Crowdfunding is an exciting new way savvy real estate investors with limited funds can raise capital. Although not a traditional method of raising funds, it’d be best to learn about this fast-rising real estate financing technique as a new investor.
How does crowdfund real estate investing work, and what are its advantages? Let’s delve right in! Here, we will discuss all you need to know about getting real estate investment financing from the masses and the returns an investor will get from being part of another investor’s crowdfunding projects. We will also give you free tips to make the most out of crowdfunded real estate deals.
Contents
Understanding Real Estate Crowdfunding
Crowdfunding real estate investing entails investors coming together to contribute small amounts of money for a huge investment. That way, investors that aren’t finally buoyant can be a part of a substantial real estate investment deal.
Crowdfunding is different from traditional means of raising money because it’s usually done online. You only need to find a great crowdfunding platform like Holdfolio and enjoy the dividends of passive investments.
Nowadays, business owners turn to social networks like Twitter and Facebook to market their ventures to a larger audience of interested investors. More so, real estate investors are also employing crowdfunding as an alternative investment financing option to traditional methods.
For instance, developers use crowdfunding to ask for investments from accredited investors groups. This is why real estate crowdfunding has been speedily growing in popularity amongst new investors these past few years.
Real Estate Crowdfunding Investing Tips
The following are some valuable tips that’ll come in handy for investing in crowdfunded real estate deals:
Don’t Overlook Risk
Real estate investing is a great property diversification method; however, it’s pertinent also to diversify your risks. Consider comparing the projected risk and possible returns to enable you to determine whether equity or debt crowdfunded investments are ideal for you.
Review Investments Yourself
While most platforms vet investment deals before bringing them out for investors, real estate crowdfunding groups aren’t investment advisors so ensure you review the investments yourself and do your due diligence.
Consider taking the deal to a fiduciary or financial advisor to help you discover any potential issues.
Choose Your Platform Carefully
Each real estate crowdfunding group is unique in its way, and some might be better than others. Ensure you research the different platforms to discover the weaknesses and strengths. This is a vital step for every serious investor.
Crucial considerations for commercial real estate investors who want to invest in crowdfunding are several deals, company funding, track record, management credentials, length of operation, and return performance.
Understand Liquidity
There are different liquidity schedules and unique return profiles in real estate for every individual investment. Thus, you’ll need to understand how long the deal will be locked before making the investment decisions.
Real Estate Crowdfunding Facts to Know
Crowdfund real estate investing is one where sponsors pool capital from various investors. This concept has been around for a long time but has witnessed unprecedented popularity in the last few years due to its ability to appeal to many prospective investors online who don’t have any preexisting relationships.
If you’ve seen a KickStarter or GoFundMe campaign for an innovative product or charitable cause, then you’re familiar with crowdfunding. A real estate developer might launch a campaign with a particular target amount in mind in real estate crowdfunding.
The crowdfunding website will include vital information about the deal or sometimes fund and then the projected returns. After that, the proponent will advertise the campaign through various social media platforms to get investors.
Unlike charitable crowdfunding campaigns where people can donate any amount they can afford, even as low as $1, real estate crowdfunding has a minimum investment amount of $5,000 or more.
Real Estate Crowdfunding Benefits
Whether you’re a seasoned investor or only starting your real estate investing journey, finding the essential financing to fund a real estate investment deal is often a challenge.
Many real estate investors are currently taking advantage of crowdfunding to fund their investment deals. More so, crowdfunded real estate investing comes with several notable benefits such as:
- Besides growing your investor network, crowdfunding increases your funding option
- You can promote your business through direct marketing via crowdfunding
- It enables you to save money and time
Real Estate Crowdfunding Types
Real estate crowdfunding entails pooling together funds by many investors for a real estate project. In real estate crowdfunding, there are two types, namely:
Debt Investments
This real estate crowdfunding type entails investing in a particular property’s mortgage loan. Once the loan is repaid, all investors get their interest. However, the debt investment profitability is limited by the mortgage interest rate.
Debt investors often get their interest on a yearly, semi-annual, or quarterly basis.
Equity Investments
Residential and commercial real estate investors often hold equity in the purchased properties when they crowdfund. These investors will share in the rental income portion the investment generates.
Although equity investment offers more considerable return potential, they’re riskier and require a more extended holding period. Most equity investors may wait for three to five years to get their return which might have become affected by recession or other similar changes.
What Investors Own Under Real Estate Crowdfunding
There are many opportunities for you to invest in real estate online. Real estate crowdfunded websites vary widely due to the way they’re structured.
For instance, some of these real estate crowdfunding platforms create a separate limited liability company, LLC for short, for every equity investment opportunity. Investors own the LLC shares, which give them limited liability and some tax benefits.
In some preferred equity and debt investing, the investment is facilitated using payment-dependent notes that belong to the crowdfunding subsidiary. These notes are often tied to an individual subsidiary’s investment or real estate loan performance, and investors own the note itself.
Summary
Suppose you’re looking for how to diversify your portfolio; real estate crowdfunding remains your best bet. You’ll need to do your due diligence and invest only what you can afford to lose.
Hopefully, you’ll use the tips mentioned above to get the best of investing in crowdfunded real estate. Suppose you wish to start but don’t know a reliable platform; consider joining Holdfolio and earn passively. Visit their website today and get all the answers you need to get started.
