Everything You Should Know About Real Estate Crowdfunding

Crowdfunding isn’t just for start-up companies anymore. It can also be a great platform for investors. Although crowdfunding real estate is a relatively new phenomenon, it can be a worthwhile option if you understand how it works.

• Crowdfunding Real Estate
• Crowdfunding Benefits
• Crowdfunding Disadvantages
• Types of Crowdfunding Real Estate
• Crowdfunding Platforms
• FAQs

What is  Real Estate Crowdfunding?

Real estate crowdfunding works like other crowdfunding ventures: investors pool funds to kick off the project that they believe will generate profit. Simply put, crowdfunding is a way for business owners to raise money.

A major difference between crowdfunding and traditional fundraising methods has to do with the platform. Unlike more traditional methods, crowdfunding is usually conducted online.  Most crowdfunding real estate platforms funnel real estate investments directly into real estate investment trusts.

There is a high professional threshold in real estate crowdfunding. But, over time, some platforms have minimized their thresholds so people can invest with as little as $500.

Investors have adopted crowdfunding as an alternative to more traditional means of real estate investing. Larger investors use the platform to attract investment funds from groups of accredited investors, while smaller business owners often launch campaigns to raise money for their business ventures.

Benefits of Real Estate Crowdfunding

Property crowdfunding is not only an excellent fundraising alternative, but it also has other notable benefits for both borrowers and investors:

• Real Estate Crowdfunding is convenient and affordable.
• It allows you to diversify your portfolio.
• Crowdfunding can be done with small tickets, thus providing investors with the opportunity to participate in large real estate investments
• It allows you to become a real estate investor with a small investment.
• Real estate crowdfunding gives you a sense of independence and freedom.

Disadvantages Of Crowdfunding

As with most business opportunities, there are some disadvantages of crowdfunding that you should consider.  These include:

• Low liquidity and no dividends.
• Lower relative returns.
• Complex tax reporting.
• Additional fees.
• Higher risk of default.

Types Of Real Estate Crowdfunding Investments

1) Lending Based

Lending based investments attract more investors because it is a simpler way to invest. This type of investing allows investors to lend funds to the property owner for a fixed interest rate. The interest rate depends on the amount invested and on the amount of the loan.

2) Equity Based

Equity investments provide higher returns than debt investing. In this type of crowdfunding, you earn profit returns based on the property’s rental income.  Investors receive profits quarterly, and they earn a share of the property’s appreciation value once the property is sold. One major concern that investors should know is they can lose money if the property’s value decreases.

3) Donation Based

GoFundMe.com is a popular type of donation based crowdfunding. It uses crowdfunding as a source for raising funds for good causes or charitable events. For example, if a group wants to donate a home to someone in need, they can raise money for the house through donation-based crowdfunding.

You can manage your donation-based crowdfunding website yourself or can pay a third-party company to do it for you.

4) Rewards Based

Rewards based crowdfunding, in which supporters receive fluctuating degrees of reward, depends on the number of supporters. Rewards can also be in the form of gifts.

Funding in this structure is generally a tiered system: the more cash an investor puts into the fund, the larger the available reward (e.g. credits on a record sleeve, tickets to an occasion, gifts, etc.).

5) Digital Security

Another real estate crowdfunding method is through digital security. In this crowdfundthing method, an initial monetary offering is used to collect cash for a task during which computerized or digital security is issued as an award. Tokens of value are generated and are utilized to motivate network clients to commit restricted registering assets toward supporting the convention organization.

These tokens could exist at the hour of the group deal, or they could require maturity over time before they can be exchanged for something of value.

Real Estate Crowdfunding Platforms

1. DiversyFund

This site gives users the option of investing in private market assets with an initial amount of as little as $500. It is one of the most accessible start of real estate crowdfunding platforms as it opens the investment door to all users, not just wealthy people.

2. Fundrise’s

This site also allows real estate investing with just $500 to start.

3. Streetwise

The minimum amount to begin investing using this platform is $1,000. This crowdfunding site vets all properties and tenants to protect investments.

4. Crowdstreet

This platform is your best option if you want to manage your investments by yourself. You can search for properties and select where you want to invest.

5. Buildout

This platform promotes listings in several locations with one entry. It allows you to create eye-catching, custom-branded documents in no time.

6. Equity Multiple

Equity Multiple centers on the business as a whole and offers equity, preferred value, and senior debt investment and ventures. The platform charges a fee to set up investments. Plan packages differ depending on the services offered.

7. PeerStreet

PeerStreet is a web-based commercial investment center where licensed financial investors can put resources into confidential property loans and credits. Your investment gives lenders the cashflow to loan to land borrowers. At that time, PeerStreet gathers regularly-scheduled installments payable to borrowers and payable to investors in regular installments.

8. RealtyMogul

This platform searches for the most popular rented properties in an area. It allows you to work solely with experienced land investors who have knowledge of and experience managing resources. RealtyMogul doesn’t invest in non-cash-flowing ventures like raw and crude land or ground-up construction. Investors can also choose whether they want to automate revenue, develop it, or grow and diversify it.

FAQs – Real Estate Crowdfunding

Can you Pull your Money Back from Crowdfunding?

Every crowdfunding platform has its own rules, so some may allow you to refund or retrieve funds while others may not. If the crowdfunding goal is fulfilled without the use of funds, the page owner can refund donors’ money at their discretion.

Can you Crowdfund to Buy a House?

Yes, you can crowdfund to earn the down payment of your home.

How much do Crowdfunding Platforms Charge?

The average fee platforms charge is around 5% of the total money raised from the campaign. There is also usually a 3% fee on every transaction. You may also need to pay an extra fee if you don’t meet the funding target.

How much Money can I Raise by Crowdfunding?

The maximum amount of money you can raise through crowdfunding is $5 million.

What are the Risks of Real Estate Crowdfunding?

Real estate crowdfunding, like any other investment, carries the risk of loss. This is why it’s critical to research the crowdfunding sponsor and the agreement. Another risk involved in real estate crowdfunding is illiquidity. You cannot simply exit or sell your stake in a crowdfunding venture as you can in public markets. When you commit to a crowdfunded real estate venture, you’re committed for the full period.

Conclusion

Crowdfunding real estate is a great idea for investors who want to build passive sources of income since they don’t have to worry about managing those properties. Also, it is ideal for investors who don’t have enough capital to buy property but are still interested in investing in real estate. Plus, this option allows investors who would rather not be landlords the opportunity to invest in real estate.