Until a few years ago, investing in commercial real estate to diversify risk portfolio seemed to be a viable option for the wealthy and affluent ones. With the advent of technology, however, real estate investment has turned into a whole new ballgame. Now anyone with a few dollars in savings and a large appetite for risk can easily find an entry point for investing in real estate.
With the commercial real estate business recovering from the slump of 2008, it might be a smart investment for many individuals within the mid-income range. Real estate investment companies are now relying on crowdfunding to aggregate capital from a number of smaller investors. The surplus is then invested in commercial properties with high yields which can be accessed by all individual investors.
More and more realtors are now switching to crowdfunding to raise finance. This not only ensures steady commission for the agents, but also gives working-class Americans a chance to maximize their ROI without bearing any significant risks.
Investing in real estate begins with the accreditation process. Accreditation provides more options to the investors, in terms of properties. Previously, the Securities and Exchange Commission (SEC) provided accreditation only to investors with assets exceeding $1 million in value (excluding the primary residence) or with an annual income of at least $200,000 for a period of two years that is projected to be the same or higher for the current year.
A recent change in the SEC regulations has opened up several new opportunities for investors. By means of crowdfunding, any investor can be accredited with the SEC. This allows individuals, with even $100, to invest in real estate.
Most of the real estate projects tend to be long-term, in nature. Return on investment beings only when the project is fully completed and the lender successfully recoups all the payments due. Maturity rates tend t vary, and therefore investors need to determine the length of the project before making an investment decisions. Since there no liquidity involved, most of the investor money is locked up in the property till the date of maturity- which can be extended by the lender, depending upon the length of the project.
Another important aspect is that of risk sharing. The process of risk sharing with lender does not, in any way, minimize the investor’s risk. Should the business default in paying back the loan to the lender, the loss is eventually passed on to the investor.
Like all other high-risk investments, the rewards of investing in CRE can be great. Some of the projects guarantee and deliver returns within a year. Early returns, however, involves an investment management fee for the realtors and property managers.
Crowdfunding allows investors to exercise complete control over their portfolios. Investors can browse through several opportunities- based on their location. These include evaluating the project type, return profiles and risks involved. Investors can also manage their own legal documentation, ownership recordings and fund transfers through an online portal offered by most of the realtors nowadays.