advantages over conventional real estate investments.
- Real estate investors may spend less money than they usually spend in immovable property. This is because there are many real estate investors coming together to fund an immovable building. As a consequence, the risk they each take on is smaller.
- Don’t have an immobilization network? Real estate crowdfunding reduces the need to be well established to find good investment opportunities for real estate or non-traditional financing methods for investment assets.
- Many potential real estate buyers aren’t able to commit to buying investment property. Owning and running an investment property involves coping with upkeep, renovations and tenants. Real estate crowdfunding removes all these liabilities and also helps real estate investors to enjoy making money from investment in real estate. For real estate investors, this comes down to passive profits.
- Borrowers no longer need to think about the funding methods for investment properties. With real estate crowdfunding, the exposure to numerous real estate investors helps them to find financing quickly. Fees on loans and interest rates are smaller than those of mainstream banks. Real estate crowdfunding among other investment property financing methods may potentially be the strongest.
- Investors in real estate will work closely with developers and have more say in the process than in other forms of real estate investments.
- Also without owning investment property, real estate investors can still benefit from tax benefits with crowdfunding for immovable assets.
- Many crowdfunding sites provide a range of options for real estate investment to choose from. Investments in immovable property vary from commercial to residential properties. Which means real estate investors can quickly diversify their portfolios of investments.
What Should You Bear in Mind?
As with every investment in real estate, real estate crowdfunding has a few aspects that real estate investors must be mindful of.
- Real estate crowdfunding is also driven by the real estate market and investment patterns in residential real estate. It is not resistant to the ups and downs of the real estate market while it might sound like an entirely different type of investment in real estate. Investors in real estate must be familiar both with the real estate industry and with the investment patterns in residential real estate.
- For crowdfunding real estate the chance of investment default is higher than with purchasing investment property directly.
- Typically buying investment property means a real estate buyer can have more options when selling. With crowdfunding for real estate, there is only one market to sell to, which reduces liquidity.
- Although platforms for real estate crowdfunding have a mechanism in which they accept opportunities for real estate investment, this does not mean that any advertised investment will be the best investment in real estate. Research the investment in real estate as you would when buying investment properties to ensure it’s going to be a successful deal.
Who Can Invest with Real Estate Crowdfunding?
According to the once strict rules of real estate crowdfunding, only approved real estate investors may invest. That meant that only real estate owners had a net worth of one million dollars or others eligible to have a $200,000 annual salary. Households with two salaries had to make $300,000 a year to engage in crowdfunding for immovable property. Unless you wanted to learn how to invest with no capital in real estate, this would not have been a choice for you to invest in real estate.
The laws, however, have become more lenient, enabling smaller investors to get into crowdfunding for real estate. With an annual income of $100,000, real estate owners can now spend up to 10 percent of their profits. Investors that invest less than $100,000 in real estate are entitled to 5%. The doors of real estate crowdfunding have opened for the vast majority of real estate investors, even with the limitations.
Some real estate crowdfunding platforms can choose not to follow the new regulations and only give accredited real estate investors their services. Be sure to test the policies of every real estate crowdfunding site.
How Do You Choose a Real Estate Crowdfunding Platform?
There are more than 50 sites to choose from for the real estate crowdfunding space. Much like conventional real estate investment, in determining which crowdfunding platform for real estate is for them, real estate investors must do their homework.
- Study the founders of the crowdfunding site for real estate. Make sure they have the capital that will allow them to be a long time in business. Test to see if they’re credible and have real estate expertise, investment property financing techniques, and real estate crowdfunding management technology.
- Every site for real estate crowdfunding has its own investment plan for its niche and real estate. Make sure that those suit your own real estate investment targets.
- Find an immovable crowdfunding site which is honest with its real estate investors. When buying investment property, real estate investors should find out every detail before they make a decision. Crowdfunding should be no different from real estate.
- The crowdfunding platform you are considering for real estate will have excellent customer support and open communication networks. That will refer to fundraising both before and after.
Real estate crowdfunding is another form of real estate investment which should be made aware of by real estate investors. This extends the possibilities for real estate investment that real estate investors have, and helps them to invest conveniently online. As long as an investment in real estate requires due diligence with increasing potential investment in real estate, real estate crowdfunding deals will turn into productive real estate investments.