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Crowdfunding for Real Estate: Revolutionizing Property Investment in the 21st Century

By Ben Shepardson | January 10, 2020

Real estate remains one of the most popular and strategic ways for investors to diversify their portfolios. A PWC Global Industry Report forecasts the expansion of the global investable real estate universe. Such growth will come in the backdrop of technology innovation, sustainability, and creative ownership models. 

Traditionally, investors had to buy 100% of any property they wished to own. However, things have changed with new laws such as the SEC’s recent Title III ruling and the JOBS Act making it easier to gain entry into the market. This is where crowdfunding for real estate comes into play.

Overview of Crowdfunding for Real Estate

If you want to invest in any property, you don’t have to come up with all the cash or even borrow. Crowdfunding is a new concept where investors pool resources to invest in a real estate project. This is an innovative non-traditional means of raising capital for real estate projects and it is one of the dominant features in the industry today.

Investors come together and contribute small amounts through online platforms, making it possible for anyone to own property anywhere in the world. Small investors can now buy into property across the major real estate markets in the world as part of crowdfunded projects.

With crowdsourcing for real estate, investors can now take part in real estate despite their low-income levels. It is also an opportunity for investors to earn above-average returns on their investments by diversifying.

The most common models of crowdfunding for real estate include:

  1. Equity investments: where investors contribute towards commercial or residential properties and hold an equity stake in the project. Investors share rental income.
  2. Preferred equity investment: As a preferred equity investor, you will receive both regular income and capital appreciation from the property income. As a preferred equity holder, you receive payments ahead of regular equity holder and this investment offers higher returns than equity or debt investment.
  3. Debt investment: Investors contribute towards a mortgage loan associated with particular real estate property. As the mortgage repayment starts, you will receive a share of the interest.

If you wish to invest in a crowdfunded real estate project, remember the following:

  1. Choose the crowdfunding platform carefully by considering the track record, experience, number of deals, management credentials, return performance, and company funding.
  2. Compare top crowdfunding for real estate platforms such as Fundrise, RealtyMogul, RealtyShares, RealCrowd, CrowdStreet,
  3. Vet every investment keenly and speak to your financial advisor
  4. Look for a minimum requirement to choose a platform that suits your capability

Benefits of Crowdsourcing for Investors

If you have always harbored the ambition to invest in real estate, crowdfunding is your best chance. Many investors don’t have enough capital to fund a property project on their own hence the popularity of this unique investment option.

Other benefits of crowdfunding for real estate include:

  • Growing your investor network across the world
  • Increased transparency compared to REITs (real estate investment trust (REIT)
  • Increased accessibility to real estate investment opportunities
  • Diversification of your investment and exposure to a new asset class
  • Tax breaks that apply to property investment such as depreciation

Final Thoughts

Crowdfunding is the future of real estate investment for small investors. It is an opportunity to enjoy a piece of the pie, even in the largest property projects anywhere in the world. With these tips, you can now take part in this revolutionary model of property ownership and cash in when the market improves.

Ben Shepardson is a Realty Biz News Contributing Writer and has a long track record of success in online marketing and web development. While pursuing a bachelor’s degree in Computer Information Systems, he worked doing enterprise-level SEO and started an online business offering web development services to small business customers.
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