Despite the success of real estate investing, the real estate industry is not known for innovation. Developing technologies have done very less to revolutionize the art of investing, that is now changing with the advent of crowdfunding. Let us understand what is crowdfunding in real estate with the help of this blog.
What is Crowdfunding?
Crowdfunding is a method of raising money with collective efforts of a pool of individual investors. This approach brings in collective efforts of a large pool of individuals to invest – mainly via social media and various crowdfunding platforms and leverages their networks for exposure and growth. Crowdfunding helps in capitalizing on new means of raising money to launch projects and investment vehicles.
Crowdfunding in Real estate. How does it work?
Real estate crowdfunding refers to pooling a sum of funds from a group to investors to make investments. Instead of conducting due diligence on various real estate transactions to find the best one, investors can browse a list of pre-curated investments through crowdfunding platforms.
Real estate crowdfunding platforms help investors to access various investment opportunities via digital services, either at the home, office or a vacation, you can obtain investments without even connecting to a broker-dealer. Here the investors have the flexibility to test the investment offerings at low entry barriers before committing a huge amount of capital to any platform. There is also comprehensive information available on various crowdfunding platforms that helps investors analyze and compare different offerings and choose what is best suited to their investment goals.
Process of real estate crowdfunding:
- Financial planning:
When it comes to any investment, financial planning plays a vital role. Investors planning to go into real estate crowdfunding must look at their incomes, expenses, and savings to determine their investment capability.
- Finding a platform:
Real estate crowdfunding is a process done on online platforms. They generally offer two types of services that is Equity and debt. In equity, investors participate as joint ventures and hold the shares of the properties with the amount appropriate to the funds that they have contributed. On the completion of the projects, investors are paid a portion of profits received from the sale of the property.
In debt-based crowdfunding, the investors are fund lenders and contribute to the construction of housing projects. Investors receive their returns from the sale of units in the form of interest or property.
- The process:
After deciding on the type of investment which is in line with their principles preferred for real estate crowdfunding. The platforms provide a variation in property construction projects along with the target fund required for the project to commence. Every project provides the information of the developers, the duration of the project completion, its return on investments and sales prospects. After looking at the prospective project the investors can their invest their fund on the selected project
- The construction period:
Once the target amount is successful the housing project is started and the investors can monitor the progress on the crowdfunding platform.
Once the payment for the units is received and the sale unit is made to the end buyers the developers then start processing the payout to the crowdfunding investors. The profits vary based on the types of investment, agreed ratios and performance of the project.
Types of real estate crowdfunding:
There are two types of real estate crowdfunding:
An equity real estate crowdfunding investment refers to buying a stock. Here the investor owns a piece of the property and the developer trades a percentage of their property for money. This type of investment provides great returns when the property appreciates in value. However one of the drawbacks of equity holding is that the investor may lose all its money if the investment goes bad.
A debt real estate crowdfunding investment refers to raising money by making loans to developers and charging interest. The benefit of this type of real estate crowdfunding is that the investors have great chances of getting their investment back at least a part of their money. However, the drawback is such that the returns are not as great as equity.
Benefits of real estate crowdfunding:
- Easy access to real estate investments
- It gives an opportunity to small investors with new investment options
- The real estate is a less volatile investment than stocks
- It provides cashflow
- Taxation benefits
- Real estate crowdfunding provides high returns
- Adding real estate investments can diversify your investment portfolio
- No landlord hassles
- The real estate crowdfunding has fairly minimum investments
Drawbacks of real estate crowdfunding:
- Tax implications
- Interested platforms
Why choose Realtyslice as your real estate crowdfunding?
- Maintains due diligence:
Real estate crowdfunding is the digital version of pooling funds together to purchase estates. With consumers now able to invest millions of dollars with just a click, it is important to know that the site you are investing with is well-financed and follows all the security and exchange commissions rules and regulations. These regulations disclose how the funds are handled and to see that the site you are dealing with is compliant. Realtyslice understands the rules and regulations very well and protects the interest of the consumers.
- Maintains transparency
Every real estate sponsor has their own specific agreement that mentions your investment opportunities. It is important to understand the agreement thoroughly. Realtyslice provides complete transparency and strives to educate investors on their investment plans.
Having a real estate in your investment portfolio is a great way to diversify. Access to different types and locations of real estate further diversifies your portfolio. Realtyslice dashboard allows the most diverse investors to keep a track of all their properties with just one interface.
Real estate crowdfunding is best suited if you are looking to diversify your portfolio. It enables investors to earn passive cash flow without taking into the hassle of property ownership. It eases your investment opportunities and helps you in providing greater returns.