Is Investing In Crowdfunding A Good Idea

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.

How Equity Crowdfunding Platforms Work

While the basic investing procedure is the same, equity crowdfunding platforms do operate in different ways. Some charge investors processing and other payment fees, while others take their compensation out of the money the company raises a percentage cut of a company’s capital campaign.

They also screen companies differently. Some platforms basically list anything others, more exclusive, present thoroughly vetted deals. Some provide a lot of intel, others call on investors to do additional research themselves. Some stick to tried-and-true industries others feature less traditional enterprises, like a new indie film.

Finally, platforms vary in their areas of specialization, with some focusing on specific industries like technology and others offering a wider array of investment opportunities.

“Looking forward, I see a lot more vertically-integrated or industry-focused portals popping up,” says Belley. “I think as more people come in, more people are going to start needing to find a way to sort through the noise of all these offerings, and I think they will start gravitating towards those portals.”

Here’s a list of a few leading players in equity crowdfunding:

Best For Individuals: Gofundme

A versatile platform that’s helped individuals raise funds for everything from personal healthcare expenses to keeping local businesses alive, GoFundMe is a clear pick for personal fundraising needs. Its track record of success includes bringing in more than $17 billion in funds from over 200 million donors.

• Flexibility to raise money for yourself, a friend, or a charity

• 24/7 expert support available

GoFundMe was launched in 2010 and has become one of the largest fundraising platforms online, having raised more than $17 billion from over 200 million donors. Its success and simplicity help make it the best platform for individuals.

GoFundMe campaigns are facilitated in three simple steps. First, create your campaign by detailing the amount of money you want to raise. During this phase, you’ll tell your story, which can include photos and videos. Next, you’ll share your campaign with your friends and family via social media, text message, and email. Finally, you can manage your campaign, tracking the donations and thanking donors.

A benefit of GoFundMe, compared to other platforms that charge platform fees plus processing fees, is that this platform has a 0% platform fee. The company does have a processing fee, which is 2.9% and $0.30 per transaction.

GoFundMe offers 24/7 expert support, in the event you need any assistance setting up your page or have any questions.

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Types Of Equity Crowdfunding Investments

Actual crowdfunding investments can be in the form of different financial securities. These include:

• Common stock: This method may come along with dividends, depending on the company’s maturity and success. Later-stage startups are more likely to offer shareholders returns in the form of either fixed dividends per share or a percentage of profits.
• Preferred stock: Like common stock, but without voting rights for shareholders.
• Debt: This also comes in various forms, with some companies offering simple loans with fixed repayment schedules and others offering revenue shares, which return a fixed amount of money in a time frame that depends on the company’s success.
• Convertible notes: This method will eventually convert your debt investments to stock if the company raises a “priced round” from major investors. A priced round is an equity investment based on a company’s negotiated valuation. Essentially, investors serve as equity-owning shareholders and will see a return if the value of that stock goes up over time and can be sold for a profit.

Is Wefunder Right For You

Wefunder is not for the risk-averse. The website is full of disclaimers explicitly stating that investing in early-stage startups is riskier than the stock market, and there is a very real potential of losing all of your investment. Moreover, Wefunder describes the investments on its platform as more binary than the stock market, meaning stock market returns can vary over time, while startups typically either see success or failure. So if youre new to investing, it may be best to take a more traditional approach as your first step into the market. The same is true if you need the money you plan to invest in the short-term Wefunder suggests a timeline of seven years or more.

However, if youve already got a healthy investment portfolio and are looking to diversify long-term savings, Wefunder is an extremely easy platform for getting involved in private equity on a smaller scale than through traditional private equity firms.

Lastly, Wefunder could be a good option if you fully understand the risks, but still want to invest in a company you believe in, or a cause you care about. Local breweries are on Wefunder alongside scientists working on the next breakthrough in public transportation. And unlike Kickstarter, you may even see a return on your well-intentioned investment.

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What Are The Benefits Of Crowdfunding

For small-business owners, the benefits of crowdfunding are twofold: You find funding for your business idea and get the word out about your product or service.

How Much Do You Need?

Think of crowdfunding like networking on steroids. Instead of attending events with a limited number people to drum up support for your business, you reach a broader group of potential investors. This often starts within your own social sphere as you share your request with family and friends via social networks.

Its also more of a grant than a loan, because you dont have to pay back the funds or worry about interest rates.

Female entrepreneurs tend to have more success with crowdfunding platforms than their male counterparts. According to “Women Unbound: Unleashing female entrepreneurial potential,” a report from PwC and the Crowdfunding Center, women across the globe are 32% more likely to reach their financing goals using crowdfunding than men.

The report suggests that crowdfunding levels the playing field for women because it opens financing to investors outside of traditionally male-dominated venture capitalist firms. Women also tend to use more personal language in their pitches, which helps foster emotional connections, while men take a more formal approach, often using business jargon.

What Is Crowdfunding And How Does It Work

Before we delve into top tips, and give you some crowdfunding examples, here is a brief recap of how investing in crowdfunding works.

Those who participate in a raise may receive securities in return, such as stock or shares in the future, and will gradually be paid back when the company is profitable. Alternatively, they may be rewarded with products and other merchandise if the project is successful. Some existing companies also issue bonds that pay interest annually or semi-annually until maturity, occasionally offering additional perks.

On some crowdfunding sites, projects can only proceed if they fully reach their funding target. Failing to raise the amount required on time typically means that funds will be returned to investors.

When learning how to invest in crowdfunding, it is worth making sure you go through a reliable platform with a record of bringing projects to fruition. You should also double check to see if any additional documents have been provided by a startup, such as business plans, projections or feasibility studies. This will help you make an informed decision on whether an idea is viable. Most of all, it is vital to remember that you could lose your entire investment if the company goes bust.

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Greater Business And Job Creation

Small and medium-sized businesses , the linchpin of the North American economy, are the biggest beneficiaries of the equity crowdfunding megatrend. By enabling easier access to investor capital for businesses that would otherwise have had difficulty obtaining it, equity crowdfunding should stimulate the local and national economies through new business formation and more job creation. Investors can feel good about their contributions.

Is Investing In Crowdfunding Real Estate A Good Idea

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Crowdfunding has become a popular way to finance real estate projects in recent years. But is it a good idea to invest in crowdfunding real estate? There are a few things to consider before investing in any crowdfunding real estate project. First, you should research the project and the developers carefully. Make sure you understand the risks involved and that you are comfortable with them. Second, remember that crowdfunding is a relatively new phenomenon, and there is still a lot of uncertainty surrounding it. Make sure you are prepared to lose your investment if the project does not go as planned. Third, be aware that you will likely not have any control over how the project is managed. This can be a good or a bad thing, depending on your perspective. Fourth, be prepared to wait a while for your investment to pay off. Crowdfunding real estate projects can take years to complete, and you may not see a return on your investment until the project is sold or leased. Overall, investing in crowdfunding real estate can be a risky proposition. But if you do your homework and are comfortable with the risks, it can be a great way to get involved in the real estate market.

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How To Make Money Investing In Startups

When you invest in a startup via a crowdfunding site, you enter into an investment contract with the company. Broadly speaking, there are four different kinds of investment contracts, each of which offers different ways to make money from your investment:

• Debt. This type of contract treats your money like a loan that earns interest. The contract may pay out a fixed return, such as two times your investment, or a variable return. When you receive interest payments depends on how the business performs over time.
• Convertible note. Instead of earning interest, this contract is a form of debt that converts into shares of stock when a startup archives certain goalslike gaining new rounds of funding. You make money on your investment once the company is purchased by another firm or eventually goes public.
• Stock. Later-stage startups may let you buy shares of stock in the company, much like you would buy shares of a publicly traded company. Just be aware that you cant sell your shares of startup stock. To make money, you need to hold on to your shares until the startup goes public or is purchased by another company.
• Dividends. Successful later-stage startups offer investors the ability to buy shares of stock that pay annual dividends.

How To Get Started With Crowdfunding In Real Estate

Its not hard to find real estate crowdfunding platforms online that are ready and willing to accept your contributions. But at the same time, its also important to perform significant research and due diligence upfront before making the leap to online property investments. A few points to keep in mind as you get started:

• Compare sites, services, fee structures, terms, and investment opportunities and classes
• Research pros and cons associated with any online real estate crowdfunding solutions
• Consider how much you can comfortably invest without overextending yourself
• Calculate what kind of return on investment youre looking to receive
• Determine how long that your money may be tied up for and that you can comfortably go without access to funds
• Review what type of real estate and property holding that youd most prefer to invest in
• Prepare any documentation or tax forms necessary to prove accredited investor status
• Scan and review user feedback and comments to hear what current investors have to say about any given site or service
• Speak with your accountant to determine any potential tax impact of investments
• Evaluate preferred financial vehicles for making crowdfunded real estate investments

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Real Estate Crowdfunding Is Fixing The Problems In Real Estate Investment And Could Be A Great Way To Find Investment Properties

I got a question from a reader after my recent review of the best real estate investing books. After the collapse of the real estate bubble, the reader was wondering if real estate crowdfunding was a good investment.

He pointed out some of the drawbacks of traditional real estate investing, which well get to later in the article, and the slow appreciation in prices against a hot stock market.

Its a good question. Ive seen a lot of advisors go back and forth on real estate investing and real estate crowdfunding is still a new alternative. Investors are still gun shy with the memory of the 2008 real estate collapse and prices have hit highs recently.

So it may surprise you that real estate crowdfunding could be one of the best investments you make, offering both returns and portfolio diversification.

Few other investments have created as much legacy wealth as real estate. Investors with assets over $10 million reported in a 2015 survey by asset manager Tiger 21 that real estate investments accounted for the largest part of their portfolio, some 27% of total assets.

Even accounting for the recent collapse, commercial real estate investment has returned an annualized 8.4% over the decade to 2010 according to the National Council of Real Estate Investment Fiduciaries .

And thats not counting the rebound in prices since 2010 with a longer-term average of nearly 11% for residential and commercial real estate.

Should You Invest In Real Estate Crowdfunding

Jacob Wade|

Modified date: Jan. 4, 2023

Real estate is expensive. And commercial real estate? Forget about it.

But in reality, you can invest in high-quality real estate projects for as little as $100, and you dont even have to unclog a toilet for your tenants at 2am on a Saturday!

How? Crowdfunding.

Real estate crowdfunding has exploded onto the investing scene, giving regular investors access to commercial real estate deals that were previously only available to the wealthy .

But what exactly is real estate crowdfunding, and how does it work? And what are some of the pros and cons of investing in crowdfunded real estate?

Whats Ahead:

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You Still Have To Close Every Deal

Thereâs no version where you wake up and find out investors have wired you hundreds of thousands of dollars without even talking to you.

You still have to reach out to each investor, setup meetings and convince them to part with their hard-earned capital.

The process is exactly the same as the old offline way, its just more efficient to cull all of the investor interest in a single place.

Pros And Cons Of Equity Crowdfunding

Rewards-based crowdfunding campaigns accept donations in exchange for rewards. It gives average people the satisfaction of helping you achieve your goals. Equity crowdfunding, on the other hand, is when you solicit investors who give you capital in exchange for equity in your company. For example, you launch an equity campaign. An investor says she’ll give you $100,000 in exchange for 20% of your company. This type of crowdfunding is also known as “angel investing.”

• “Expensive” fundraising

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Is Crowdfunding A Good Investment Idea

Staff Expert

Fundraising is an integral business activity. There is a novel way to raise funds called crowdfunding. Let us move further and know if it is a wise option or simply a poor investment choice as an investor.

What Is Crowdfunding?

Let us break this term for a simple explanation. It is visible from the formation itself that we can divide crowdfunding into two different syllables:

Crowd

The 6 Best Crowdfunding Platforms Of 2023

• Best for Startups: SeedInvest Technology
• Best for Nonprofits: Mightycause
• Best for Creative Professionals: Patreon

Indiegogo is a clear choice for best overall for its track record of success in helping to fund more than 800,000 ideas all over the world since 2008.

• Great for entrepreneurs and investors

• Worldwide operations

• Charges a 5% platform fee plus a third-party payment processing fee

Indiegogo, Inc., was founded in 2008 by Danae Ringelmann, Eric Schell, and Slava Rubin as these founders sought to fund their own causes and ideas. Today, more than 10 million people visit the Indiegogo site on a monthly basis where about 19,000 campaigns are launched every month.

With Indiegogo, which is available in 235 countries and territories, you can create a crowdfunding campaign for any idea or product that you want to launch. To get started collecting funding using the site, you can set up a campaign for up to 60 days, the fee for which is a 5% platform fee plus a 2.9% and $0.30 third-party processing fee.

Their tools allow you to integrate with other platforms, including Meta and Twitter, to promote your campaign. Once you are done raising money, you’ll receive it via your bank within 15 business days. You can also invest in one of the many thousands of ideas and products and become a backer.

The overall success that so many fundraising projects have seen with this simple platform makes it our best overall pick.

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