Investing in properties is one of the oldest ways to amass capital, but more conventional strategies such as purchasing apartments for rent or house flipping usually demand a good deal of money, and time. However, in recent years, crowdfunding has become a new form of investment in property where people interested in property investment can invest without going through several hurdles that are associated with other forms of investment.

This method enables people to contribute their money together with that of other people with the intention of funding massive real estate projects (source: https://www.biggerpockets.com/forums/311/topics/941624-why-push-the-brrrr-so-hard?page=3). It creates a good chance for those investors who are willing to be involved in the market without the headaches of property management and high entry fees.

How the Crowdfunding of Real Estate Works

Real estate crowdfunding is a relatively new method where investors can fund either developers or property managers who need capital for several types of projects. These projects involve anything within residential properties to commercial properties and even as specific as self-storage units. The investors can look through the available offers and select one of the projects with an acceptable level of risk and invest a required amount.

Commonly, crowdfunding activity involves the minimum investment of $ 500, which is considerably lower than the traditional methods of investing in real estate. After people invest, they are likely to get returns either from the rents they receive from the property or through the sale of the property while dividends are paid periodically.

Advantages of Real Estate Crowdfunding

Real estate crowdfunding has another major benefit as it is quite easily accessible. It enables investors to expand their investment portfolios by investing in several properties through a small amount of money. This is advantageous to a number of investors especially those who desire to get acquainted with investment but without having to own or deal with real estates. The third advantage is that the investment is totally passive in nature.

While owning rental properties implies that investors have to deal with maintenance, tenants and legal issues, crowdfunding means that the investors can sit back and watch their profits grow without any effort. Crowdfunding also means access to commercial real estate, as seen here, which in most cases, can be financed only by significantly greater amounts, so it is more elitist.

Several risks are involved in the crowdfunding business as are discussed below.

Like with any other investment, crowdfunding also has its risks. This is because investors are investing in a particular project and therefore the performance of the investment is hinged on the property being invested in.

This means that if the development does not generate enough revenues or if there is a change in market demands investors may not realize their earnings expectations. Also, the investment is relatively less liquid as compared to stocks and bonds, thus, it may take several years before the investors get back their money plus it is not easy to sell the investment in the middle of the investment period.

Another thing that has to be taken into consideration are the fees of the given platform, which potentially cut into the profits. More to that, one should investigate the company behind the platform and the project itself before investing in order to best prepare yourself for the new avenue of content or possibly income.

Choosing the Right Platform

It is very important to note that not all crowdfunding platforms are the same. There are those that target the qualified purchasers with higher revenues and those that target the average citizen. It is significant to look at the performance of the platform, the reputation of the platform and the kind of projects provided.

The best platforms to invest in should have a good record of previous Drives and be quite open with their investors. According to The Investor’s Edge, it is also crucial to know the platform’s fees and how those fees translate to the potential earnings. Also, the types of investment that are offered, whether they are residential or commercial should also be reviewed in order to ensure that they are suitable for the intended investment.

Real estate crowdfunding could be a valuable addition to the investment portfolio of a person who doesn’t want to deal with property management and ownership. But it does not mean that it can be applied universally. In particular, it may be interesting for those investors who are willing to invest for a long period, and who do not shun the risks associated with investing. It may not therefore suit those who wish to engage in trading for liquidity or those who are in it for the quick buck. It is important to assess your objectives, tolerance to risk and the necessary time horizon before entering the investment of this kind.

As crowdfunding evolves, one can expect that there will be more platforms available in the market and more diverse offers for potential investors. The model has the potential of changing the way people invest in property since it democratizes the real estate market.

Hence, Real estate crowdfunding is an emerging area of interest for investors. It also provides an opportunity to invest in the real estate market without the need to purchase the property directly or buy shares and make extra profits while being passively involved in the process. However, it contains its share of risks that, if well researched and the right platform chosen, can turn into a good business for most people.