One buzz word that’s fast making waves among real estate investors is “crowdfunding”. But there are many investors who’re hesitant to embrace the concept, wondering if it’s a trend that’s set to remain or just a passing fad.
Crowdfunding may still be in its infancy, but the concept has already begun to change the way some real estate investors search for and invest in property. To help those who’re still sat on the fence better understand how it works, the following guide explains the finer points and comprehensive benefits of real estate crowdfunding.
What is crowdfunding?
In a nutshell, crowdfunding as it relates to real estate investing involves pooling funds from multiple investors to back a specific real estate investment.
Benefits of real estate crowdfunding
Real estate crowdfunding has several benefits that put it streets ahead of more traditional real estate investments like REITs.
1. Greater transparency
Crowdfunding wins hands down when it comes to the overall transparency of the process. For example, with REITs, investors are often only provided with limited information about the actual details of the investments made, properties and so on. With crowdfunding, investors have access to all of the details regarding a property and the underlying access shared with it.
Additionally, with crowdfunding, investors know exactly where their investment dollars are going. This isn’t the case with a REIT, where your money is invested in multiple properties of which you know nothing about. Also, most reputable crowdfunding platforms will carefully vet each opportunity, while the project managers themselves give investors access to all the finer details before they commit to making any decision.
2. More flexibility
Real estate crowdfunding offers hundreds of different options for investors because they’re not restricted to certain companies or projects. Investors can spread their funds across multiple projects, which is a great way to reduce the risks they bear. So, if one project fails to meet their expectations, they will hopefully still have several other investments that do succeed.
3. Better diversity
Those who wish to diversify their investment portfolio can do so easily with crowdfunding. Investors will be able to gain exposure to a much wider range of properties to invest in, and be afforded more opportunities to enter into a new asset class.
4. Smoother deals
Because the crowdfunding platform takes care of much of the process, things go much more smoothly for investors. Crowdfunding platforms do the legwork for you where it comes to scouting out the hottest investment properties, which means there’s less chance you’ll miss out on the most promising opportunities. Most platforms also have operators who bring deals to them, and the company underwrites these to build up trust with their investors.
In summary, real estate crowdfunding is a great opportunity for individuals to enter the real estate investment market safely, for less money, while taking advantage of many promising deals that would otherwise pass them by.