All You Need To Know About Crowdfunding for Real Estate
Crowdfunding is the modern method of investment. To be precise, crowdfunding takes advantage of the access you have to your friends, relatives, and neighbors through social media. You get the word out and about a new business you’re starting and suddenly you have a pool of investors available to you. Sounds convenient, doesn’t it? It is.
When applied to real estate in Burbank, it has phenomenal impact. Crowdfunding real estate allows investors to pour in their money into a variety of properties. Best of all, they don’t have to go through all the real estate agents or the mortgage brokers to invest in the property they want.
Crowdfunding Real Estate Platforms
There are many places where you can start investing in with the crowd. Here are a few notable ones. These platforms are a good way to start, even if they may not always be the best choice.
Fundrise
It is known as one of the first companies to bring crowdfunding into real estate. You can start with a minimum of $100 investment. You do not get to choose specific deals. Instead, you have to choose between an equity or debt focused commercial eREIT (a public real estate investment trust).
Patch of Land
This company allows accredited investors to finance hard money loans. Investors get to pick which properties they want to invest in. The returns are on a monthly basis and depend upon annual return rate. You can start off with a minimum of $5000 investment.
Realty Mogul
Investment can start with a minimum of $2500. They provide you with the opportunity to invest in different types of projects such as industrial and commercial properties.
Issues to Consider
As good as they may sound, enter crowdfunding real estate with caution. For instance, when you invest, you might not necessarily be investing in the best option available to you. This is because most of the people who start investing in real estate through crowdfunding are not experienced. Rather, you would be investing in whoever convinced you that their offer was the best one. This can often lead to cases of fraud and first-timers losing their money.
Also, you don’t always know what the person, who is raising the capital for his real estate, is like. They may not be that well versed in risk management or even property management, which could be bad news for you.
To really get a clear picture of crowdfunding real estate, I believe it is best if we run a cost benefit analysis.
The Positives
- You get to choose the properties you want to invest in and include in your portfolio.
- When you decide to become part of crowdfunding real estate, you don’t have to worry about the value of the investment fluctuating. This is because the investment in these campaigns are not traded publicly. Hence, they are not given a mark to market valuation constantly.
- In simple words, you get to own part of a home and you don’t have to worry about managing it.
- The starting investment does not have to be large. Like with Fundrise, you can start with a minimum of only $100.
- The above fact lets you, the investor, diversify your portfolio by investing in multiple properties. Ultimately, your exposure to risk is minimized.
The Negatives
- It is definitely not a good idea for people who want to be actively involved in the management of the property. This is because the investor has very little control and is dependent upon the person who does get to manage it.
- Crowdfunding real estate can be problematic because of the fact that the investments are not traded and are illiquid. Long story short, if you face an emergency, you can’t cash out your investment.
- This investment area is not as regulated so the investors may not be updated properly and regularly.
- The yields are not that high because the investments are small.
Best of Both Worlds
As a property investor, this could be the perfect opportunity to expand your horizon and try something different. If you weren’t before, you can now officially become a landlord after you invest in a crowdfunded real estate property.
If you were already one, you can reap the benefits of the crowdfunding investment opportunity and become a landlord of more properties. This way you decrease the risk and will be able to earn more money.
At the same time, you can also take advantage of the available investors. You can acquire massive investments for your real estate projects through crowdfunding and it is a lot less of a hassle and cost.
