With Real Estate Crowdfunding What Do You Actually Invest In
Every crowdfunding platform is different, but plan on investing in residential and commercial real estate. Typically, these real estate investment opportunities have multiple tenants so you are less likely to have vacant properties that dont earn income.
Residentialproperties are typically multifamily apartments, college studentdorms, and construction of new single-family homes. Commercialproperties are usually office buildings, shopping centers, andhotels.
How To Get Started With Real Estate Crowdfunding Platforms
With many crowdfunding platforms available, its easy to get lost in a sea of options and features. It is recommended that you pick a platform based on site functionality, credibility, documentation, and customer service quality. For starters, you want to stay away from sites that function as nothing more than listing services. Go for platforms that act as a broker-dealer. Additionally, aim to pick a platform with previous experience handling the kind of investments youre looking for.
Next, youll want to look for a site with solid venture capital backing. Since your investment could be locked up for a certain amount of time, make sure you are using a credible platform that will be up and running for a long time. Also, inspect how the platform conducts its due diligence. Be sure to ask the important questions: What kind of documentation does the platform collect for potential deals? Do they ask companies to provide liabilities or indemnities to investors should something go wrong?
Finally, verify that the platform provides quality customer service. As youre researching different platforms and asking them your set of questions, you should be able to get a sense of their customer service quality by their willingness to provide the information and assurance you need.
Split By Investment Purpose
Buy-to-let
The purpose of this type of investment is to purchase a property specifically to let out, that is to rent it out. Usually, the property once bought will be renovated to increase its attractiveness towards renters and will then be rented based on its purpose: vacation rental, offices rental, primary housing, Airbnb.
Buy-to-sell
The purpose of this type of investment is to purchase a property specifically to sell it. The profits are made thanks usually to the renovation of the asset and the sales of the renovated asset at a higher price.
Development loans
The purpose of this type of investment is to finance the construction of a new building with the purpose to either sell it out or make it a rental property. It could be for example the construction of an office building with a shopping area to generate extra income.
Don’t Miss: Va Loan Refinance For Investment Property
You Can Lower Your Personal Financial Risk
Imagine having a diversified real estate portfolio like the one we just talked about. Except instead of crowdfunding, you opted to finance those projects yourself. You’ve got one office building that you spent $5 million to buy. You bought an apartment building that’s costing you just shy of $2 million. And then you decided to purchase a couple of single-family residential homes at a price of about $500,000 each.
If your city was hit with an economic downturn or you had the misfortune of renting to tenants who were out of work during the pandemic, you could easily find yourself struggling to get a return on that $8 million investment. When you opt to be a part of multiple projects, however, suddenly you’re not out by several million dollars if things go belly up. Maybe instead you’ve lost a few thousand.
For investors who are particularly risk-averse, this matters a lot.
Who Is Real Estate Crowdfunding Best Suited For
Crowdfunding with real estate could be a suitable option if youre looking to diversify an existing stock market portfolio, prefer a low minimum investment amount, and are willing to lock-in your money for a few years. Even if you have larger amounts to invest, if you dont like the idea of managing your own real estate building or development projects, or being a landlord, crowdfunding may be worth considering.
However, before you invest, make sure you understand the risks and the limitations and exercise due diligence. Returns on real estate properties are not guaranteed, and no matter how strong the market appears to be, things can change quickly.
Read Also: Do You Have To Be 18 To Invest In Stocks
So Is Real Estate Crowdfunding Similar To Reits
Operating like Mutual Funds, real estate investment trusts,or REITs are companies that own, manage or operate an income-generating property. So when you buy a share in a REIT, you are purchasing a share of the company that owns and manages the rental property i.e you are not directly investing in a real estate asset. The primary objective of creating REIT is therefore to allow small investors to foray into the real estate industry so that they can also earn passive income from these assets.
Real estate crowdfunding, on the contrary, works like investing in direct equities or stocks. You hold an ownership stake in an asset that you would be otherwise not able to purchase on your own. Lets take a deeper look at these two investment models.
There Are No Guarantees
Investing in crowdsourced real estate is a risky proposition. If the project encounters certain unanticipated challenges, dividend payments may be reduced or halted entirely. Worse, the sponsor might waste the money of the investors, causing the project to fail totally.
Proceed at your own risk, as with any investment.
You May Like: Does Fisher Investments Sell Annuities
Top Real Estate Crowdfunding Sites
You can do real estate crowdfunding through multiple different online crowdfunding websites. The best real estate crowdfunding platforms depend on your goals, investment amount, and the accredited investor qualifications. Different crowdfunding platforms have distinct strengths, and one investors needs may not work for another.
Rich Uncles Investment Options
National REIT
The National REIT aims to invest in industrial, retail and commercial real estate throughout the United States.
The minimum to invest in the National REIT is $500. Currently, the National REIT is limited to investors in just over 20 states. This REIT invests in strictly commercial real estate, meaning there is no residential real estate in the mix.
Student Housing REIT
This REIT aims to invest in student housing throughout the United States.
Rich Uncles focus on student housing in broadly diversified markets around high demand universities. Rich Uncles searches for housing with greater than 90% occupancy rates and a minimum capacity of 150 beds. The minimum to invest in the Student Housing REIT is $5. Currently, this REIT is open to investors in all US states.
Also Check: Can You Make Money Investing In Cryptocurrency
Study The Top Players
Over the past 40 years, real estate yielded on average 9.72% ROI vs 5.43% for stocks. Yet, the market boasted a very high barrier of entry you needed to be an accredited investor with a ton of money.
Everything changed in 2012 when the US adopted the Jumpstart Our Business Startups Act.
- Better risk-adjusted returns.
Image source: thegaribaldigroup.com
Fundrise was the first platform to benefit from the new act. Founded by Dan and Ben Millers, the app was first intended as a way to raise investments for the properties they were building in Washington DC. Soon, other real estate companies started contacting the founders to fund their projects.
In just two years, the company helped raise $15 million from over a thousand contributors. The founders have also secured the biggest ever series A round for a crowdfunding platform at $38 million.
According to Forbes, the company is now worth $800 million and manages assets from over 140, 000 investors. Before the project is approved for fundraising, the platform runs a thorough due diligence process with almost 99% of projects being rejected. It also prefunds every project using the companys money.
Monetization strategy: charge a 0.15% advisory fee + 0.85% annual management fee + a one-time origination fee of 1% 2% + $5,000 due diligence/closing fee.
As of 2015, RealtyMogul was valued at $150 million and had more than 200 thousand registered members.
Real Estate Crowdfunding Alternatives
For real estate investors or developers who are looking for funding, there are a variety of alternatives to crowdfunding in the creative financing space for real estate. Here are 4 of the strategies available to investors.
- Hard money loans: You can get hard money loans from lenders who will provide a large amount of funds in a short space of time, without the stringent lending criteria that many traditional loan options require. This is a great solution for real estate investors who are looking to fix and flip homes, or who need financing for a rehab project.
- Self-directed IRA: You can use either your own retirement savings, or someone elses to invest in your real estate project, instead of investing it in stocks or bonds. Youll need an IRA to do this, and you can also reap the tax rewards.
- Cash-out refinance: If youre looking for funds for your next real estate investment deal, you can use the equity on your home. You can borrow enough money to pay off your mortgage and then use the difference for your investment.
- Personal loans:Investors can also consider taking out a personal loan to cover the difference of funds that they cannot pay. These can come with higher interest rates however they can also provide funds quicker so that investors dont miss out on deals.
You May Like: Best Real Estate Investments For Cash Flow
Real Estate Crowdfunding: What To Consider
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list ofour partnersandhere’s how we make money.
The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.
Crowdfunding isnt just for your cousin who wants to take a trip to Peru. It can also be a great way for investors to find new opportunities outside of the stock market.
Real estate crowdfunding platforms are newer to the crowdfunding space, but they might be a worthwhile addition to your portfolio so long as you understand in what exactly youre investing.
User Friendly Platforms Available
Many real estate crowdfunding sites make it easy for investors to launch their fundraising campaigns, thus saving them time and money. These platforms are designed to showcase campaigns in a visually appealing manner while allowing fundraisers to reach a large audience without excessive effort. Be sure to keep reading to discover some of the best real estate crowdfunding platforms available today.
You May Like: Invest Your Money In Real Estate
Crowdfunded Real Estate Could Be The Glue That Keeps Your Investment Portfolio Together
On paper, there’s a lot to like about being a real estate investor. For one, you’re invested in real property. And for another, you’re able to build up a second stream of income without having to kill yourself to make it happen.
With crowdfunded real estate you get the benefits of investing in real estate and you’re able to do it with relatively small amounts of cash. If you love the idea of owning property and collecting rent but you don’t have the means or the ambition to be a landlord, you may want to consider giving crowdfunding a try.
If you want to find out more about investing, property, and owning a home, read more of the posts on our site!
How To Invest In Real Estate Crowdfunding: 10 Point Checklist
Not making money sucks. But losing hard-earned money hurts even more. I recently lost over 45% of my capital in a real estate crowdfunded deal. This failed experience helped me develop a checklist on how to invest in real estate crowdfunding and avoid losing money.
As part of prudent asset allocation, I maintain a wide variety of income-producing assets as part of my portfolio. A few moonshots, some bitcoin, some SPACs, but most are vanilla.
While the bulk of my liquid net worth is concentrated in stocks and my primary residence, I also dabble in other non-traditional investments.
Today I want to talk about real estate crowdfunding investing, pros, and cons of it. I will also share details of my unsuccessful real estate crowdfunding investment. And how can you learn from my experience. And the checklist I created.
Don’t Miss: Best Place To Invest In Stocks Online
Reits Vs Real Estate Crowdfunding Here Is The Difference Every Real Estate Investor Should Know
Residential properties, senior living houses, co-living, real estate mutual funds, REITs, and crowdfunding are all available through the real estate sector, which is one of the main investment opportunities. Two prominent real estate investing mechanisms nowadays are REITs and Real Estate Crowdfunding. Most investors nowadays want to participate in the real estate market without having to worry about managing and maintaining the property they have purchased. Both of these forms of real estate investments are built on the idea that the assets are managed by others, but people can invest and profit.
Even though they both allow investors to put their money into commercial properties, REITs and real estate crowdfunding are two quite distinct methods to invest in real estate. So, how do investors figure out which is the better option for them?
In many respects, REITs and real estate crowdfunding are comparable. Both allow investors to diversify away from traditional equities and bonds while acquiring exposure to the commercial real estate industry, which has been difficult to access without direct ownership in the past. Both allow investors to profit from the cash flow and appreciation of real estate.
Do you want to invest in a REIT or real estate crowdfunding? There is no right or wrong answer as you can see from the list above, both have advantages and disadvantages, and both may be beneficial additions to an investors portfolio.
Passive Versus Active Investor
If you want to invest in real estate, you need to decide what type of investor you want to be. You can either buy real estate directly and manage the entire development process yourself the active option. Or you might decide to be a passive investor and purchase an investment through a crowdfunding site or as a partner with a professional developer. A lot depends of your abilities, and the level of risk you are willing to take.
Passive real estate investing does not expose you to one major risk that active investing does i.e. you dont have to sign on bank loans if you are a passive investor. To look at the downside, this restricts the amount you can lose to only the money that you invest.
If you take the active route and buy and develop real estate yourself, chances are you are going to have to sign on debt and guarantee bank loans which could mean, if things dont go as you planned, that you lose not only your investment of time and money, but also be liable for any repayment to the bank of the entire loan amount.
Don’t Miss: Stated Income Investment Property Loans
You Can Diversify Your Investments
You’ve heard the saying, “Don’t put all your eggs in one basket” before, right?
Although it’s not usually phrased that way in financial circles, this bit of conventional wisdom often guides people’s investment strategies. After all, what happens if you invest all of your savings into a single building and the deal ends up going sideways? Suddenly everything is gone and you’ve lost a lot of money.
With crowdfunding, that $10,000 that may have gone towards a down payment on a single condo can be spread between two or three different projects. Suddenly, you can invest in a couple of different real estate sectors. Or perhaps you’d like to get involved in luxury housing and commercial real estate at the same time. Crowdfunding makes it possible for you to have a stake in multiple real estate projects at once.
It’s like owning shares in a mutual fund without having to go through a stock exchange.
Need Help Getting Started
PropertyShare Online Platform Private Limited | Corporate identity number – U70102KA2016PTC085151. For any complaints please write to Hashim Khan at grievance@propertyshare.in
Property Share does not make any representation regarding the suitability of the opportunities that appear on the Platform. Nothing on the Platform should be construed as investment, business, legal or tax advice or constitutes an offer for service or assistance with investment in real estate assets. Listing of details relating to the opportunities on the Platform or any content contained on the Platform does not constitute an offer by Property Share to sell, solicit or make an offer to participate in the opportunities. No information or content available on the Platform should be construed as a solicitation of an offer to buy or sell any property. Any decision to make direct or indirect investments in real estate assets involves significant risks including risk of loss of capital, and all such decisions should be made only after seeking independent legal, business and tax advice. No Governmental Agency nor Property Share guarantee or assure any returns to any person using the Platform.
Modal body text goes here.
Read Also: Whats A Good Investment Company
Find The Right Team To Build Your Platform
Getting your technology up and running should be your next priority. Your options here range from hiring developers in-house to outsourcing your project to freelancers or partnering with a full-cycle software development studio. The latter will typically have all the resources you need to design, develop, and launch your platform.
When looking for a suitable developer, always check their experience, domain expertise, and client references. You can start your search with independent review aggregators like Clutch, Goodfirms, and DesignRush. Finding a reliable tech partner can be an art in of itself. So check our article on how to hire a team of all-star web and mobile developers.
