While when you first think of crowdfunding you may think of startups looking to get their ideas off the ground, not all crowdfunding is like this.
Why is real estate crowdfunding so popular?
Real estate can be a big money maker.
In fact, according to this report, no asset has performed better over the last thirty years than private commercial real estate.
When you compare these consistent returns with the low-interest rates on most traditional saving options, you will see why real estate investing is popular.
However, the costs associated are extremely high and investing in property on your own can be very time-consuming.
Real estate crowdfunding, therefore, generally aims to make investing in property as accessible as possible. It does this by removing the barriers to investing in property by lowering the cost and the amount of time you need to put in.
What is in it for the investor?
Investors in real-estate crowdfunding get access to the potential returns found in real estate but the crowdfunding aspect means they don’t have to put up all the money for the property themselves.
As well as this, investors often don’t have to put in any of the work often associated with real estate investing as this will be taken care of by the person running the campaign.
What is in it for the lender?
For the lender, the benefits are obvious. If you need to raise funds to, for example, flip a house and you don’t have access to bank financing, then crowdfunding can be a good way to gain investment. All you have to do is share a proportion of the profit at the end of it all.
As well as this, recently bigger firms have started to get involved in real-estate crowdfunding as a way to fund other projects.
Are there any risks?
Of course, as with any form of investment, there are risks. The amount of risk involved will depend on how you invest your money. Certain crowdfunding models work like funds where a portfolio of properties are owned and the profit (or loss) is spread across all the investors.
This should result in less in risk of losing your money, although, of course, your profits may not be as high either. A bonus is that with these funds a high knowledge of the property market isn’t necessarily required as you won’t actually take care of any of the investing.
The risks and rewards may be bigger in other real-estate crowdfunding models where you are investing directly in a certain property. With these models, your profit or loss will directly depend on the value of the property.
Another thing to look out for is how long your money will be invested for. While with some platforms you can invest and take away money as you please, with others you will have to put your money in for a longer period of time.
In conclusion, real estate crowdfunding is an interesting way to get involved with real estate investment even if you don’t have access to the high funds usually associated with it.
However, as with all forms of investment, you should be aware of both the risks and the rewards of investing!