For many years, owning a slice of the real estate market was only achievable for wealthy individuals or those with deep connections in the property industry. However, with the advent of real estate crowdfunding, barriers to entry have been significantly lowered. This article serves as a handy guide to the real estate crowdfunding basics, and helps potential property investors understand how does real estate crowdfunding work and the logistics involved. Furthermore, we'll walk you through some top real estate crowdfunding platforms to jump start your property investment journey.
The Basics of Real Estate Crowdfunding
Real estate crowdfunding is a revolutionary investment method that allows multiple parties to pool in their resources with an aim of buying properties. This kind of investment strategy opens up opportunities for investors with varying levels of capital to benefit from rising property values and accruing rental income.
In simple terms, it democratizes property investment. Instead of a single person purchasing a high-cost property, a large group of individual investors can collectively own a stake and share the wealth generated by this property - income and appreciation. But just a hint: every investment carries some level of risk, even with a well-researched property; success isn't guaranteed.
How Does Real Estate Crowdfunding Work?
Just like other crowdfunding ventures, real estate crowdfunding is largely facilitated by the internet through numerous platforms like Fundrise, Patch of Land, and Realty Mogul amongst others. The process starts when a property owner or a developer posts a property on a crowdfunding platform and outlines the amount they need to raise for the project. People then visit the site and pledge different amounts towards meeting this target.
As a contributor, your investment is either equity based or debt based. With equity investments, you own a small percentage of the property and you'll get a return on the property's profits in the form of dividends or distribution. Debt investment, on the other hand, offers you the chance to act like a bank. You lend money for the property and earn interest on the loan. Once the property starts generating revenue, or is sold, you get a return on your investment based on the terms outlined at the start of the project.
Top Real Estate Crowdfunding Platforms
Choosing the right platform to start your real estate crowdfunding journey is crucial for success. Here are some of the top real estate crowdfunding platforms that stand out for their credibility, customer satisfaction, and overall performance.
Making A Successful Investment
Getting involved in real estate crowdfunding may seem overwhelming at first, but equipped with the right knowledge and understanding, it becomes a worthwhile endeavor. To kickstart your journey in property portfolio growth through crowdfunding, it's essential to determine the kind of investor you want to be. Equally important is to choose the right platform that aligns with your goals. Some platforms focus mainly on residential properties, while others provide access to commercial ventures. Research diligently, examining each platform's record, its investment opportunities, and the nature of the real estate projects they deal with. The platform you choose should offer you enough transparency to understand the risks and expectant returns.
Diversification of Property Portfolio
Crowdfunding real estate gives you the freedom not limited to investing in one property type. This strategy helps to spread out the risk, and even if one investment does not pan out as expected, others can buffer the blow. This aspect of diversification remains one of crowdfunding real estate's most lucrative features. Have a mix of commercial, residential, and rental properties within your portfolio. Real estate crowdfunding is a property investment democratizer, giving you the leveraging power previously only feasible for wealthy individuals or large corporations.
Unlike traditional real estate, where substantial upfront capital is required, crowdfunding is more flexible and accommodating. You can start by investing a smaller chunk of capital thereby reducing the risk and progressively invest more as you grow your confidence in this form of investment.
Potentials and Risks
Like any other investment, crowdfunding in real estate isn’t without risks. On the bright side, however, the potential returns can be rewarding. Since you co-own the property with other investors, the profits from rent or sale would also be shared. But, on the flip side if the investment fails, the losses are likewise equally divided.
Conclusion
In conclusion, with the technological revolution in financial services, real estate crowdfunding is proving to be a game changer. It reduces hurdles of entry and allows more people to venture into property investment with a less intimidating amount of capital. It's certainly an avenue worth considering for any aspiring property portfolio owner or those looking to diversify their existing portfolio.
As with any financial venture, real estate crowdfunding should be entered into with careful thought, diligent research, and wise decision making. Seek professional advice if necessary, and tread carefully at the outset, growing in confidence as your understanding and expertise develop.