Invest In Rental Property Crowdfunding

Cons Of Real Estate Crowdfunding

• Depending on the platform, you could have annual fees of 1% to 2.5% of your assets.
• Assets are illiquid, so you cant sell them quickly or easily
• Some platforms allow only accredited investors
• Many newer platforms may not have a lengthy track record of success.
• Investors have to pay taxes on the income they receive

Who Should Invest In It

Crowdfunding is right for real estate investors who want a passive income from projects that they would not access or could not afford on their own. It is also a feasible option for investors who want to increase their debt exposure. Some of the people that can benefit from this form on investment include:

• Investors who are interested in investing in the real estate market but lack enough capital to outrightly purchase a property
• Investors who want to avoid the head of being a landlord or working by themselves
• Individuals who are looking for an alternative to investment in the stock market since this option allows them to own property that would be otherwise unattainable
• Individuals who are interested in investing in real estate projects outside their locality, but lack the logistics or means to do so.

While peer-to-peer lending can be a viable option for people interested in real estate investment, it is not the right option for individuals wishing to own the asset outrightly. It is also not the right options for those who want to be hands-on investors and in charge of budgeting, deadlines, choosing the finishes, and managing contractors. This form of investment is best suited to real estate investors who are interested in a more passive source of income.

The Pros And Cons Of Real Estate Crowdfunding

Real estate crowdfunding is a method of funding a real estate project using a small amount of funds from a large number of investors.

From the developers perspective, crowdfunding gives developers access to networks of colleagues, friends, family, and even the general public, through such social media sites as LinkedIn, Facebook, and Twitter and various crowdfunding platforms available online. These efforts allow the real estate developers to widen their potential investor base and capitalize projects they may have had difficulty funding through more traditional channels.

From the investor perspective, crowdfunding provides investors access to significantly more investment opportunities, and allows them to spread their investor dollars in smaller amounts across more investments, and thereby achieve greater diversification.

Though real estate crowdfunding has been around in some form for many years, it has recently begun to increase in popularity, primarily because of the proliferation of online crowdfunding opportunities and platforms.

As an investor, to be successful with real estate crowdfunding, its essential that you select the right crowdfunding platform. By using crowdfunding to make a real estate investment, youll be able to gain access to the wider real estate market with only small amounts of money. While there are dozens of crowdfunding platforms available to you, some of the more popular platforms include Fundrise, Origin Investments, and RealtyMogul.

Don’t Miss: Can I Use A Fha Loan For An Investment Property

Why People Use It

A viable option for raising money amongst real estate investors is property crowdfunding, which involves raising money to buy properties for selling or renting. The approach has become a feasible alternative to traditional ways of raising funds for investments. It pools small amounts of finances from various investors to finance a real estate asset or a portfolio of properties. As an investor, you get to invest your funds either through equity or debt in return for a proportional stake of the project returns .

The major attractive point of peer-to-peer lending in real estate investing is that it gives small investors the opportunity to participate in high income and highly sophisticated real estate projects. For large real estate developers, they use crowdfunding platforms as a mean of soliciting investments from accredited investors groups. On the other hand, small real estate business owners launch crowdfunding campaigns to raise money for smaller investment deals.

Ways To Invest In Real Estate To Earn Cashflow

If there is one lesson we can all learn from recent happenings in the global economy, it is the need to consistently grow our sources of income from stable asset classes.

One of the ways of growing your sources of income is by earning from your investing activities. Real estate is one asset that generates regular income. Investors that own real estate properties earn rental income on a regular basis and earn capital growth when there is an increase in the value of the real estate property. While rental yields might be low compared to investment options in the capital markets, the consistent rental income from real estate investing provides cashflow.

There are different ways to invest and earn cash flow from real estate, well highlight some of them here.

Read Also: Financing Investment Property Through Llc

So You Want To Be A Landlord

Buying investment property and acting as a landlord can be a good way to earn income, but requires a commitment of time and money. After choosing the right property, prepping the unit, and finding reliable tenants, ongoing maintenance is required.

Maintenance and upkeep costs can decrease your rental income. There’s always the potential for an emergency, such as roof damage. Investors should plan to set aside 1% of their property’s value for repairs.

Rental property owners can manage the property themselves or hire a property manager, who typically charges between 8% and 12% of collected rents. Although costly, a property manager can provide a wide range of services including arranging maintenance and repair work, screening new tenants, and handling late rent payments.

Additionally, rental property owners need to know the landlord-tenant laws in their state and locale. Both tenants and landlords have rights and obligations regarding security deposits, lease requirements, eviction rules, and fair housing laws.

It is important to protect a real estate investment. In addition to homeowners insurance, rental property owners can purchase landlord insurance, which covers property damage, lost rental income, and liability protection in case a tenant or a visitor suffers an injury as a result of property maintenance issues.

Financing Your Rental Property

The path to obtaining a rental property loan is the same as a primary residence mortgage, with key differences. With higher rates of default on rental property loans, the added risk means lenders typically charge higher interest rates on rental properties. An investor may choose a traditional mortgage loan or may qualify for an FHA loan or a VA loan.

Underwriting standards can be stricter for rental property applicants. Mortgage lenders focus on credit score, down payment, and debt-to-income ratio and though the same factors apply to rental property mortgages, the borrower will likely be held to a more stringent credit score, DTI thresholds, and a higher minimum down payment:

• A minimum score of 620, with better rates and terms offered with scores of 740 and higher.
• Down payment: 0-3% may be acceptable on a conventional mortgage for a primary residence, but borrowers for investment real estate generally have to plan on 15% to 25% down.
• Debt-to-income ratio :DTI represents the percentage of the borrower’s monthly income that goes toward debt. Lenders will generally allow you to count up to 75% of your expected rental income toward your DTI.
• Savings: Borrowers should have cash available to cover three to six months of mortgage payments, including principal, interest, taxes, and insurance.

You May Like: Columbia Business School Value Investing

Arrived Homes Single Family Homes

Arrived Homes is a platform that lets you buy shares of rental properties and collect rent while Arrived Homes acts as the property manager. You are part owner of the property so you also get any property appreciation whenever the home is sold. Its a great way to diversify into rental properties without any of the headaches of managing the property yourself.

The hold period is anywhere from 5-7 years and theres no secondary market so when you buy the shares, youll have to hold them for the entirety of the hold period. The stated return is generally in the 5-7% range.

How Can We Get Value For Money From Real Estate

If we are interested in get value from real estate properties, we can invest in a property development project without having to worry about the property market. We can also get in on the ground floor of a project and potentially make a higher return on our investment.

The two easiest ways are to buy to sell or rent.

You May Like: Non Traded Real Estate Investment Trusts

Is Crowdfunding Good For Investors And What Are The Risks

One major difference between investing through a crowdfunding platform and an open market is the different types of risk involved. Some of the primary risks faced by a non-accredited investor as well as an accredited investor interested in crowdfunding investing include:

Speculative

Investments in private deals can be speculative and entail significant risk. Single-asset entities or even portfolio investments can fail despite the best of intentions.

You may invest in a property in a mature, stable market, but still face uncertainty thanks to changing market conditions.

Illiquid

Investments made on crowdfunding platforms often entail a longer-term commitment, typically ranging from six months to five years, depending on the nature of your investment and the terms of the deal.

Make sure the money you invest isnt needed for near-term expenses, as your money might be locked up in the crowdfunded investment for an extended period of time.

Valuation and capitalization

Your investment might be valued inappropriately due to any number of factors. Further, your investment might represent a small portion of the overall capitalization of the real estate investments.

Depending on the nature of your investment, you might not have legal claim to the underlying property or assets should it face insolvency or financial hardship. Do your due diligence before proceeding with any service provider in the space.

Lower disclosure requirements

Lack of professional guidance

Is Buying A Rental Property A Good Idea

Owning rental properties certainly comes with some strong benefits. You have full control over your investment you own and manage your asset, owe no fees to anyone and can maximise the investment leverage. Forget about making and losing money based on some secretive green and red numbers that pop up on your screen the property is as tangible as it can get and you know exactly where your money is. Given the historical trends, it is also highly likely to appreciate in value, and you can help make it happen by properly maintaining or upgrading it simple things such as repainting, refinishing, or landscaping the yard can increase the property value in the eyes of tenants and potential buyers. While you hold on to it waiting to reap the profits from value appreciation, the tenants can provide you with an income stream that is potentially relatively steady, substantial and de-correlated with most financial investment instruments .

Sounds good? Well, it might not be so rosy in reality. There are some serious drawbacks to owning a rental property, including:

Don’t Miss: Etrade Cash Available For Investment

Real Estate Crowdfunding Vs Rental Property Investing

There are several ways you can invest in real estate. Real estate investment trusts give you the opportunity to generate some passive income by investing in stock-traded companies that manage properties. It requires neither much experience nor a high initial investment and allows you to have your capital handled by professional trust managers. On the other, wild, side of real estate investing is house flipping. For people with a lot of free capital as well as significant experience and expertise in real estate valuation, marketing, and renovation, buying and selling of properties can provide juicy gains. Even buying a house to live in can be considered a real estate investment although you dont collect any profits directly , you save money on rental and get a tangible high-value asset whose value will hopefully increase making you wealthier.

Buying a rental property is still probably the most common, and definitely the most classic way to invest in real estate. Is it the best way though?

Protect Your Real Estate Investments With Property Management

No matter how you want to invest, keeping your personal assets managed properly is crucial. Whether you own rental properties or contribute to crowdfunding platforms, its best to have a trusted property management team by your side.

Bay Property Management Group offers comprehensive rental management services, from tenant screening to maintenance. If youre looking for rental management in Baltimore, Philadelphia, Northern Virginia, or Washington, DC, contact BMG today!

Read Also: Investment Companies For Young Adults

Who Can Invest In Real Estate Crowdfunded Deals

Most of the crowdfunded real estate websites restrict investments to only accredited investors.

An accredited investor, includes anyone who:

• earned income exceeding $200,000 in each of the prior two years, and reasonably expects the same for the current year OR
• has a net worth over $1 million, either alone or together with a spouse OR
• Sophisticated investors such as individuals who have obtained Series 7, Series 65, or Series 82 licenses or knowledgeable employees of a private fund.

If you do not qualify as an accredited investor based on financials, you can still meet the accredited investor qualifications based on knowledge.

Becostay: A Listing Site For Eco

Target: 30,000

Min individual investment:

Ends: 1 October 2020

BecoStay, a listing site for sustainable and eco-friendly vacation rentals, is running a crowdfunding campaign on Indiegogo.

The company was born when co-founder Boris Olympio noticed a need for rental sites promoting exclusively environmentally responsible accommodation. Together with his partner, they decided to create BecoStay to connect the owners of eco-friendly rentals to travellers looking to book conscious stays.

BecoStay has 4 ecological criteria to help property managers define their rentals and travellers find the green solution theyre looking for. These criteria are:

• Eco-amenities: water filters, no disposable packaging, recycling system, food composter, sustainable toilet system, etc.
• Eco-energy: energy-saving lights, solar energy, rainwater recovery, water flow reducers, etc.
• Eco-material: natural, recycled, second-hand, etc.
• Eco-food: organic, vegetarian, vegan, growing/farming own food, local food, fair-trade products, etc.

All eco-features selected by the property manager appear on the listing page. Guests can use the same eco-criteria to filter search results.

BecoStays goal is to make finding sustainable accommodation easier, create a community around eco-tourism, and eventually contribute a percentage of its profits to ecological projects.

Don’t Miss: How To Invest In Silver Commodity

Best For Accredited Investors: Equitymultiple

• Consider it if: You’re an accredited investor looking to invest at least $5,000 into commercial real estate.

Why it stands out: EquityMultiple is best for accredited investors who have at least $5,000 to invest . This platform lets you invest in institutional commercial real estate, equity, preferred equity, and senior debt.

EquityMultiple also gives you the choice between the following three investment approaches: Fund Investing, Direct Investing, and Savings Alternative Investing. Each approach utilizes different investment strategies, time horizons, and minimum investment requirements. For instance, Direct Investing accounts feature a target duration of six months to five years, while Savings Alternative accounts have a time horizon ranging from three to nine months.

Fund Investing accounts have a target duration of 1.5 to 10 years. But this strategy has the highest minimum requirement . Direct Investing requires at least $10,000, and you’ll need a minimum of $5,000 for the Savings Alternative strategy.

When it comes to the real estate investments, EquityMultiple offers a range of property types, including: multifamily, office, industrial, storage, car wash, cannabis facilities, retail, mixed-use, opportunity zones, senior living facilities, student housing, and data centers.

You can also open and invest with self-directed IRAs.

Crowdfunding Means Capital And Opportunity But Also Lots Of Risk

The major reason the JOBS Act got help up was that government regulators feared what might happen should gullible, mom-and-pop investors get caught up in an unsavory scenario. And if theres one field where unsavory characters have been known to lurk, its real estate.

Writing in June on cre.tech, Jordan Wirsz pointed out the dangers where real estate and crowdfunding intersect: Real estate capital raisers are more often than not, self-promoting real estate developers and investors.Believe it or not, the most problems any capital raiser will have are not with the investor who invests $1 million, but the investor who invested $5,000.

How come? The lack of sophistication and understanding, in addition to the lack of experience in risk management and risk knowledge, is a dangerous combination, Wirsz writes.

Yet even if the new crowdfunding environment proves turbulent as a whole, real estate may actually prove itself a port in that storm.

Historically, real estate has generally been a very stable investment, says Allen Shayanfekr, CEO and co-founder of , a real estate crowdfunding platform in Great Neck, New York. Like all investments, real estate is cyclical in nature, but generally less volatile when compared to other investment classes.

Real estate, you might say, is also grounded in ways other non-stock investments are not. Theres supporting evidence enough in markets such as New York and San Francisco and Boston, where apartments prove scarce year after year.

Recommended Reading: Mortgage Interest On Investment Property

Lex Markets Commercial Re For All Investors

LEX Markets is a platform that lets any investor, accredited and non-accredited investors, buy equity shares of commercial real estate. When you buy shares, you own equity in the property and get paid distributions along with the majority owner. You also earn appreciation of the property increases in value.

LEX Markets has its own secondary market so there is no set lock up or hold period, you can buy and sell shares on their proprietary platform between 9:30am 4pm .

You can view their current offerings on the site without registering so theres never any wonder if they have good deals. And for active properties, you can view how the secondary market is trading for that asset. No trading fees but there is a 0.25% quarterly fee based on the 90-day market value of the shares.

Minimum is $250, the IPO price of a single share, but that can fluctuate on the secondary market.

For a limited time, they have a bonus for new accounts when you deposit at least $500 :